Four more years

[scblack]

2008 was a VERY calamitous time. I don't know how much you guys knew about the real details of the crisis of that time. It was not simply a recession event.

The banks of the world nearly stopped dealing together. Basically that would have meant the world's economy would have STOPPED. While the debt levels are very alarming, the bad news if they had not been bailed out would have made the debt seem like small fish in comparison.

The financial world was shaking in its boots to the core. Actions were needed to avert greater tragedy.

 

[pharmaboy]

It will in end in blood when the Greek and Spanish youth can take no more austerity and rise up against there governments.

So if they cant borrow from other countries, where do they get the cash to pay for the public service and the welfare?

Print it?

They can rise up all they like, but they still need to import goods, and to import you need to pay the bill, an IOU wont suffice.

 

[pharmaboy]

2008 was a VERY calamitous time. I don't know how much you guys knew about the real details of the crisis of that time. It was not simply a recession event.

The banks of the world nearly stopped dealing together. Basically that would have meant the world's economy would have STOPPED. While the debt levels are very alarming, the bad news if they had not been bailed out would have made the debt seem like small fish in comparison.

The financial world was shaking in its boots to the core. Actions were needed to avert greater tragedy.

The question is ; Have we averted a greater tragedy, or have we merely delayed the inevitable?

The cause IMO was widespread private debt, the answer was to shift that debt to govt, now we have govt with debt levels they cant service without interest rates remaining at a few %.

We still havent tackled the real problem which is massive debt used to fund day to day spending - we no longer have a balance between savers and spenders, we have banks that that lend out more than they have, repeatedly, and govts that relax their capital requirements in order to stimulate banks to lend more, when that doesnt work, they create money out of thin air and use it to recapitalize the banks, to give em the confidence to lend again. House of cards?

So does the emperor indeed have clothes on or not?

 

[Registered Nutcase]

2008 was a VERY calamitous time. I don't know how much you guys knew about the real details of the crisis of that time. It was not simply a recession event.

The banks of the world nearly stopped dealing together. Basically that would have meant the world's economy would have STOPPED. While the debt levels are very alarming, the bad news if they had not been bailed out would have made the debt seem like small fish in comparison.

The financial world was shaking in its boots to the core. Actions were needed to avert greater tragedy.

Do you have some links or references about what you said. I am genuinely interested in reading more about what mechanisms stopped working and why?

 

[Matt H]

Interbank lending pretty much dried up. Balance sheets were re-written to account for increased risks on all of the cactus financial instruments banks were holding. Look up the process behind interbank lending and how the market works, and the run-on effects to other types of lending (and then the run on effects of that). Which is why all central banks pretty much shit themselves and started throwing as much money at the banks as possible to get liquidity back into the market.

 

[Ivan]

So if they cant borrow from other countries, where do they get the cash to pay for the public service and the welfare?

Print it?

They can rise up all they like, but they still need to import goods, and to import you need to pay the bill, an IOU wont suffice.

Greece should have exited the Euro long ago. This is still what will happen once the greeks understand they have been duped, as it is the only way out of their current situation.

Hows the Greek debt reduction plan travelling?
http://www.macrobusiness.com.au/2012/11/greek-tragedy-turns-to-farce/

 

[SideFX]

The question is ; Have we averted a greater tragedy, or have we merely delayed the inevitable?

The cause IMO was widespread private debt, the answer was to shift that debt to govt, now we have govt with debt levels they cant service without interest rates remaining at a few %.

We still havent tackled the real problem which is massive debt used to fund day to day spending - we no longer have a balance between savers and spenders, we have banks that that lend out more than they have, repeatedly, and govts that relax their capital requirements in order to stimulate banks to lend more, when that doesnt work, they create money out of thin air and use it to recapitalize the banks, to give em the confidence to lend again. House of cards?

So does the emperor indeed have clothes on or not?

Pharmaboy you are one of the only people on this thread that has a clue . The majority of Americas woes come from the clinton days and that party is once again in power .

 

[pharmaboy]

Greece should have exited the Euro long ago. This is still what will happen once the greeks understand they have been duped, as it is the only way out of their current situation.

"duped" is the wrong word. But 3rd world economies need 3rd world currencies. Presented with the borrowing power afforded them by the euro, they spent to grow, didnt collect taxes, paid out a welfare state.

In short, kids in a lolly shop. This sort of comes from the idea that a govt doesnt have to pay back its debt, and that economic growth is a certainty and the more you spend the more tax you'll get back.

Ultimately, i agree the greeks wont pay it back, wont stay with the euro, but playing victim is just a copout. A failure to take responsibility - blaming their govt, as if the populace wasnt benefitting! - We arent talking about a marcos siphoning off billions- just a govt that borrowed to pay welfare.

 

[Matt H]

Pharmaboy you are one of the only people on this thread that has a clue . The majority of Americas woes come from the clinton days and that party is once again in power .

Nope, not simply true. You're cherrypicking bits and pieces of problems. Bush admin was incompetent - tax cuts without spending cuts (+ instigated some VERY expensive wars), greenspan fucked up by keeping rates too low, glass-steagall repeal, obama pretending the debt didn't exist, the list seriously goes on and on.
People like you that turn it into a partisan issue are the problem with discussions like this. It goes far deeper than that.

 

[pharmaboy]

FWIW, I'm not partisan on the issue in the US - Ronald Reagan had this idea of reducing taxes while also spending, with the idea that govt would be starved of funds and force savings to be made.

Reagan's economists also promoted that govt spending on military was a capital expense and so reasonable to borrow money and pay it off over the long term (effectively). George Bush snr declined spending over a number of years, and so setup clintons administration for the stardom that was actaully a balanced budget.

George W, increased military spend in somewhat tumoltuous times, evaporating a surplus, Obama has continued on the same track.

The problem with the Democrats is they want to change things by spending money

The problem with the republicans is they want to change things by cutting revenue.

????

 

[SideFX]

Nope, not simply true. You're cherrypicking bits and pieces of problems. Bush admin was incompetent - tax cuts without spending cuts (+ instigated some VERY expensive wars), greenspan fucked up by keeping rates too low, glass-steagall repeal, obama pretending the debt didn't exist, the list seriously goes on and on.
People like you that turn it into a partisan issue are the problem with discussions like this. It goes far deeper than that.

Thats more of a cherry pic and form only the last two administrations . Tax cuts with no spending cuts ? , what do u think they go hand in hand ? Tax cuts were used to stimulate the economy . If people spend more money government revenue in taxes also goes up . Tax cuts stimulate economy and the free market place . The market can and should be allowed to sort itself out with less government medaling .
Yes i understand that the war is very expensive , every $1 that the US spends on the war $0.70 is borrowed .
Greenspan rates too low really was the pre longing to the GFC , the inevitable . The Clinton administration gave the right to all people to be able to buy a home . Interest rates went down , banks gave predatory <NINJA > loans , banks took on extremely hight risk and this was because the housing market was heavenly over stimulated . Which lead us to the inevitable . Clintons polices had a major impact on our economy too , destabilising our dollar , housing price rise , ect ect .
Obama pretending the debt doesn't exist ? . No its a mater that he has no clue how to fix it . His socialist ideal clouds judgement and as long as he is content with China propping the US up with poring billions into US bonds and the sight of a US default and his allowing of the federal reserve < which is not a government organisation > to keep printing money the problems in the US cant be fixed . Hand outs cost money .

 

[Matt H]

Before anyone else tries to teach me about the wonders of the free market and all that, I should probably point out that I'm half way through an economics degree. I'm not saying that makes my opinion any more valid, just that I already know more than enough about it.

snip, i'll go through this bit by bit.

I wasn't trying to cherry pick. I was just trying to think of all of the other variables that contributed to this other than what happened during the Clinton admin.

Tax cuts with no spending cuts ? , what do u think they go hand in hand ?

Well in the long run, they should. Unless you want a 16 trillion dollar debt.

Tax cuts were used to stimulate the economy . If people spend more money government revenue in taxes also goes up . Tax cuts stimulate economy and the free market place .

Yeah, also known as a Laffer Curve. The maximum tax revenue (t* below) exists somewhere between 0-100% taxation.

The only problem is that there's no real way of knowing how to quantify t*. The drawbacks of non-falsifiable research in the Dismal Science.
We can look at what has happened in the past when supply-siders have given it a go. Reaganomics resulted in an increase from Carter's $56.9 billion, to a $237.5 billion/year deficit. Tax cuts are going to do squat all in times of a recession, when an economic agent's expectations are pessimistic, and their marginal propensity to consumer is low. With poor outlooks, saving will occur and demand goes down. Cue keynes' theory of fiscal spending...

The market can and should be allowed to sort itself out with less government medaling .

Yeah, except for the times when markets don't sort themselves out. http://en.wikipedia.org/wiki/Market_failure

Yes i understand that the war is very expensive , every $1 that the US spends on the war $0.70 is borrowed

Yeah, pointless wars that have cost upwards of $3.7t. Not Clinton.

The Clinton administration gave the right to all people to be able to buy a home . Interest rates went down , banks gave predatory <NINJA > loans , banks took on extremely hight risk and this was because the housing market was heavenly over stimulated . Which lead us to the inevitable . Clintons polices had a major impact on our economy too , destabilising our dollar , housing price rise , ect ect .

Most of this is actually pretty accurate, except interest rates went down due to Fed initiatives. If anything, a decrease in demand for loans should theoretically put upward pressure on interest rates, if not offset but cash rate targeting. (demand of vs supply of money).

Obama pretending the debt doesn't exist ? . No its a mater that he has no clue how to fix it . His socialist ideal clouds judgement and as long as he is content with China propping the US up with poring billions into US bonds and the sight of a US default and his allowing of the federal reserve < which is not a government organisation > to keep printing money the problems in the US cant be fixed .

If it wasn't for China buying into treasury bonds, everyone would be up shit creek. And it's not like that has anything to do with Obama anyway, the Chinese have been buying mountains of US debt for a decade. I'm also aware that the fed is independent of government, but before you go all "creature from jekyl island" on me, ask yourself, would you rather have lifelong economists with control over the money supply, or grubby little politicians? Bogans already think that interest rates are controlled by the government - imagine if Gillard or anyone else could manipulate cash rates for political gain. Not good.
And the QE programs in the US haven't been the most successful so far, but they also haven't resulted in TOTAL HYPERINFLATION like they told me on mises.org.

Finally,

Hand outs cost money .

Except for when they make money. http://en.wikipedia.org/wiki/Fiscal_multiplier

 

[scblack]

Do you have some links or references about what you said. I am genuinely interested in reading more about what mechanisms stopped working and why?

Sorry no, not really now, not within any reasonable time and effort to find them. A couple of years ago I probably could have. Largely I was dealing with a number of fund managers and advisers who had good access to the data that was making us want to slit our throats.

Basically banks were holders of toxic debt instruments. In HUGE amounts. When the debts defaulted, banks were technically insolvent, or at the least undercapitalised by solvent assets. Thus other banks would not lend to them without exorbitant interest rates, or Libor type rates. Bank lending dried up, thus trade dried up. The financial system of the world very very very nearly stopped. Without capitalising (pumping in money) by central banks and govts the world could have hit the proverbial brick wall.

 

[Ek155]

The problem with the Democrats is they want to change things by spending money

The problem with the republicans is they want to change things by cutting revenue.

????

What do you think of the idea of the fiscal cliff occurring then? Up for it? If my interpretation of your views is right then you are?

 

[pharmaboy]

What do you think of the idea of the fiscal cliff occurring then? Up for it? If my interpretation of your views is right then you are?

Actually, i'd rather it be a little more organised and gentle - its not an economic problem its a political one that needs to be solved by politicians - scary as that is.

The tap doesnt need to be turned off right now - but we NEED politicians to realise they need to at least start turning the tap, AND look for new water. thats my difference with the republicans - they think they can trade their way out of the mess by the magic of growing economies showering govt with money, plus some cuts.

It'll be interesting to see what transpires.

 

[Registered Nutcase]

Sorry no, not really now, not within any reasonable time and effort to find them. A couple of years ago I probably could have. Largely I was dealing with a number of fund managers and advisers who had good access to the data that was making us want to slit our throats.

Basically banks were holders of toxic debt instruments. In HUGE amounts. When the debts defaulted, banks were technically insolvent, or at the least undercapitalised by solvent assets. Thus other banks would not lend to them without exorbitant interest rates, or Libor type rates. Bank lending dried up, thus trade dried up. The financial system of the world very very very nearly stopped. Without capitalising (pumping in money) by central banks and govts the world could have hit the proverbial brick wall.

What a shame, if you do come across any articals please PM me.

Bit of a rant:

Economics is a pseudo-science, as admitted my many academics and published in many textbooks, no worse than that it is pseudo-science that is now believed to be firstly correct and secondly it is how bankers and politicians make decisions about the economy. It is a travesty that it considered with so much importance, were 5-10 years ago it was part of an arts degree, especially the way that economics pretends to understand the infinity complex human psyche and basically gamble on it. In addition, the fact that people are fundamentally greedy and interested in ones self and the repayment of debt is rarely taken into account drives me wild.

 

[Matt H]

Economics is a pseudo-science, as admitted my many academics and published in many textbooks, no worse than that it is pseudo-science that is now believed to be firstly correct and secondly it is how bankers and politicians make decisions about the economy. It is a travesty that it considered with so much importance, were 5-10 years ago it was part of an arts degree, especially the way that economics pretends to understand the infinity complex human psyche and basically gamble on it. In addition, the fact that people are fundamentally greedy and interested in ones self and the repayment of debt is rarely taken into account drives me wild.

You actually don't know a thing you're talking about. Your position is unfortunately common in people who are completely uneducated in the subject, but if you go pick up an intro micro text book and read the damn thing you wouldn't be spouting such ignorance.

 

[Registered Nutcase]

You actually don't know a thing you're talking about. Your position is unfortunately common in people who are completely uneducated in the subject, but if you go pick up an intro micro text book and read the damn thing you wouldn't be spouting such ignorance.

Nice reply, unfortunately once again you are showing your naivety to history and the real world. I come from a family of academics and while my personal belief is that economist should be hung drawn and quartered. I have had many enlightening conversations with very prominent businessmen, academics and several lectures including an economics lecturer, all of which have told me the same thing. However, if you know better than they do with your half economics degree....

 

[Matt H]

Nice use of argument from authority there, RN. Seriously, what do you actually know about the study of economics? Have you ever even looked in a textbook or are you getting all your information from the occupy movement? And yes, I do think I know better. Half an economics degree is still more than no formal education in the subject whatsoever. And if you think I'm just arguing this way because I want to become an economist or something, you're wrong. I'm studying a dual degree with a bcom in finance.

Anyway, this is a pointless argument that's only going to go in circles. This conversation reminded me that I forgot to tell you a few months back why you were wrong about the recession in Australia, so I'll dig that up when I'm finished for the semester.

 

[Mattydv]

Economics is a pseudo-science, as admitted my many academics and published in many textbooks, no worse than that it is pseudo-science that is now believed to be firstly correct and secondly it is how bankers and politicians make decisions about the economy. It is a travesty that it considered with so much importance, were 5-10 years ago it was part of an arts degree, especially the way that economics pretends to understand the infinity complex human psyche and basically gamble on it. In addition, the fact that people are fundamentally greedy and interested in ones self and the repayment of debt is rarely taken into account drives me wild.

:doh:

Ten Chars.