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(CNBC)   Economics 101: The U.S. economy runs on cheap and available credit. News: There is currently no cheap and available credit. Fark: The Fed has no idea what to do, but they'll keep slashing interest rates until they reach zero percent   (cnbc.com) divider line 55
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1305 clicks; posted to Business » on 05 Feb 2008 at 3:30 AM (6 years ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2008-02-05 12:26:01 AM
Financial Services Regulatory Relief Act of 2006 (PL 109-351): Title II: Monetary Policy Provisions - (Sec. 201) Amends the Federal Reserve Act to: (1) authorize payment of interest on funds maintained by a depository institution at a Federal Reserve bank; and (2) authorize the Federal Reserve Board to reduce to 0% the reserves required to be maintained by a depository institution against its transaction accounts. (The current requirement ranges from 3% to 14%.). This section takes effect October 1, 2011"

Yeah. You read that right. No reserves have to be held. None. None at all. Just hand out money and collect interest. What crunch? Move that up a few years sooner if needed. Weimar Germany... here we come.
 
2008-02-05 12:42:42 AM
Lawnchair: Yeah. You read that right. No reserves have to be held. None. None at all. Just hand out money and collect interest. What crunch? Move that up a few years sooner if needed. Weimar Germany... here we come.

This is what you call responsible monetary policy.
 
2008-02-05 12:56:16 AM
Lawnchair: authorize the Federal Reserve Board to reduce to 0% the reserves required to be maintained by a depository institution against its transaction accounts.

I was wondering when they'd get around to that. Because, that way, we'll have absolutely zero cash reserves and put it all on the credit card.

George Bailey approves of us selling our soul/future to Mr. Potter for .50 on the dollar.
 
2008-02-05 12:57:42 AM
trendsman.com

And I'll just take this opportunity that there's only one Presidential candidate talking about this.
 
2008-02-05 01:10:39 AM
So, do I buy a house yet, or would that be an invitation for disaster for me?

/gainfully employed, financially stable, economically retarded
 
2008-02-05 01:13:57 AM
Churchill2004: And I'll just take this opportunity that there's only one Presidential candidate talking about this.

Yeah, but the Gold Standard is insane.
 
2008-02-05 01:18:42 AM
By the way, smitty, I should point out that Econ 101 also teaches us that the fed funds rate is NOT the same thing as the required reserves ratio (RRR). They are somewhat correlated, but they refer to two entirely different things.

The federal funds rate is the best interest rate at which banks can borrow money from the Fed. The required reserves ratio (usually in the neighborhood of 10%) is the percentage of a bank's deposits that are required to be deposited with the federal reserve. This is one tool the Fed uses to control inflation - by tweaking the amount of money actually out on the streets.

The lower the RRR, the more money (theoretically) is out on the streets, or at least can be lent out by banks to encourage investment. Low RRR is good; nonexistent RRR could be awesome. Amid these market conditions, with tight credit and rampant lending fraud, having no RRR is friggin' stupid, as it leaves us no leeway to maneuver. If nothing disastrous were to happen, it would at the very least be S&L and Enron, all rolled into one.
 
2008-02-05 01:19:48 AM
I just found out my short sale I thought I was going to have to pay a shiat ton of taxes on was forgiven thanks to The Mortgage Forgiveness Debt Relief Act of 2007. Instead of owing $6,000 in federal taxes I'm actually getting $1700 of the $9000 I paid into it back.

I'm so happy I could cry. That $1700 will wipe out the last of our debt and we'll owe nothing but the student loans I'm wracking up as we speak. I don't think I've ever felt this good in my life.
 
2008-02-05 01:26:47 AM
CarolynLibrarian: So, do I buy a house yet, or would that be an invitation for disaster for me?

If your credit's good, now would be a good time to buy if the bubble has "burst" in your area and home prices are coming back down to normal. If you have mediocre to poor credit, you'll still have a sky-high rate.

The main things you want to look out for:

1. Fixed rate mortgage. Fixed. Rate. Mortgage.
2. Your banker and realtor should tell you how much house you can buy, not how much you can afford every month. If you don't know this figure, you're not ready for a home.
3. You don't want to buy a house in an inflated market (every area's different), where the bubble hasn't quite burst yet. Say you buy a house for $300,000, but it's only worth $175,000 two years later. You just got hosed. Buy in a market that has corrected itself (for the most part, anyway - prices will never be what they were 10 years ago).
4. Ask a realtor friend, after they know you won't be using them. They'll be much more honest about the local market, and you can tell them you don't like to do business with friends, as it always ruins either the transaction or the friendship.
 
2008-02-05 01:36:51 AM
NeauxFear: By the way, smitty, I should point out that Econ 101 also teaches us that the fed funds rate is NOT the same thing as the required reserves ratio (RRR).

Where does it say in the headline anything about RRR?
 
2008-02-05 01:45:16 AM
Gwendolyn: I'm so happy I could cry. That $1700 will wipe out the last of our debt and we'll owe nothing but the student loans I'm wracking up as we speak. I don't think I've ever felt this good in my life.

Awesome. Congrats. :)
 
2008-02-05 01:46:36 AM
Was looking at the Weeners, then looked back at the headline. Not sure why I directed that at subby, though.
 
2008-02-05 01:47:40 AM
filtpwned.

You know what i meant, NBG.
 
2008-02-05 02:16:49 AM
NeauxFear: You know what i meant, NBG.

I do, I just wasn't even coming close to that. Just pointing out that monetary policy is totally ineffective in this matter.
 
2008-02-05 02:23:08 AM
CarolynLibrarian:

1. Fixed rate

2. No PMI. Tell em you ain't paying it, and to take it off of there

3. Pick up a foreclosure!

.
 
2008-02-05 03:32:38 AM
CarolynLibrarian

The bubble just burst, expect housing declines or stagnation for at least 5-7 years before it will start to go back up again. If you do not expect to move in that time period you MIGHT end up at a wash, but unless you know for sure no life changes will occur during that time its better to wait.

/renting is much cheaper in any metro area right now
//once buying is same/cheaper its time to buy
 
2008-02-05 03:52:50 AM
Gwendolyn:
I'm so happy I could cry. That $1700 will wipe out the last of our debt and we'll owe nothing but the student loans I'm wracking up as we speak. I don't think I've ever felt this good in my life.


Wow, awesome... congratulations
 
2008-02-05 03:54:46 AM
Americans borrow more, the government borrows more, and as more money artificially enters the national economy, it becomes worth less and less. That's the definition of inflation, kiddos, and it's a terrific way to completely destroy a country.

There are simple solutions.

1. The 2008 budget features a whopping 1.5 trillion dollars in military spending. This, obviously, must end.

2. End the cultural promotion of living in homes beyond your need or means.

3. Shift national public spending from military and incarceration to law enforcement and education. Develop public academies for the creation of competitive engineers in the developing tech markets.

4. Make America friendly again. Many countries' economies are staked to tourism. We have more to offer than any nation on the planet, yet we antagonize those who wish to come here and spend money.

5. Increase interest rates and encourage saving. An unemployed person in an economy with a stable dollar is far more valuable than an employed person in a runaway economy (read: rapid inflation). Unemployed people can develop new skills through education and training programs.

The dollar's decline will not stop until significant changes are made in the way America does business. Unfortunately, the individuals with power have so much money that inflation does not affect them -- indeed, economic growth serves to further the gap.

We are living in a nation that sits at the poker table, never entering a pot, simply bleeding off chips to other nations as the blinds pass by every orbit -- and buying back in once we're felted. The time has come to start playing a few hands.
 
2008-02-05 04:34:06 AM
kmmontandon

I'm not a Paul supporter, but this slander against him is just stupid. He doesn't support the gold standard, he supports the idea of allowing competing currencies--that is, make it legal and sales-tax-free to use gold or other precious metals as currency, so people can choose to use them as a hedge against inflation if they want. Additionally, his idea in this is to create a disincentive for the Fed to increase inflation too much, as this would lead to the dollar being used less.
 
2008-02-05 05:14:14 AM
i just wish they'd stop screwing around with my savings rate. HSBC has lowered their rate to 3.55%apy in (down from 4.5%) in the last month.
 
2008-02-05 05:18:57 AM
Spontaneous Defenstration: He doesn't support the gold standard, he supports the idea of allowing competing currencies--that is, make it legal and sales-tax-free to use gold or other precious metals as currency, so people can choose to use them as a hedge against inflation if they want. Additionally, his idea in this is to create a disincentive for the Fed to increase inflation too much, as this would lead to the dollar being used less.

Like he said, crazy. Nobody is talking about the Fed so it must be doing something right.
 
2008-02-05 05:51:50 AM
Spontaneous Defenstration

I'm not a Paul supporter, but this slander against him is just stupid. He doesn't support the gold standard, he supports the idea of allowing competing currencies--that is, make it legal and sales-tax-free to use gold or other precious metals as currency, so people can choose to use them as a hedge against inflation if they want. Additionally, his idea in this is to create a disincentive for the Fed to increase inflation too much, as this would lead to the dollar being used less.

When you catch up to economic facts that were known about 500 years ago, you will realise he is proposing a return to a gold standard/precious metals as currency and then pretending he isn't using exactly the misinformed rubbish you repeat.
 
2008-02-05 06:04:57 AM
DistendedPendulusFrenulum: 1. Fixed rate

2. No PMI. Tell em you ain't paying it, and to take it off of there

3. Pick up a foreclosure!


Good advice.

cruci fiction: The bubble just burst, expect housing declines or stagnation for at least 5-7 years before it will start to go back up again. If you do not expect to move in that time period you MIGHT end up at a wash, but unless you know for sure no life changes will occur during that time its better to wait.

/renting is much cheaper in any metro area right now
//once buying is same/cheaper its time to buy


Not necessarily so good. Here's why not:

Every market is different. Some markets haven't burst yet, others are well through the cycle. That's why she should check with a disinterested local realtor, such as a friend who will definitely not be getting the commission. Concrete example: I live in southeast Louisiana, and my parents live around Memphis. We have the Katrina factor at play (3/4 of rental property was destroyed in Katrina, and maybe 10% has been rebuilt) here, which has made renting a much worse deal than owning. My older apartment only went up $50 a month, but a newer 2B/1.5BA apartment in my small town has easily doubled from ~500 to ~1000/mo. Then there's the oil bubble, which has brought on increased hiring and retention in this area, making real estate of any flavor (rental or purchase) even more scarce. Barely any foreclosures, because houses move very quickly at fairly inflated prices under these conditions - a new 3B/2BA goes for around $400,000 here. When I drove up for Xmas to see the folks, there was a foreclosure sign in every fourth yard, if I had to guess, and the nicest suburbs have newly built 3B/2BA houses for $200k.

Then there's the equity debacle. If you buy a house at what you think is a cheap, lower price, then the bottom falls out of the market, you're farked. Especially as a first-time buyer.

Moral of the story? It just depends on the real estate market in your area. Check with the locals.
 
2008-02-05 06:32:34 AM
If interest rates hit 0%, it'll mean the end of the US dollar as the default global currency. Money will flood out of the US and people will buy up currencies like the NZ dollar where interest rates are nearing 9%.

Dropping in value, there'll be little interest in OPEC to continue trading in US dollars and they'll start trading in Euros instead. Countries such as China will dump their US currency and buy up Euros. It won't be the end of the world as global demand for cheaper US goods will increase and there'll be a recovery, but there will be a very rocky path ahead.
 
2008-02-05 07:15:00 AM
thisispete

If interest rates hit 0%, it'll mean the end of the US dollar as the default global currency. Money will flood out of the US and people will buy up currencies like the NZ dollar where interest rates are nearing 9%.

Dropping in value, there'll be little interest in OPEC to continue trading in US dollars and they'll start trading in Euros instead. Countries such as China will dump their US currency and buy up Euros. It won't be the end of the world as global demand for cheaper US goods will increase and there'll be a recovery, but there will be a very rocky path ahead.


Something like 50% of US hard currency is held abroad, and while it is useful in some senses (essentially an interest free loan to the US worth tens of billions a year), it also holds some risk as if that money floods back rapidly it makes it very hard for the government to control the value of the dollar. Adding to that $450b or so of hard currency, you of course add something like $3t in federal government debt held abroad that might be at risk given loss in long term confidence in the dollars strength, and you are talking about a significant risk. Hence why the current administrations little more than lip service to the concept of the strong dollar is such a bad idea.
 
2008-02-05 07:28:52 AM
Gwendolyn: I just found out my short sale I thought I was going to have to pay a shiat ton of taxes on was forgiven thanks to The Mortgage Forgiveness Debt Relief Act of 2007. Instead of owing $6,000 in federal taxes I'm actually getting $1700 of the $9000 I paid into it back.

I'm so happy I could cry. That $1700 will wipe out the last of our debt and we'll owe nothing but the student loans I'm wracking up as we speak. I don't think I've ever felt this good in my life.


Don't you think that $1700 would go towards a HDTV much better? Sounds to me like you're skipping an opportunity to go on a nice vacation too. Sheesh, people like you are the reason the economy is swirling the bowl.

/seriously, congrats, that has to feel unbelievable.
 
2008-02-05 07:32:34 AM
quadium.net
 
2008-02-05 08:35:28 AM
bubbaprog: Americans borrow more, the government borrows more, and as more money artificially enters the national economy, it becomes worth less and less. That's the definition of inflation, kiddos, and it's a terrific way to completely destroy a country.

There are simple solutions.

1. The 2008 budget features a whopping 1.5 trillion dollars in military spending. This, obviously, must end.

2. End the cultural promotion of living in homes beyond your need or means.

3. Shift national public spending from military and incarceration to law enforcement and education. Develop public academies for the creation of competitive engineers in the developing tech markets.

4. Make America friendly again. Many countries' economies are staked to tourism. We have more to offer than any nation on the planet, yet we antagonize those who wish to come here and spend money.

5. Increase interest rates and encourage saving. An unemployed person in an economy with a stable dollar is far more valuable than an employed person in a runaway economy (read: rapid inflation). Unemployed people can develop new skills through education and training programs.

The dollar's decline will not stop until significant changes are made in the way America does business. Unfortunately, the individuals with power have so much money that inflation does not affect them -- indeed, economic growth serves to further the gap.

We are living in a nation that sits at the poker table, never entering a pot, simply bleeding off chips to other nations as the blinds pass by every orbit -- and buying back in once we're felted. The time has come to start playing a few hands.



Your ideas intrigue me and I'd like to subscribe to your newsletter.


cmunic8r99: i just wish they'd stop screwing around with my savings rate. HSBC has lowered their rate to 3.55%apy in (down from 4.5%) in the last month.

Yeah, tell me about it. It was 5.05% when I first signed up. :(
 
2008-02-05 08:46:19 AM
bubbaprog: Americans borrow more, the government borrows more, and as more money artificially enters the national economy, it becomes worth less and less. That's the definition of inflation, kiddos, and it's a terrific way to completely destroy a country.

correct, except you left out a very crucial part.
 
2008-02-05 08:49:47 AM
mr lawson: correct, except you left out a very crucial part.

Rolling around in Crisco and saying ten Hail Marys before bed every night?

Just me?
 
2008-02-05 08:56:50 AM
NeauxFear: mr lawson: correct, except you left out a very crucial part.

Rolling around in Crisco and saying ten Hail Marys before bed every night?

Just me?


heh...just you man...just you.

what i was refering to was productivity growth. If money enters into the economy creates a higher productivity growth percent per GDP growth than the percent of influx of money, then inflation LOWERS, not increases. kindda important to include that last part.
 
2008-02-05 08:58:17 AM
Ive been reading a few books on the economic policies that caused the great depression, and its getting a little interesting.

Aside from the obvious regulatory measures and historical differences that could prevent another great depression, there are some fascinating comparions.

1. Pre-Crash economic slowdown in manufacturing/exports
2. Massive speculation in land (change land to Housing for today)
3. Increasing wealth inequality (the lower classes could no longer afford to buy the products that the capitalist classes were selling)
4. Overemphasis on cheap available credit
5. The unintended economic consequences of a foreign war

Strange stuff, but good to note nonetheless.

Anyone else know more about this than I do and can go more into the fiscal policy?
 
2008-02-05 09:04:41 AM
Wa, the big mean Fed!
 
2008-02-05 09:55:26 AM
Bernanke needs some econ classes stat before he screws around even more. the arms that are adjusting won't be effected by this; if you can't afford your house, you can't afford your house. 1% off on a 200k mort is only $100 less.

really the only ppl this effects, and negatively, are people with cds and savings accounts. a 1% drop on a cd is matters more.

what congress needs to do is set a rate ceiling on credit cards. our country's problem is with debt, credit cards are the form that is the worst. or lock in the interest rate on credit cards to prime, and set the highest margin there can be.
 
2008-02-05 10:25:13 AM
xria: Spontaneous Defenstration

I'm not a Paul supporter, but this slander against him is just stupid. He doesn't support the gold standard, he supports the idea of allowing competing currencies--that is, make it legal and sales-tax-free to use gold or other precious metals as currency, so people can choose to use them as a hedge against inflation if they want. Additionally, his idea in this is to create a disincentive for the Fed to increase inflation too much, as this would lead to the dollar being used less.

When you catch up to economic facts that were known about 500 years ago, you will realise he is proposing a return to a gold standard/precious metals as currency and then pretending he isn't using exactly the misinformed rubbish you repeat.


Yes, he does support a gold standard. His dual currency idea is his chosen method of proving that the gold standard is not a crazy idea and that by allowing a competing currency, people will realize this and select the more sound money. What is crazy is allowing bureaucrats and bankers to control the supply of money and credit.
 
2008-02-05 10:47:15 AM
soj4life: what congress needs to do is set a rate ceiling on credit cards. our country's problem is with debt, credit cards are the form that is the worst. or lock in the interest rate on credit cards to prime, and set the highest margin there can be.

Yeah I have a credit card with a very small limit and I used it to rent a car for 10 days in Florida. Well that went through but then the annual fee went through in the same month and I not only got an over the limit charge but they hiked up my rate to 29.99%. I was planning on paying it off when I got home anyway but I've never used the card again. 29.99% is damn near loan shark prices with the fed rate so low.
 
2008-02-05 10:54:12 AM
bubbaprog: Americans borrow more, the government borrows more, and as more money artificially enters the national economy, it becomes worth less and less. That's the definition of inflation, kiddos, and it's a terrific way to completely destroy a country.

There are simple solutions.

1. The 2008 budget features a whopping 1.5 trillion dollars in military spending. This, obviously, must end.

2. End the cultural promotion of living in homes beyond your need or means.

3. Shift national public spending from military and incarceration to law enforcement and education. Develop public academies for the creation of competitive engineers in the developing tech markets.


The only change I would make to this is to open up an opportunity for Americans willing to go into higher education to do it for less money. Forgiveness of student loans would also be a good thing since it would free a lot of people up as well. And if I sound biased, well....tough. It still needs to happen.

4. Make America friendly again. Many countries' economies are staked to tourism. We have more to offer than any nation on the planet, yet we antagonize those who wish to come here and spend money.

Oh, so much THIS in there it's amazing. One thing that should go the way of the dodo is American Xenophobia. It does nothing but harm America.

5. Increase interest rates and encourage saving. An unemployed person in an economy with a stable dollar is far more valuable than an employed person in a runaway economy (read: rapid inflation). Unemployed people can develop new skills through education and training programs.

The dollar's decline will not stop until significant changes are made in the way America does business. Unfortunately, the individuals with power have so much money that inflation does not affect them -- indeed, economic growth serves to further the gap.

We are living in a nation that sits at the poker table, never entering a pot, simply bleeding off chips to other nations as the blinds pass by every orbit -- and buying back in once we're felted. The time has come to start playing a few hands.


And I need to subscribe to your newsletter.
 
2008-02-05 11:54:41 AM
Gwendolyn: soj4life: what congress needs to do is set a rate ceiling on credit cards. our country's problem is with debt, credit cards are the form that is the worst. or lock in the interest rate on credit cards to prime, and set the highest margin there can be.

Yeah I have a credit card with a very small limit and I used it to rent a car for 10 days in Florida. Well that went through but then the annual fee went through in the same month and I not only got an over the limit charge but they hiked up my rate to 29.99%. I was planning on paying it off when I got home anyway but I've never used the card again. 29.99% is damn near loan shark prices with the fed rate so low.


well not so close to loan shark, but 30% is unethical high. it isn't a high risk for a customer with a $500 or $1000 limit that goes over the limit with your own fee.
 
2008-02-05 01:11:32 PM
Gwendolyn: soj4life: what congress needs to do is set a rate ceiling on credit cards. our country's problem is with debt, credit cards are the form that is the worst. or lock in the interest rate on credit cards to prime, and set the highest margin there can be.

Yeah I have a credit card with a very small limit and I used it to rent a car for 10 days in Florida. Well that went through but then the annual fee went through in the same month and I not only got an over the limit charge but they hiked up my rate to 29.99%. I was planning on paying it off when I got home anyway but I've never used the card again. 29.99% is damn near loan shark prices with the fed rate so low.


Call 'em up and tell the adviser what happened, the hike in rate and penalty would have been automatically done by a computer because you went over your limit. I've missed the odd payment (2 in 5 years) and the credit card company was sympathetic when I spoke to them.
 
2008-02-05 01:17:44 PM
bubbaprog
here are simple solutions.

1. The 2008 budget features a whopping 1.5 trillion dollars in military spending. This, obviously, must end.

2 ... blah, blah, blah, demand-side BS


BS. Bush's proposed budget spends $515 billion on defense. You're only off by a factor of 3. Half a trillion is certainly still a lot -- an increase of 74% since Bush took office, but that increase is still just a drop in the bucket compared to mandatory spending on Social Security, Medicare, etc. THAT is the hole where the $1.5 trillion is going. That is also where the future doom is, as mandatory spending is expected to pretty much squeeze out ALL discretionary spending in the next 15 years even without taking on any new entitlements (like, say, universal healthcare).

The whole "the recession is caused by Bush and his war and his tax cuts" is the biggest steaming pile of bull crap I've ever heard. Increased military spending is next to nothing compared to increased entitlement spending and increased interest on the national debt. And the tax cuts were minuscule and meaningless. It's spending that matters, whether the money comes in the front side through withholdings or the through the back side through increased debt it is ALL effectively tax.

The source economic problems we are experiencing is simple: we don't make much anymore, and we live on credit. Cheap credit caused by loose fiscal policy from the fed created a bubble which made it look like the demand for housing was through the roof. The problem is, that demand wasn't real. A lot of those houses were being bought by people who weren't buying them to live in them, but were buying them to flip them. A lot more were from people who may have wanted a house to live in, but were in no financial state to be in the market.

All of this deceptively inflated demand squeezed supply which made prices sky-rocket which fueled the initial problem. We had a bubble. And we responded by sinking a massive amount of wealth into housing -- building new houses like crazy, taking out massive loans, etc. And then when the Fed had to tighten rates, it turned out that the real demand was massively less than it had appeared.

So, now we have all these houses sitting empty, a lot because people bought them not to live in them, but to flip. Others because people couldn't actually afford houses, and others because construction companies were cranking them out at a massive rate with the expectation that the demand would continue to rise. We've tied a massive amount of real wealth -- material, time, labor, etc -- into something nobody wants, and which is worth a lot less than the wealth that went into it.

Wealth has been destroyed. The market drops are simply the economy realizing that there is less wealth in the system than it appeared. People think that the market falling, things tightening up, etc, is the problem. It's not. That's just a symptom. It is the natural response to the REAL problem, which is the fact that there is just a lot less real wealth in the system then there was before because we destroyed a massive chunk of it by investing it in the wrong things.

Same thing happened in 1929, by the way. Cheap credit made it look like there was an ever increasing demand for industrial equipment, so people built a whole lot of it. Turns out, people really didn't want that much of it, and all that wealth was destroyed. The market crash was the system changing to reflect the real situation that already existed. Trying to keep the market up when the real system has had this much wealth destroyed is foolish and ultimately a lot more destructive than just letting it fall. Trying to keep it from falling is what turned what should have been a temporary recession into a depression.

All because of poor economic theory. Everything both Hoover and FDR did to try and stave off economic slowdown ultimately led to the depression, and it was all based on Keynesian demand-side economic theory. Which is a great big pile of crap. The "stimulus" package Bush and Congress wants to give comes from the same place -- cause economic growth through letting poor people spend more money. Which doesn't work because that isn't where economic growth comes from, nor is spending levels by the poor the source of our problems.

When faced with this sort of situation, there are four possible responses: 1) let the market re-adjust through recession, rebalancing, and then real sustainable growth. Painful, but healthy. 2) Inflate the economy until the levels in dollars look the same as they were before, never minding that the dollars are now worth a lot less than before because there is less real wealth for them to represent. 3) Try demand-side stimulation by taking on even more debt -- or, God-forbid, through some massive public works projects -- all of which gives you all the worst features of option 2, but with a lot of extra problems all its own. A really good way to drag a recession into a depression, if that is your goal.

Or, 4) actually stimulate real economic growth through stimulating the production of real wealth to take the place of that which was destroyed. Giving people checks to spend doesn't help because they'll just spend it all on stuff made in China or Japan or Taiwan, and the money goes over there. If you want to stimulate the economy, stimulate production over here. You can do that through corporate tax cuts, but without matching spending cuts, tax cuts are meaningless. The best way I can think of to stimulate domestic production would be to enact a 10% across the board tariff of all imports, and THEN cut income taxes by similar amounts such that federal receipts are the same. More money in your pocket, but imported things cost equivalently more. Which is a wash there. Except that domestically produced stuff is cheaper.

Stimulate production here, which creates wealth, and the economy can really and truly grow. Not just inflate.
 
2008-02-05 02:33:06 PM
Cato: The best way I can think of to stimulate domestic production would be to enact a 10% across the board tariff of all imports, and THEN cut income taxes by similar amounts such that federal receipts are the same.

So you decide to write this long-winded diatribe about how government acts like idiots to save the economy, and then you decide that the best way to save the economy is to have the government interfere.

Brilliant!
 
2008-02-05 02:50:59 PM
*face palm*

I really do not know why I bother.
 
2008-02-05 03:20:27 PM
Cato: *face palm*

I really do not know why I bother.


With what? Writing essays that can't even support your position properly? Well, I guess that's being American.
 
2008-02-05 03:20:51 PM
I don't know either. But do the names "Smoot" and "Hawley" mean anything to you?

Maybe it might be wiser to find a way to stimulate production that can compete with the rest of the globe without raising tariffs or lowering US labor costs? People act as though there's no manufacturing activity in the US. That's not true. Just because it's not obvious to everyone and the output isn't all sold to consumers doesn't mean it doesn't exist, and damaging that wouldn't be a good thing.
 
2008-02-05 03:37:27 PM
Cato:
The best way I can think of to stimulate domestic production would be to enact a 10% across the board tariff of all imports, and THEN cut income taxes by similar amounts such that federal receipts are the same.

That sir is most short sighted. The USA dose not exsit in a vacuum. You trade prolifically with other nations for goods and services on an intational market. Any punitive tax regime on imports would result in tit-for-tat tarrifs by others. All the goods you export and most often export very profitably would be be effective while others without such barriers would benifit. Isolationism and protectionism is not the solutions you your woes.

Oh and dont be under the impression that the US is the only source for advanced goods this isnt the 50's.
 
2008-02-05 04:23:15 PM
Cato:Or, 4) actually stimulate real economic growth through stimulating the production of real wealth to take the place of that which was destroyed. Giving people checks to spend doesn't help because they'll just spend it all on stuff made in China or Japan or Taiwan, and the money goes over there. If you want to stimulate the economy, stimulate production over here. You can do that through corporate tax cuts, but without matching spending cuts, tax cuts are meaningless. The best way I can think of to stimulate domestic production would be to enact a 10% across the board tariff of all imports, and THEN cut income taxes by similar amounts such that federal receipts are the same. More money in your pocket, but imported things cost equivalently more. Which is a wash there. Except that domestically produced stuff is cheaper.

I agree with your opinion on the rebate: borrow money from China to essentially give money back to China.

But, corporate tax cuts won't solve much either. If there's no demand because the economy is tanked, companies won't spend it and will probably just pocket the cash.
 
2008-02-05 04:55:19 PM
Rishathra: Cato:
The best way I can think of to stimulate domestic production would be to enact a 10% across the board tariff of all imports, and THEN cut income taxes by similar amounts such that federal receipts are the same.

That sir is most short sighted. The USA dose not exsit in a vacuum. You trade prolifically with other nations for goods and services on an intational market. Any punitive tax regime on imports would result in tit-for-tat tarrifs by others. All the goods you export and most often export very profitably would be be effective while others without such barriers would benifit. Isolationism and protectionism is not the solutions you your woes.

Oh and dont be under the impression that the US is the only source for advanced goods this isnt the 50's.


This. Too bad Cato doesn't have a freaking clue what the hell he's talking about.
 
2008-02-05 05:29:04 PM
Geez.

OK, I'll try and go more slowly this time. Most of the time when governments try and stave off recession they make it worse. This is because they are mainly pandering for votes, but also because they are just treating the symptoms without ever recognizing the underlying causes -- causes they can't recognize because they are basing their analysis and actions on bad economic theory.

So, it would be better for them to do nothing then to do what they normally do -- and what they are doing right now which is just giving away free money. That doesn't mean there aren't other things they can do.

Yes, I am aware of Nash's argument from game theory about international trade. If we put up a tariff then so will others. Nash's argument was that the only way to win the game is to have completely free trade, which encourages everyone else to do the same. I don't dispute this, just that there are now factors that weren't there when he did his analysis. Mainly, that US consumers are what absolutely drives the entire world's economy. At this point, you can "win" the game of international trade just by coming to dominate the US market. You don't have to dominate the rest of the globe, just the US.

China has figured this out. But this puts us in an interesting position. If we could come to dominate our own markets, we would come out ahead. Right now we don't. But we could. The rest of the world would still be operating under Nash's rules -- having dominance in their own markets wouldn't be enough. But it is for us.

The real trouble is that a free-trade philosophy is based on the idea that without tariffs, the world exists on an equal footing. It doesn't. Right now, businesses in the US operate at an extreme disadvantage because US labor laws increase the cost of doing business here far, far above what it is anywhere else in the world. Between the EPA, OSHA, and all the other regulatory red-tape, it is simply not cost effective to build here what can be built elsewhere. A tariff would just even the playing field.

You could spin it like this: if you want to operate without labor laws and just run sweat-shops, that's great. But you won't realize the cost-savings of it because will tariff you to bring it back up to being even. Yell, "human rights" whenever anyone complains.

Either that, or repeal most of the regulatory state, most of which is blatently unconstitutional anyway, and let us compete. Either way, the US will continue to have all sorts of economic problems until the problem of the basic cost imbalance is solved.
 
2008-02-05 05:54:14 PM
The old Wall Street saying that the Fed may know something we don't probably applies here...

That's where you lost me pal. The current version of the Fed hasn't given the slightest indication that it knows its ass from 3rd base, let alone some mysterious and subtle secret of monetary policy.

They're shooting quail in the dark - accept it as such and move on...
 
2008-02-05 06:23:33 PM
Cato: Geez.

OK, I'll try and go more slowly this time. Most of the time when governments try and stave off recession they make it worse. This is because they are mainly pandering for votes, but also because they are just treating the symptoms without ever recognizing the underlying causes -- causes they can't recognize because they are basing their analysis and actions on bad economic theory.

So, it would be better for them to do nothing then to do what they normally do -- and what they are doing right now which is just giving away free money. That doesn't mean there aren't other things they can do.

Yes, I am aware of Nash's argument from game theory about international trade. If we put up a tariff then so will others. Nash's argument was that the only way to win the game is to have completely free trade, which encourages everyone else to do the same. I don't dispute this, just that there are now factors that weren't there when he did his analysis. Mainly, that US consumers are what absolutely drives the entire world's economy. At this point, you can "win" the game of international trade just by coming to dominate the US market. You don't have to dominate the rest of the globe, just the US.

China has figured this out. But this puts us in an interesting position. If we could come to dominate our own markets, we would come out ahead. Right now we don't. But we could. The rest of the world would still be operating under Nash's rules -- having dominance in their own markets wouldn't be enough. But it is for us.

The real trouble is that a free-trade philosophy is based on the idea that without tariffs, the world exists on an equal footing. It doesn't. Right now, businesses in the US operate at an extreme disadvantage because US labor laws increase the cost of doing business here far, far above what it is anywhere else in the world. Between the EPA, OSHA, and all the other regulatory red-tape, it is simply not cost effective to build here what can be built elsewhere. A tariff would just even the playing field.

You could spin it like this: if you want to operate without labor laws and just run sweat-shops, that's great. But you won't realize the cost-savings of it because will tariff you to bring it back up to being even. Yell, "human rights" whenever anyone complains.

Either that, or repeal most of the regulatory state, most of which is blatently unconstitutional anyway, and let us compete. Either way, the US will continue to have all sorts of economic problems until the problem of the basic cost imbalance is solved.


Just how farking stupid are you? Putting tariffs in place will simply LOWER PRODUCTIVITY, and do all those bad things to the economy that you don't want to happen.
 
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