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January 29, 2009

"On December 29, 1989 the Japanese Nikkei Index reached 38,957"

Just yesterday I heard someone from the opposition benches state to news media that if Canadian banks refused to loan money out, the government should force them to.

Well, we know how that turned out. (Or we would if there was a modicum of competence in our major news media - Canadians have to go online to learn of the Community Reinvestment Act's role in creating the housing bubble.)

"Turning Japanese"

The U.S. National Debt was $930 billion in 1980, or 33% of GDP. Today it is $10.7 trillion, or 76% of GDP. The National Debt has grown by 1,150% in 28 years. With the planned fiscal stimulus (taxing future generations), the National Debt will reach 100% of GDP during the Obama administration. When Argentina’s economy collapsed in 1998, their National Debt as a percentage of GDP was 65%. The Great Deniers say we are not Argentina. They say we are safe because the U.S. dollar is the reserve currency of the world. This is like jumping off a 20 story building and as you pass the 10th floor someone yells out the window asking how you are doing. You answer, “Good, so far”.

[...]

It is unambiguous, after examining the data, that we have borrowed ourselves to the brink of disaster. Both government and consumers have leveraged themselves to an untenable level. The only logical way to resolve this quandary is to reduce spending, pay down the debt, and increase savings. This is what consumers have begun to do. With consumer spending accounting for 72% of GDP, we are experiencing a serious recession due to the decrease in consumer spending. The excesses are being painfully wrung out of the system. This process is unacceptable to the socialist politicians who are in domination of the United States today. The government and Federal Reserve have already committed $8 trillion of taxpayer funds to bailing out criminally negligent insolvent banks. Now the Obama administration is going to spend in excess of $1 trillion in an effort to stimulate the economy. They insist that it must be bold and swift. How about well thought out, deliberative, and effective?

Just a couple of excerpts from a sobering, excellent article. A must-read that we need to send on to our intellectual superiors (of all parties) in Ottawa.

h/t Mike K.

A related, Canadian viewpoint (pdf) - " we’ve been pumping stimulus into our economies for years now, to the point where they are more stimulated than a grade three class on Ritalin."

Posted by Kate at January 29, 2009 4:06 PM
Comments

it is so easy. let the market work, keep the government at bay. shoot any bastard who thinks otherwise. damn i'm glad i got that off my chest. there will be countless comments discussing what can or should be done but hey, i like the kiss formula.

Posted by: old white guy at January 29, 2009 5:08 PM

Not Argentina? Better hope not, otherwise here's what the future could look like...

Thoughts on Urban Survival

BTW the Dilbert from 2 days ago was also apropos...


Posted by: Edward Teach at January 29, 2009 5:10 PM

As much as we try to convince ourselves otherwise, we are proverbially handcuffed to the US ... so they go, so do we. It's going to come out one of two ways - total dollar collapse, or hyper - inflation.

What the article missed reporting is the Social Security ponzi scheme (CPP is one too) that put the US somewhere in the $53 Trillion dollar debt range.

As for the Canadian debt, the press hasn't mentioned much the $125B Paul Harper has dumped into the banks over the last two months buying up crappy mortgages. That comes on top of the $64+B that was added yesterday.

Posted by: Aizlynne at January 29, 2009 5:14 PM

It is ironic how the NDP railed on Grant Devine for trying to spend his way out of a recession in the 80's when after 2 poor crops our youth were leaving the province in droves.
The homeowners grants were laughed at as a waste to build swimming pools etc.
I got a little grant by hiring a friend who was leaving for greener pastures to finish my basement.
Grant learned that you can't relieve recession by spending government money on make work projects. The bills have to be paid sometime and the next generation shouldn't have that burden.
This new Liberal budget of massive spending will only bring us a headache in the future, yet Jock Layton says it's not enough. Mind you he was voting against the budget before it was presented. I don't believe the economist Stephen Harper would present such a spending budget if he didn't require the Liberals approval.
I guess he could smell a cabinet post. I don't think for a minute the economist Stephen Harper would present such a budget but had to to get Liberal support.

The letter in the Star Phoenix this morning points out that the "most hated" president in United States history had more support than Jack and his mottley crew of socialists.
The MSM is largely responsible as they report all the doom and gloom possible but not the positive aspects. For instance they reorted all the proposed layoffs in the potash industry as reality but in truth very few are laid off and most workers want to be laid off because of their top up contract.

Posted by: scott at January 29, 2009 5:33 PM

Debt will always be dealt with.

The borrower will make good, or

The lender (depositers) will eat it, or

The currency (paper with ink on it) will devalue, making the debt insignificant (to the borrower), that is.

Sounds fair, eh ?? Same deal as Liberals who believe in rewarding failure and punishing success - whether Thugs, educational systems or work place.

Posted by: ron in honolulu at January 29, 2009 5:37 PM

"..our intellectual superiors.."

??


'Scuse me?? I recognize very few "intellectual superiors".

I certainly don't know of anyone more qualified to spend my money than I am.

I respect PMSH as an honest and serious person and for that reason, I am prepared to give him a bit of slack on this budget.

But just a bit!

Posted by: jlc at January 29, 2009 5:53 PM

Looks to me like everyone simply wants too much for too little. The politicians are trying keep the envy factor at bay by paying off the losers with virtually free loans for next to free housing, new cars and unearned rebates on tax they didn't pay. etc etc.

It's insanity at the governmental level.

If we were still the society of the fifties we would be producing and saving and managing our lives an money better because back then, the government were better behave and children were taught to respect things as they should.

This whole thing was about appeasing the poor American Negroes and other vocal minorities. Even the middle classes who do work and pay the freight are living way beyond their means. We are a spoiled brat society and we are about to lose it all. We have truly lost our way.

It is not the will of Allah, but it might as well be.

Posted by: John at January 29, 2009 6:14 PM

I think many American Senators and Congressmen/women should also go look up the CRA - it seems that memory is short down there, with no real appetite for "root causes"

Posted by: Erik Larsen at January 29, 2009 6:20 PM

"What the article missed reporting is the Social Security ponzi scheme (CPP is one too) that put the US somewhere in the $53 Trillion dollar debt range."

Moral of the story: Life is money and money is life. When you stop working, drop dead. Rail on about social security - it plays a key role in keeping the majority of the 'elderly' alive. You know, the ones who put their lives at risk charging onto French beaches in 1944.

5000 years of human civilization. 300 years of the 'free market'. Everything said about the human life in those 4700 years preceding the free market is discarded for a new mantra: A human life is only worth how much it contributes to the economy. That is how God intended it.

One of life's great dilemmas, eh? Do we have to give our money to those out there who are "not as fortunate" / "just plain lazy" ? I am sure you are all generous souls, but in this competitive world, it is easier to give sustenance charity than it is enabling charity. Give the man a fish, you say, and you will feed him for a day. Teach a man to fish, and you will feed him for a lifetime. Great idea. Unfortunately in a competitive world where there are more fishermen than fish, it is difficult to teach a man to fish; it is easier to give the man just enough scraps to keep himself alive and feel good about yourself. That, my friends, is human progress.

And, of course, make no mention of the huge military expenses. It is better to feed the people of Iraq than it is to keep elderly Americans alive.

2000 years ago, a book was revealed to mankind. It taught us what human life is really about. And I can assure you, it does not see the human life in purely economic terms. One side says sit back and let the 'economy' do its business. The other tries to be a little more proactive. I ask myself, who would Jesus support?

How have we reached this stage? Why is one's standing in society determined by owning a car and a house? Who encouraged this economic model of debt - of spending money that you don't have to buy a car and a house that you don't need. Is it so difficult to stay in your parents house till you can afford a house? Will your parents let you stay? Where has it all gone wrong? Who is responsible for promoting the credit model? Is it the capitalists? Is it the socialists? Will whoever it is ever take responsibility?

It is easy to talk in technical terms in order to gloss over the human cost. Let the economy run its course, you say. And what of the impending loss of dignity, possibly even life, of millions of people out there?

Who cares. Welcome to 'civilization', 21st century style.

Posted by: vindictive at January 29, 2009 6:22 PM

"5000 years of human civilization. 300 years of the 'free market'. Everything said about the human life in those 4700 years preceding the free market is discarded for a new mantra: A human life is only worth how much it contributes to the economy. That is how God intended it."

You're kidding right? For those 4700 years before the "free market" a human life was worth NOTHING. 95% of the population were sub-human serfs who gave everything they had to a tiny number of nobles. Then the lavish-living nobles used that wealth to engage in never-ending warfare with other nobles. Guess who made up the ranks of those armies?

Please don't tell me you think human life was worth more in the dark or even middle ages (to say nothing of the 1000s of years before that). It's plain lunacy.

Posted by: Attila at January 29, 2009 6:48 PM

I am trying so, so hard not to listen to any news these days. It is just so depressing.

The one thought that keeps spinning around my head is, "are people really that stupid?". And the only answer appears to be, "Duh. Yeah they are."

When did our society forget how to think? When did we forget history? When did we forget common sense? And how on earth do we get it back before all the imbeciles bankrupt us?

I'm not as worried about Canada; I think Harper is doing his best in the situation. But the U.S.? If it goes down, so does the world. And it's going down fast.

Posted by: SheilaG at January 29, 2009 7:02 PM

Yes indeed, the logic of "forcing" banks to lend money is as completely absurd as FORCING the general population to hand over money which the banks DID NOT EARN - And let's make this clear, the money that the banks DID NOT EARN is being treated as if it were profit that the bank generated itself, and thus we get nitwits arguing that "we can't force banks to lend" because that destroys the free market.

What a stupid argument.

My patience is running very thin with people who fail to recognize that the bank IS NOT operating on free market principles in anyway whatsoever, so the argument that we have to allow the free market to entice the banks to lend is patently absurd. This argument would only make sense if WE, the consumer, had voluntarily given that money to the bank in exchange for some sort of goods or services. But we didn't. You, me, Tom, Dick and Harry, are all being FORCED to provide the bank with PROFITS which they did not earn, and for which they did not provide ANY goods or services at all!

And that IS NOT a free market.

If the banks have a "choice" not to lend OUR money back to US, then we also ought to have the choice to not direct our hard earned money their way.

But, we don't have that choice.

And hence, there is no free market to even argue about.

Only Communists and Leprechauns believe that you can socialize 50% of the marketplace, and the other half will somehow avoid Socialist influence. (Here's a hint - when you've socialized 50% of the free market, you have in effect socialized it all!)

It blows my mind that anyone who claims to have any sense of reason can argue that the banks cannot be "forced" to do anything.

No, indeed.

We cannot force them to lend out money they deem as profit. However, we also did not force them to take the money either, so, let's not stick up for these peckerheads too much. They could have CHOSEN to go bankrupt, just like you and I who were FORCED to give them ill gotten profits would/will be forced to do when they, in turn, do not help us.

I think they should give the money back, or AT LEAST, pay back the interest they are collecting on OUR money, back to us, while we are all waiting. Rotten bastards.

I don't particularly understand how anyone in their right mind can hide behind the argument of "free market principles" regarding bank lending, when free market principles would have obliterated these banks into pixie dust, had we, the people, not been FORCED to GIVE money to the fricken bank.

Let them fail.

All of them.

Then stick them all in a leaky rowboat that is also sure to fail, and push them off to sea.

Posted by: Sam at January 29, 2009 7:07 PM

All very interesting reading but one needs to contrast this with the EU nations whose balance sheets are nominally on a per capita basis worse.

You may wish to run, but you cannot hide. This problem is global in nature.

Not only that, the Royal Bank of Scotland is on the skids, as is Russia's second largest bank.

The Asian tiger economies while lean and mean, depend on consumers for their goods, and the Middle East still needs to flog their oil and gas somewhere for their incomes.

Translation: Focussing exclusively on the American metrics leaves out 80% of global economic picture.

One smart thing the central banks have done is to drive interest rates down. This implies that debt rolled over from higher interest rates to the new lower rates squeezes free cash flow into the market place. In short, the correct move if one is in a liquidity crisis. Free cash flow will always act as an economic 'de-icer'. Further to this, the free cash flow lets consumers pay down debt, which generates further free cash flow for re-investment and or savings. In other words, the gradualist approach got us into the 'liqidity crisis' and if we have any sense we will take the gradualist approach to get out of the liquidity crisis.

I just don't like to see the bankers who caused the problem benefit at the taxpayers behest.

The revolutionary approach to liquidity crises prior to WWI and WWII ended with rather disastrous results.

Spending on infrastructure, also further squeezes efficiencies out of the overall economic structure.

Energy efficiencies on the supply and use side also yield free cash flow whether in new capacity generation and in use savings.

Replacing ones computer with a more energy efficient model frees up again more cash flow to redirect elsewhere. It is the little things you do multiplied out by the millions that leverage a substantive economic tool to tame the debt beast.

Waiting for someone to wave their magic economic wand to make all the nastiness go away is not likely happen. This will be a time and patience game if we as a society prefer to avoid the 'revolutionary' approach of years past.

Just as my grandfather lived through two liquidity crisis prior to WWI and WWII, we now have a global one. I should think we have learned something, one of which is that isolationism yields a fatal course of action.

Jeidels, for example, quotes a letter from Dresdner Bank addressed to the management of the Nordwestmitteldeutsche Zementsyndikat. It summarizes how bankers influenced the management of client corporations and how its credit and liquidity could have been affected:

"According to your announcement published in the Reichsanzeiger we see the possibility that the annual general meeting taking placeat the end of this month might pass resolutions that might be
conducive to introducing changes in your business that are not in our interest. For this reason, and to our regret, we have to announce that we must cancel the agreed credit facility and we
have to ask you to pay back the money that you have already received until the end of this month. However, if the aforementioned annual general assembly takes the decision we favour, and passes resolutions that guarantee that these decisions will be upheld in the future, we shall be happy to negotiate a new credit." (Jeidels 1905, p. 126)

We've done this all before. Can we apply some intelligence this time round?


Cheers

Hans-Christian Georg Rupprecht, Commander in Chief

1st Saint Nicolaas Army
Army Group "True North"

Posted by: Hans Rupprecht at January 29, 2009 7:22 PM

Quite true, Hans. As bad as the U.S. trend is at the moment, the main reason they haven't had a currency crisis yet is the depressing state of affairs that many other western countries are actually in worse shape.

Here in North America we wouldn't be too badly off if we just faced the unpleasant reality and dealt with it. It's OBVIOUS we have to face the excess debt and adjust our economy to a high saving and less consumption - painful, but it's necessary and certainly within our ability to weather this storm without doing anything stupid.

Something we probably won't survive intact is having our governments going on a mindless debt binge at point when we really need to be saving and paying down debt. An Argentina-style meltdown is very possible if we continue on this course.

Posted by: Kevin Jaeger at January 29, 2009 7:45 PM

This is like jumping off a 20 story building and as you pass the 10th floor someone yells out the window asking how you are doing. You answer, “Good, so far”.

I will be sure to use often when arguing with the leftards.

Posted by: Merle Underwood at January 29, 2009 8:04 PM

It's not too late yet. We need to put major pressure on Harper and the Conservatives to change course immediately. If that means an election, then so much the better. Fiscal conservatism is the only hope for this country to successfully ride out the coming recession. The current stimulus boondoggle will be an unmitigated disaster.

Posted by: Belisarius at January 29, 2009 8:15 PM

Japan - scary, especially when one considers it has the best products in the world and a huge, money making export sector.

Scary, when one thinks of how high living standards come about only with high per capita productivity.

Scary, when one considers the productivity of the Fanatical Enviros - led by the Gore Suzuki crowd.

Scary, when one realizes this economic downturn is likely the result of 08's oil price spike. (as happened many times this century)

Scary, when one realizes this is exactly what the Kyoto-fearmongers wanted.

Scary, that it all would not likely have had legs if not for the Media stampeding it's readers with trumped-up lies.

Posted by: ron in honolulu at January 29, 2009 8:19 PM

I would consider it suicide if currency was still attached to something tangible. Like gold.

Posted by: irwin daisy at January 29, 2009 8:19 PM

"...With the planned fiscal stimulus (taxing future generations), the National Debt will reach 100% of GDP during the Obama administration. When Argentina’s economy collapsed in 1998, their National Debt as a percentage of GDP was 65%...

It is almost as if Obama/the left wanted the US economy to collapse...isn't it?

Ever heard of the Cloward Piven strategy?

The strategy of forcing political change through orchestrated crisis. The "Cloward-Piven Strategy" seeks to hasten the fall of capitalism by overloading the government bureaucracy with a flood of impossible demands, thus pushing society into crisis and economic collapse.

Yeah I know, sounds a bit far fetched or even a bit on the "conspiracy theory" side, but read about it and you will see the dots do connect,

Obama spent most of his adult life in leftist and radical leftist circles...

The present economic crisis was caused by the left ( the sub-prime thing was exactly along the lines of the Cloward Piven strategy, over load the system to the point of collapse )

The "stimulus" package contains very little in it that will actually stimulate the economy...

and so on and so forth...

the dots do connect and form a nice Cloward Piven strategy in action...

Think I'm a bit silly or paranoid? YOU MUST READ THIS

http://www.americanthinker.com/2008/09/barack_obama_and_the_strategy.html

Posted by: Friend of USA at January 29, 2009 8:56 PM

For years now, the collective "we" have been spending far beyond our means...no more seriously than in the US, where absolutely insane over-spending was apparently the rule rather than the exception. For myself, it is retraction time. Paid off my mortgage three months ago...in another 8 months the boat loan is gone. And then..my plan is to hunker down, while doing my best to keep my company afloat from now until things get better, and then...no more credit. I will be engaged in "selfish self-preservation", rather than stimulating the economy through sometimes reckless spending.

Oh, and by the way, the boat was probably a huge mistake, but I love her...

Posted by: Bruce at January 29, 2009 9:15 PM

Back in the fall the Canucistanian gov't, bowing to Opposition demands, "loaned" the banks $50 BILLION to allow them increased "liquidity" (why does that sound perverted?) and start lending money again.

Last time I heard anything one of the banks had just bought a huge chunk of AIG. WE as it TAXPAYERS (the gov'ts have NO wealth other than what they STEAL from us) give the banks $50B and they go on a shopping spree. It reminds me of some of the women - starving, destitute, homeless after Katrina hit. They got emergency credit cards from FEMA ... and went out and bought $3,500 Louis Vutton handbags!!

Are taxpayers SO dumb, insane, ignorant that we continue to allow this to happen?


Yes.

One of the first posters suggested shooting anybody who disagrees. I suggest the GUILLOTINE. The greedy morons who precipitated this disaster should lose their heads. The "let them eat cake." crowd did and from my standpoint there is little difference in their attitude meriting such response after all it DOES happen every century or so when the greedy make life unbearable for us peseants!!!

Posted by: DAVE-Y at January 29, 2009 9:17 PM

Old white guy
I agree with you 100%. Trouble is that if it were kept simple everyone would understand what was going on and in turn would show everyone just how stupid 99% of our politicians really are.

Posted by: Western Canadian at January 29, 2009 9:19 PM

As for the Canadian debt, the press hasn't mentioned much the $125B Paul Harper has dumped into the banks over the last two months buying up crappy mortgages.
Posted by: Aizlynne at January 29, 2009 5:14 PM

Aizlynne, saying this over and over doesn't make it true. I, and others, elsewhere on this blog have tried to explain this to you. I originally gave you the benefit of the doubt that your comments on this matter were simply the result of uninformed opinion. However, I am beginning to suspect they are more a function of partisan ignorance. In either case, this is my last attempt to educate you on the topic.

The $75B was to purchase high-quality, CMHC-insured mortgages from the Canadian banks, to provide the banks with capital to continue business as usual. Interbank lending, a majour source of capital for the banks had essentially ground to a halt in the fall, largely triggered by the collapse of Lehman Brothers. Banks, as a whole, became a bad risk, even the good ones, and interbank lending largely stopped.

So, now the government has a portfolio of revenue generating mortgages that are backed by CMHC insurance. In the event mortgages in this portfolios go sideways, any loss is backstopped by CMHC. These are not "crappy" mortgages.

Should credit markets return to a semblance of normalcy in the future, the government will likely sell the mortgages back to the banks. In all likelihood, the government will even make a profit in the long run.

So, please, stop conflating the US housing/banking crisis with what is happening in Canada. There has been no "bail out" of Canadian banks. It was a prudent financial transaction undertaken by the Canadian government that carries minimal risk to taxpayer, and ensures the Canadian banking system remains sufficiently "lubricated" with capital to continue lending to consumers and businesses.

Posted by: Colin from Mission B.C. at January 29, 2009 10:17 PM

The quoted article says the US Fed is giving $8 TRILLION to bailout the banks.

Geez, does no one check their numbers any more? 8 trillion is more than half the US's annual GDP. The actual number for the TARP is $800 billion, or one tenth what the writer alleged.

Honestly, I thought the climate scaremongers were lazy or careless with their arithmetic, but they don't seem to hold a candle to people reporting on the financial biz.

Posted by: KevinB at January 29, 2009 10:22 PM

Well I finally have some disposable income to play with but I'm inclined to hoard it, til I see the captains of industry, and commerce, and government SOBER-UP.

The sums being thrown around are SCARY. And no one is sure it will help.

Frankly, they are ALL whistling in the dark, hopeing the monster will not get'em!

Naw, I'm planning on coasting for a spell, a go slow approach, while the soothsayers knock each other off.

There're sure to be bargains, but... where's the bottom. You tell me.

What retirement?
I love my work, I'm gonna die on the job.

Posted by: eastern paul at January 30, 2009 12:02 AM

Again ..... the MSM as a group are about the stupidest of our society.


Posted by: OMMAG at January 30, 2009 12:05 AM

While we're gazing at the economic mushroomclouds, are there any lawsuits against the inventors of the "derivative" type mortgages that appear to have brought this all on.

Couple hundred million worth of billable time seems like a worthy investment to hold people accountable.

Can you say "scortched earth" approach. The damage we are witnessing seems worth the the search for restitution. Fraud is still illegal is it not?

Just wondering...

Posted by: eastern paul at January 30, 2009 12:10 AM

Kevin, "TARP" was 850 Billion. But that was just to get the tap flowing. Nobody really knows how much they have spent, because they are spending it too fast to keep up. Nobody really knows where the money went, either, because the Fed, Paulson, Bernanke, and the banks recieving the stolen money, believe it is none of the defrauded public's business, despite it violating the 5th Amendment, where the government cannot take property from citizens without giving just compensation. I come to the total of around $11,500 now for every man, woman and child who calls them an American - and they ain't done yet, because, well, they are Yanks, and everything they do has to be BIGGER than anyone else, so hold on to your Stetson!

Watch this:

http://www.prisonplanet.com/fed-reserve-fails-to-reflate-the-us-banking-system.html

I roughtly totalled up $2.65 Trillion in the figures in that video, and Grand Puba Hopenchange apparently just blew another Trillion at the video arcade today on a stimulus package. And, the video does not take into account (I don't believe) future moneys or stimulus that has been, or will be, pledged. The US government has pledged to "do whatever it takes," remember. So, if these bastards screwed their clients to the tune of USD One Quadrillion, that is what Hopenchange and his band of merry idiots are going to spend... they said they guarantee it.

Yeehaa! I predict added stimulus to the economy from all the money we save on toilet paper, as we realize it is cheaper to wipe our ass with USD$100 bills.

Posted by: Sam at January 30, 2009 12:15 AM

Here is a link to the actual breakdown of the 8.5 Trillion the US government is committed to. Seems only 3.2 Trillion is actually used so far.

http://www.sfgate.com/cgi-bin/object/article?f=/c/a/2008/11/26/MNVN14C8QR.DTL&o=0

The 700 Billion dollar TARP fund is only one part of the many bailouts the government has undertaken.

Posted by: CanuckInMI at January 30, 2009 12:57 AM

I find this comment area very interesting and exciting! Why would I think a crisis this large is exciting? Because it gets people thinking about issues larger than where to eat out tonight and what shows are on TV.

We can pull out of this mess. Some of the comments here show that people are thinking in the right directions.

I have been hitting the Econ books and studying the credit crisises of the past. The big ones in the 1800's (U.S.) are the best to read about.

I believe we need to follow the basic rules of the Austrian school of economics when it comes to a credit crisis. If the Government wants to "stimulate" the way to do it is to inject capital directly into the lowest level of the problem.

I suggest that the central banks should provide very low cost loans to "refinance" the debt of normal citizens. This cannot be a cash out deal. It cannot be free. The people who take advantage of this would have to pay 3% for the term and all debt can be included. In addition, there would have to be something in the deal to prevent people from running up new debt. This could be a savings incentive of some type.

By using this method, banks would be recapitalized because mortgages would be paid off to them which they could use to retire the MBS devices.

I believe this form of "bail out" would work but only if people pay down the debt, increase savings, and are unable to obtain loads of new unsupportable debt.

Posted by: Kyle at January 30, 2009 7:28 AM

Kyle ... times are exciting because something new is going to be born, although by the device of creative destruction. Many people intuitively sense that "invisible hand" is going to clean old regimes.

I would be careful with comparison and interpretation of the charts. Charts can fool you even more then statistics. V-top on Nikkei was expression of typical mania,so Nasdaq 2000, so is the present chart of Shanghai SE. Dow Industrial chart shows mature and tired market that requires paradigm shift.

Posted by: xiat at January 30, 2009 10:57 AM

President Clinton may provide the best road map back to sanity. Paygo. Essentially the wild card here is what the government is doing.

Some history: During the 9o's the greatest expantion in history took place and that was productivity. It explains why we have only 22% increase in real incomes yet seem to have so much more buying power. Essentially computers came along and allowed for cheaper stuff made better and more efficiently and in exacting quantities in a timely matter giving folks stuff they actually wanted as opposed to someone making an educated guess as to what it was they wanted.

Alan Greenspan who is essentially a accountant watched all this and new the importance of facilitating it in the only real way he could, cheap money. Greenspan is probably the only guy in the Universe who knows the national inventory of everything. How much is produced who produced and why and all the details pertaining to production and its effect on everything else. It's what made him so good he did his homework on the minutia. He didn't just look at aggregates.

Because of the rapid expansion of the Goracles interweb and it's effects on everyday life he gave them their head as it were in order to get it built knowing full well that a correction would be needed however the benefits were so great that he couldn't rein it in. Better faster proccessors needed to be built. Optic cable needed to be laid etc etc.

Of course by 2000 there were massive excesses in the system and we had a collapse tech company returns on equity were running at 200 percent when 13 - 16 is the norm. Growth was collapsing.
Deflation was ensuing.

Deflation is the most difficult economic malady to undue it gets hold and stays. There is a school of thought that what finally laid the great depression to rest was World War 2. So around 2001 Greenspan took interest rates to essentially zero. However the goverment implemented its fiscal policy which went too far and off the markets went. Too much in the way of tax cuts along with massive government spending.

Greespan testified to the effect saying that government went to far. With it's fiscal policy so we essentially had a V bottom in the markets and off we went again markets screaming higher.

What Greenspan was pleading for was paygo. Want a new government program either raise taxes or cut spending somewhere else. It is how Clinton managed surpluses when he was President.

Governments are an essential part of any economy with out them inflation always comes into play and boom and bust becomes a way of life. A well managed fiscal policy can mitigate that to a large extent smoothing the curve.

Once paygo is implemented it soon becomes clear the effect the government has on the economy. In a couple of years the level of optimum government spending and taxation can be implemented because you can see it's effects almost immdiately.

If Paygo went into effect today they would either have to raise taxes or cut programs. Well it soon become clear that raising taxes would slow the economy because hey government doesn't create wealth it consumes wealth. So the economy would slow like having a jake brake turn on. Cutting programs would speed it up like turning the Jake off. Money would flow to were it is really needed not to some politicians pet project.

A balance and equilibrium would soon come into place as balance between government spending, tax revenues and GDP growth would become apprent. As the economy heated up the Fed would be the accelerator or brake using primarily monetary policy greatly mitigating boom or bust. Should a massive injection be required then a direct cash infusion into the system via the Fed would stimulate but would be so rarely needed as to be an afterthought.

Households and business fundamentally take care of themselves it's either manage your spending for survival or you don't survive. Pretty basic stuff thats not lost on most and well managed for the most part.


Posted by: Jeff Cosford at January 30, 2009 12:59 PM

It doesn't matter what the debt of zimbabwe is cause it'll be worthless in two days worth of inflation.

They just introduced to the 10 TRILLION dollar bill. Keep in mind they dropped 10 zeros from their currency a year ago. Do that math.

The US won't see that much inflation but they'll see plenty. You can't spend an extra trillion or so USD a year for as long as the eye can see without degrading the currency.

Borrow and spend now, inflate the debt away later. It's only the peasants who pay.

Posted by: Warwick at January 30, 2009 1:56 PM

i don't know why the u.s. dollar is not in the tank now. the chinese must be holding back.

Posted by: old white guy at January 30, 2009 2:13 PM
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