Wackonomics

[mcsluggo]

Originally Posted by alexamenos

if one were to argue that cigarettes causes people's heads to explode, thereby rendering them unfit for competition, then I think the examples of Jim Thorpe and Babe Ruth would rebut that argument pretty effectively.

by way of analogy....this is pretty much the argument against deflation -- that it feeds a viscious cycle downward....

...but it doesn't, and the 19th century gives us about a hundred years of evidence that the fears stoked about deflation are a bit of reefer madness.

(btw.... I believe "Fiscal Stimulus" = "Re-fellating the Economy")

I don't understand the head exploding analogy, although the fellatio analogy is crystal clear

as far as inflation versus defaltion... it is not all or nothing. No, the world doesn't collapse into a black hole in the face of deflation (nor inflation) but but there are vicious cycles in both cases that are needlessly painful. you could use the exact same analogy to observe that during the 20th century Western economies (and the US in particular) experienced unprecedented levels of growth and prsperity, in spite of the inherently inflationary environment they operated it. BUt that doesn't stop you from breaking out the "fear of inflation Armageddon" crackpipe either...

[Arne]

Originally Posted by mcsluggo

and property rights in this case are exactly whatever they are negotiated as. You sign a contract when you borrow or lend that lays out the acceptable usage of the borrowed/lent funds. Property rights are perfectly well defined in a lending agreement.

What about people who do not put their money in a bank. Now the banks create money via fractional reserve banking. What happens to peoples money? Oh.. it loses value. - This would be perfectly fine for me, if people were completely free in which type of money they use. But because of taxes on gold, legal tender laws, etc., people are forced to use what the government calls money.

Yes, 100% fractional reserve banking would eliminate banking as we know it. However, when the Fed was created it was such a situation in which banks did not have as much influence on the financing of enterprises.

The second position austro-libertarians stance is that of private money. Governments get out of the way and let the people decide which type of money they prefer. If banks issue money and inflate it, they would presumably go out of business. - This is the option that was never ever tried before. It would be truely revolutionary.

[Arne]

Originally Posted by mcsluggo

I wasn't quoting Rothbard, I was quoting Alex. Fractional reserves are what enable a bank to lend out money.

If you have time deposits then you don't have to have any reserves.

"Before we discuss fractional reserve banking, it is important to understand the essence of savings and lending. The first myth to dispel is that money is wealth. Money is not wealth; real wealth is tangible physical goods. Your house, your furniture, your car, your golf clubs -- those are real wealth. Money, as the medium of exchange, is a claim on real wealth. Therefore, the act of saving is the expression of an individual’s preference to relinquish his claim on wealth today for a future date. It is very important to understand this. Money is a convenience that arose to facilitate trade. Before money, every trade was an exchange of real wealth (barter). With the introduction of money, every trade is still an exchange of real wealth, just temporally disconnected because the receiver of the money doesn’t complete his side of the trade (receive his goods) until he spends the money he received in exchange for his goods.

This is true of lending as well. Jones borrows $1000 today to purchase goods and services. Tomorrow he repays $1000, but is actually repaying what the money can purchase. He borrows real wealth, and returns real wealth. Therefore, lending entails a transfer of real wealth from lender to borrower. The existence of money tends to obfuscate this insight, but does not change it.

Bank lending

Recall that gold warehouses are storage facilities. An individual depositing money at a warehouse does not relinquish his or her ownership of it, and more importantly, does not relinquish his or her claim on real wealth. The money is still theirs to spend, it is just being safeguarded. This arrangement is a checking account. Alternately, the depositor may instruct the warehouse to lend out their money through a savings account. Here, a depositor relinquishes his or her ownership of the money to the lending institution and thus the would-be borrower. Restated, the depositor relinquishes his or her claim on real wealth in favor of the borrower. In this manner, real wealth is saved, and lent out. The transaction is still a trade of real wealth where money is merely the intermediary.

Savings and lending are voluntary acts on the part of the lender and borrower to trade real wealth now and in the future. Fractional reserve banking undermines this process"

[alexamenos]

Originally Posted by mcsluggo

you could use the exact same analogy to observe that during the 20th century Western economies (and the US in particular) experienced unprecedented levels of growth and prsperity, in spite of the inherently inflationary environment they operated it. BUt that doesn't stop you from breaking out the "fear of inflation Armageddon" crackpipe either...

that's fair enough. i don't think i've argued that economics is easy.

[GermanDunk]

Swedish GM-subsidiary "Saab" considering to close its gates for ever.

[alexamenos]

Thomas Friedman groks the trees (and misses the forest)

...ask yourself this: Why couldn’t former Treasury Secretary Hank Paulson solve this problem? And why does it seem as though his successor, Tim Geithner, won’t even look us in the eye and spell out his strategy? Is it because they don’t get it? No....

...We are coming off a 20-year credit binge. As a country, too many of us stopped making money by making “stuff” and started making money from money — consumers making money out of rising home prices and using the profits to buy flat-screen TVs from China on their credit cards, and bankers making money by creating complex securities and leverage so more and more consumers could get in on the credit game.

....ask youself this, Thomas Friedman: Why can't a crack dealer and a pimp solve the problems of crack-addicted hooker? Is it because they don't get it?

[alexamenos]

Funny...

the American Bankers Association is upset that financial accounting standards require that they report their assets at the lower of cost or market.

Reporting the value of something at the lower of cost or market is on board with a time-honored tradition of accounting--conservative is better...

So, where do you go when accounting standards that apply to everybody else and have been in place forever are making you look bad?

Congress, of course.

The Federal Government is the bunch that takes your social security taxes, spends it, and then calls the money it owes you an asset....this the bunch that when they couldn't account for $2 trillion dollars (and this was back when $2 trillion was a lot of money) at the pentagon, they decided to try to save money by cutting out reports....like the report showing they couldn't account for $2 trillion.

But I'm sure they'll do a bang up job on re-writing the accounting standards.


(incidentally....in case you're not aware, "regulatory agencies" by and large do not regulate anything other than competition...other than that, they facilitate and they should therefore be call "facilitory agencies".)

[Mavdog]

I'm not sure that the "mark to market" rules are correct in the goal of fairly valuing assets, especially if there is no active market existing that can place a value on those assets.

second, if a co. isn't seeking to trade those assets, why should they be forced to take a near term view of what those assets would bring (with the commensurate write down) rather than the historical value that could very well be acheived when the decision to sell is made?

the rule has resulted in overreaction by the investment community.

that being said, fasb should not be subject to political interference.

[alexamenos]

Originally Posted by Mavdog

I'm not sure that the "mark to market" rules are correct in the goal of fairly valuing assets....

Jeffrey Skilling would certainly agree.

[Mavdog]

Originally Posted by alexamenos

Jeffrey Skilling would certainly agree.

ironic you would bring up skilling, the application of mark-to-market was pivotal in enron's ability to inflate their asset values, in that case m2m worked to increase asset values to unrealistic figures. enron would not have been such a train wreck if m2m wasn't applied

the pivotal question is if assest values should refect a value on a single day and time, or a more accurate longer term view.

[alexamenos]

Originally Posted by Mavdog

ironic you would bring up skilling, the application of mark-to-market was pivotal in enron's ability to inflate their asset values, in that case m2m worked to increase asset values to unrealistic figures. enron would not have been such a train wreck if m2m wasn't applied

the pivotal question is if assest values should refect a value on a single day and time, or a more accurate longer term view.

the pivotal question is accounting, not appraisal. Lower of cost or market works fine for this. If there is no market for the asset, then that ought to tell us something about the asset's value.

[Mavdog]

in this case it is accounting for the "appraisal" value of the asset

again, the lack of a viable market on a given day does not truly reflect the long term value.

a slurpee is not worth as much on a day when it's 5 degress outside and snowing compared to a summer day of 110 degrees. there may be only one person willing to buy that slurpee for a dime on the winter day, on the 100 degree summer day people will be lining up willing to pay over a $1. if the co is forced to value the slurpee based on the winter day's market, it's undervalued compared with what it's possibly worth.

[mcsluggo]

the japanese allowed their banks to avoid any real consideration of how much their useless assets had actually withered away, it was a key key factor in their inability to actually come to grips with their asset bubble pop and subsequent banking failure... that limped along for over a decade.

make the banks value conservatively. if they are insolvent, they are insolvent... and will have to be nationalized. Just do it already... if the assets rebound a little, the govt can recoup some of its losses in the workout. THis financial sector mess is going to cost $2trillion to fix. We ought to stop beating around the bush and just get to it... stalling isn't going to make it taste any better.

[alexamenos]

David Brooks helps Krugman look like a serious economist:

Global capitalism is an innovative force, they [Republicans] could argue, but we have been reminded of its shortcomings. When exogenous forces like the rise of China and a flood of easy money hit the global marketplace, they can throw the entire system of out of whack, leading to a cascade of imbalances: higher debt, a grossly enlarged financial sector and unsustainable bubbles.

China, a country on the rise in no small part because it has gone capitalist pig, and government banks printing money....these are short comings of a free market???

Brooks seems to get that 'higher debt, a grossly enlarged financial sector, and unsustainable bubbles' are intrically linked with a flood of easy money, so I suppose that's a step forward.

[mcsluggo]

uh... he isn't stating that China's rise is a failing of capitalism. He is stating that the international financial marketplace was seeming unable to absorb the huge flows of capital out of china generated by their ginourmous CA surplus. THAT was the failing he pointed to.

Overstated, perhaps... but not redikkulous.... china was in fact the crack dealer that kept feeding our fix through this bubble.

[mcsluggo]

Originally Posted by mcsluggo

the japanese allowed their banks to avoid any real consideration of how much their useless assets had actually withered away, it was a key key factor in their inability to actually come to grips with their asset bubble pop and subsequent banking failure... that limped along for over a decade.

make the banks value conservatively. if they are insolvent, they are insolvent... and will have to be nationalized. Just do it already... if the assets rebound a little, the govt can recoup some of its losses in the workout. THis financial sector mess is going to cost $2trillion to fix. We ought to stop beating around the bush and just get to it... stalling isn't going to make it taste any better.

and speaking of the Japanese...

http://www.nytimes.com/2009/03/11/bu...s.html?_r=1&hp


"Earlier most Asian stock markets climbed, but Japanese shares sank to a new 26-year closing low amid ongoing worries about the economic crisis. Japan’s Nikkei 225 stock average fell 31.05 points, or 0.4 percent, to 7,054.98 _ the lowest closing level since Oct. 6, 1982 when the index finished at 6,974.35"

[mcsluggo]

Obama has really failed the japanese as well. What an idiot

[alexamenos]

he's calling China an "exogenous force" in the global market place, and that is absurd...kind of like calling the Boston Celtics an exogenous force in the nba.

the "exogenous force" in the market here is the "flood of easy money", and it's rather difficult not to notice the source of that exogenous force.

[Mavdog]

Originally Posted by alexamenos

David Brooks helps Krugman look like a serious economist:



China, a country on the rise in no small part because it has gone capitalist pig, and government banks printing money....these are short comings of a free market???

Brooks seems to get that 'higher debt, a grossly enlarged financial sector, and unsustainable bubbles' are intrically linked with a flood of easy money, so I suppose that's a step forward.

brooks use of the term "exogenous" is in reference to the relatively recent emergence of china in the world's economy. remember it was just a couple of decades ago when china was not integrated in the world's economy but was an island of only domestic production/consumption.

the question that the article you attached begs is this: his advise to the republican party is to get with the plan and work to put forth proposals to confront the economic crisis, and stop being the party of "just say no".

in that regard he is right. the crisis needs solutions, and to take the position that if we do nothing everything will work itself out is ostrich-like.

[alexamenos]

Originally Posted by Mavdog

...his advise to the republican party is to get with the plan and work to put forth proposals to confront the economic crisis, and stop being the party of "just say no".

in that regard he is right. the crisis needs solutions, and to take the position that if we do nothing everything will work itself out is ostrich-like.

yes, here's a prominent neo-con saying "the cost of inaction is much greater than the cost of action...we have an emergency, send us your money and your 18 year olds and we'll protect you."

...am I supposed to pretend I haven't heard this one before?

[Mavdog]

Originally Posted by alexamenos

yes, here's a prominent neo-con

brooks a neo-con? don't believe that is accurate.

[alexamenos]

brooks is as neo-con as neo-con gets.

[Mavdog]

brooks does not fit into a neat little box such as you want to place him, to call him neo-con is inconsistent with his writings, which are inconsistent with neo-con philosphy.

[alexamenos]

Originally Posted by Mavdog

brooks does not fit into a neat little box such as you want to place him, to call him neo-con is inconsistent with his writings, which are inconsistent with neo-con philosphy.

He calls himself a neocon, he was a significant contributor to an anthology of neo-con writings, and he was at the Weekly Standard waving pom poms for the iraq war in 2002 and 2003. He's as neo-con as neo-con gets.

And neo-cons by and large are horrible on economics -- they haven't a clue.

They're like Liberals...Liberals that really, realy like war...

....I guess that's something of a redundancy--of course Liberals like War, they're entire philosophy of government revolves around pointing a gun at someone's head and taking his shit...Liberals love war.

I guess I should say that the big difference between Neo-Cons and Liberals is that Neo-Cons give a little more credit to religion and what not...Liberals could learn a thing or two from neo-cons by mixing a little more religion into their spin...

...oh wait, I think Liberals are already doing that. Never mind....it is pretty hard to tell neo-con's from Liberals....maybe I should say that the difference between a Liberal and a neo-con is the neo-con, tho he's proto-typically and quintessentially left-winger, doesn't call himself a liberal.

anyway....David Brooks was last seen advising the Republicans that going to war in Iraq was a grand idea, and look how well that turned out.

[Mavdog]

brooks also wrote for the Atlantic, which is decidly not a neo-con publication. and of copurse the new york times, which is as non neo-con as is possible.

your propensity to place people in cubby holes ("neo-cons by and large are horrible on economics") when not so cut and dry reveals a desire to simplify.

know what? it isn't so simple....

government taxation is waging "war" on its citizens?

your weathervane points decidedly towards anarchy, which is neither positive nor realist, and in fact reveals a certain pessimistic vein in your thinking.

anarchist are by and large anti-social personalities who prefer to vacate the contract that civilized societies operate under.

anarchists are really no different than many psychopathic personalities (ted kaczynski?) who feel animosity towards others, and wish to excuse themselves from limitations which are placed upon us by our mutual desire to live together in an orderly society.

and david brooks was not "last seen advising the Republicans that going to war in Iraq was a grand idea", he was last seen advising republicans that having sarah palin on the ticket was a bad idea, and he was right on that.

and he is also right in advising republicans that being the party of "just say no" to any action addressing our current economic malaise is political hari kari.

[alexamenos]

It's them damn dirty little yellow people causing all of this trouble....

...at least according to Greenspan.

The growing meme of the "savings glut" by those nasty little yellow bastards as the cause of the housing bubble is good in at least one regard -- it's finally breaking through the mainstream consciousness that there is a connection between low interest rates and high home values. (duh!)

Now that they're beginning to admit the obvious (part 1), the obvious (part 2) might come into the equation just a bit.

[alexamenos]

Originally Posted by Mavdog

anarchist are by and large anti-social personalities who prefer to vacate the contract that civilized societies operate under..

Institutionalized violence and coercion is the antithesis of the contract under which civilized societies operate. The argument you make could just as easily be an argument for organized crime or any form of tyranny.

The basis of civilized society is voluntary, mutually beneficial (non-coercive). Holding a gun to someone's head and taking their shit is not civilized, and it's the psychopathic mind that argues otherwise.

And there are indeed "limitations which are placed upon us by our mutual desire to live together in an orderly society". That's why property rights matter.....to non-socialists.

[Mavdog]

Originally Posted by alexamenos

Institutionalized violence and coercion is the antithesis of the contract under which civilized societies operate. The argument you make could just as easily be an argument for organized crime or any form of tyranny.

"institutionalized violence and coercion"? the subject is the role of an elected representitive government, not a group of thugs and their leaders who prey upon those with no ability to defend themselves.

if you truly believe that our social covenant is based on "violence and coertion" to function, your beliefs are grounded in the surreal.

The basis of civilized society is voluntary, mutually beneficial (non-coercive). Holding a gun to someone's head and taking their shit is not civilized, and it's the psychopathic mind that argues otherwise.

there are no free rides. if one wishes to receive the benefits of civilization, of the protections our society provides to each and every one of us, we must underwrite those costs. that is voluntary, as if one does not wish to participate in our society, if one wishes to not benefit, one can remove themselves and go out alone.

it is a psychopathic mind that would believe these benefits and peace of mind are merely provided by right with no obligation of payment.

And there are indeed "limitations which are placed upon us by our mutual desire to live together in an orderly society". That's why property rights matter.....to non-socialists.

government defends our property riights, and such rights are extended by the rule of law established by government.

[alexamenos]

Originally Posted by Mavdog

if you truly believe that our social covenant is based on "violence and coertion" to function, your beliefs are grounded in the surreal.

uhh....you're the one that believes this, not me.

[Mavdog]

Originally Posted by alexamenos

uhh....you're the one that believes this, not me.

hey, you are the one who believes that our government practices "Institutionalized violence and coercion ".

me, I believe we voluntarily participate.

[DirkFTW]

Apply that approach to your tax returns, and you too can qualify for a government position!

[alexamenos]

Originally Posted by Mavdog

me, I believe we voluntarily participate.

That's funny.

[alexamenos]

portent of things to come

[alexamenos]

in which a banana republican gets his panties into a wad...

Are We A Banana Republic?

I'm stupefied to find that some people are defending the constitutionality of Nancy Pelosi's discriminatory, confiscatory and retroactive tax on people who receive bonus income from companies that got TARP money. I would have considered it a bright line rule that the government can't identify a class of unpopular people and impose a special tax on them. What's next? A 100% income tax on registered Republicans, retroactive to last year? If Pelosi's bill passes muster, why not?

ct'd....

if I were to write an essay with the same title, it'd go something...well...it'd go exactly like this:

Are We a Banana Republic?

Yes.

The banana republicans have spent most of the last decade ignoring the constitition or finding some tortured logic to violate the spirit of the constitution or bashing a guy like R. Paul for being a stickler about the constitution. The only time the banana republicans care about the constitution is when a democrat is busting one of their fat banker buddies. If the b. r.'s had given a whit about the constitution over the last decade we wouldn't be in as big of a mess as we're in, so when I read or hear of a banana republican gettin' all constitutional over this issue I simply think "extreme profanity deleted by forum moderator".

[alexamenos]

Glenn Beck on the Dollar Dump.

Says Beck...'it's happened before and it's happening again.' I'd add that it is obvious to all who have eyes to see.

[alexamenos]

those brits have a way with words

[alexamenos]

I sure do hope our Zimbabwe Solution works better than their Zimbabwe Solution.

Mugabe abandons worthless currency

Zimbabwe's new coalition Government has decided to withdraw the country's worthless currency from circulation for at least a year and rely exclusively on other hard currencies.

Economic Planning Minister Elton Mangoma has been quoted in the state-controlled Sunday Mail newspaper as saying the Zimbabwe dollar, whose value was sent crashing by an official policy of the former regime of President Robert Mugabe to print huge volumes of cash to keep up with state spending, ''will be out at least for a year''.

''We resolved there will be no immediate plans to introduce the money because there is nothing to support its value,'' he said.

In late January, when it took 20 trillion Zimbabwe dollars to equal $US1 ($A1.41), the Government adopted international hard currencies, mostly the United States dollar and the South African rand, as legal tender alongside the local currency.

Inflation running into percentage points with 15 zeroes had made trade in Zimbabwe dollars impossible and business was already conducted predominantly in hard currencies, albeit technically illegal.

''Our focus is to ensure that we first have a vibrant industry,'' Mr Mangoma said.

''If we try to reintroduce the local currency now, it will face the same fate of being wiped out of its value within weeks.''

The new power-sharing coalition Government of Mr Mugabe's ZANU(PF) party and Prime Minister Morgan Tsvangirai's Movement for Democratic Change has levied all taxes, duties and state services in US dollar terms while adopting the rand as its official ''currency of reference''.

The use of foreign currencies has seen critical shortages of all commodities, including basic foodstuffs, filling store shelves again.

The Government says it needs $12billion to reconstruct the economy, but Western donors have said they will not contribute while the country continues to commit human rights abuses. DPA

What do you call 1,000,000,000,000,000%? Is that a bazillion percent or gazillion percent? aw....screw it..."Inflation running into percentage points with 15 zeroes" ....

So...the Zimbabwe 'dollar' is no more, and the kicker is that there is very, very little difference between the Zimbabwe and the Federal Reserve Note....substantially there is no difference. I suppose you could say that the folks at the Fed have a much better sense of their own interests and they won't be as quick to print themselves into oblivion, but then again "Helicopter" Ben got the nickname because he suggested the Fed should drop FRNs out of helicopter to stimulate spending.

anyhoo...this is the fate of fiat currencies and it will be the fate of the Federal Reserve Note...it's a question of when not whether.

[alexamenos]

Obamanation is slowly and painfully grasping a few economic things. It's kind of painful to watch them grapple with issues, like watching children of below average intelligence struggle with something really basic....'getting it' for a moment and then finding themselves struggling in confusion again.

If you're kind of impatient like me, at some point you just want to b-slap the kid and say, 'look dumb-ace, 2+2=4 because 2+2=4....there's nothing else to understand, that's just the way it is....quit eating your boogers.' It doesn't do any good to slap him around, because the reason he doesn't get it is because he's stupid.

anyhoo....like I was saying, it's kind of funny to watch Obamanation grapple with the economy...or it'd be funny if it weren't going to end up so painful.

obama the chief prick

... “We know that an economy built on reckless speculation, inflated home prices and maxed-out credit cards does not create lasting wealth. It creates the illusion of prosperity, and it’s endangered us all,” Obama said recently.

But what Obama rarely says about ending the “cycle of bubble and bust” is this: He’s prepared to intervene to make sure that kind of red-hot growth doesn’t occur.

And he’s willing to do it with added government regulation if needed to prevent any one sector of the economy from getting out of balance – the way the dot-com boom did in the 1990s and the real-estate market did earlier this decade.

According to Austan Goolsbee, a key Obama economic adviser, the president plans to focus on stopping bubbles along with preventing busts. And in an interview with POLITICO, Goolsbee said the administration will be on the lookout for new bubbles, like the tech stocks or housing prices.

If new threats are spotted, he said Obama would use “regulatory oversight to prevent guys who want to make a quick buck from doing real harm to the economy. ... That is what it means to get out of the bubble-and-bust cycle.”

Way to go Barry O....he's getting the idea that the source of the problem lies not in the bust but in the boom. That's a nice start, but naturally the chief fascist doesn't seem to spend much time pondering the origin of those bubbles....

....again, like slow little children trying to understand a concept that's just way above their poor little heads...

...Mark Zandi, an oft-quoted economist at Moody’s Economy.com who advised John McCain during the 2008 campaign....said there’s not much an administration can do in practical terms to burst a developing bubble. The best way to cool things down is raising interest rates, which is the purview of the Federal Reserve.

imagine that, the best way to 'cool things down' during the boom is for the fed to raise interest rates -- like there's a connection between interest rates and asset prices...it's hard for the slow kids to make this connection most days.

[DirkFTW]

Your ideas are intriguing to me and I wish to subscribe to your newsletter.

[alexamenos]

...too funny...

...George W. Bush lived in a bubble, partly of his own making, that walled off creative dissent or even, in some cases, common sense.

Mindful of his predecessor, Barack Obama seems to be trying harder to make sure he hears all sides. On the night of April 27, for instance, the president invited to the White House some of his administration's sharpest critics on the economy, including New York Times columnist Paul Krugman and Columbia University economist Joseph Stiglitz. Over a roast-beef dinner, Obama listened and questioned while Krugman and Stiglitz, both Nobel Prize winners, pushed for more aggressive government intervention in the banking system.

All sides =

a)those who think the government should pump nearly 13 trillion freshly printed federal reserve notes into various corporations and micro-manage the entire economy at an unprecedented level; and
b) those who criticize the the government for not doing a whole lot more.

thank god Obamanation is seeking out a diverse array of opinions. I mean...what can go wrong so long as the obamunists are listening to Krugman in order to inject a great deal more common sense into the discussion?