Posted on 03/10/2008 6:15:48 PM PDT by shrinkermd
Yes, certainly. If we have a recession the congress and president should take the occasion to cut tax rates - any supply sider going to disagree with that?
"We are in the deleveraging part of the boom that started, more or less in 1913 and WWI, peaked in 1938"
Oh, just horsefeathers. The money supply contracted 30% from 1929 to 1933, and a violent flurry of debt repudiation and default resulted.
"not including the ignorant windbag"
Abuse is not an argument, ad hominums are admissions of bankruptcy.
All booms end in busts, and Mises has nothing to do with that, nor is the obviousness of that point any support for any of his other arguments, nor are busts avoidable by outlawing booms, because booms aren't removable either.
Boom and bust cycles are simply as normal as the existence of weather, that is all. There is no contradiction in any of it, in the Fed's job or anything else. The existence of the trade cycle isn't an indictment of capitalism or banking of anything else, any more than the sun coming up in the morning is some refutation of morality. Does the sun come up in the morning? Why yes, it does. Does that have anything to do with the existence of morality? Why no, it doesn't, doesn't have anything to do with it, really. Do all booms end in busts? Why yes, they do. Does this mean central banking is absurd and a failure? Why not, it doesn't, doesn't have anything to do with it, really.
Credit expansion doesn't doom anything, any more than the existence of profits dooms anything. All busts are preceded by periods of higher corporate profits. So let's outlaw profit, with Marx! No wait, I detect a flaw.
"has clearly not been the case in the creation of 2 million houses that nobody lives in."
Sure, all real capital misallocations result in real losses of savings to the whole society. Regardless of how they are financed. There is no substitute for good financial management deploying capital sensibly. You can't force capital to be deployed sensibly by outlawing credit expansion. One, because you can't outlaw credit expansion. Two, because capital can be deployed senselessly without credit expansion. Men are falliable, they will err, sometimes in large amounts etc. The cycle, once again, is not removable. Pointing to it and saying "oooh look, a cycle, that's baaaaad", therefore isn't an argument for anything, I am afraid.
"he applied credit expansion in spades to every potential economic problem"
The 87 event was handled very well actually. The German central bank had rather more to do with it that typically understood, but the Fed handled it remarkably well. The early 90s they were too loose for too long, but the reason is obvious - they tracked lagging CPI instead of watching financial markets. The Asia crisis is when the trade deficit moved and they could have tightened then, it would have been a bit late but close enough. In the "oughts", they did tighten and did so pretty smartly actually. Arguably one year later than perfect, and too many gradualist quarter points instead of fewer half points, but that is the most one can allege.
"the current credit bubble: $47T against a GDP of $14T."
That ratio isn't staggering, in fact I see no problem with it. Financial net worth of US households is around $57 trillion. A bigger issue is the persistent undersavings of $700 billion or roughly 5% of GDP, and the accompanying capital importation. If US households increase their savings rate by a percent a year for a decade, we'd be fine. That is the sort of change actually needed, in scale and direction and critical variable.
"15% of GDP goes to debt payments"
Depends on the IR level, but whatever, not itself a big deal. The government recycles 25% of GDP federal level and 40% overall. Wall Street reallocates capital sums amounting to 25% of GDP every year. Trade is 25% of GDP. All comparable figures and all handled routinely. There simply isn't any prior requirement that production and consumption coincide in time or location or immediate benefiting party. Everyone has intertemporal budget constraints, not period by period ones.
"The only rational choice is to allow debt to evaporate through defaults"
Why? What's wrong with transfers from prior contracting parties to later ones being the same scale as trade or taxation or refinancing capital transactions? What do you consider unsound or unsustainable about it?
Lots of it could liquidate without any defaults anyway, since a lot of it is tiered intermediation, and there sizable blocks of collateral involved. The same dollar of collateral moving from end borrower up an intermediate chain can settle 3-5 dollars in debts, easy. The same is true of repayments - we've seen commercial paper run off at a trillion dollar annual rate without major events of default. A few minor ones, that is all.
"They have accepted these junk securities"
Sorry, just ignorant as a description of what is happening. Most of the securities being pledged at the auctions are agency mortgage backeds, top tier.
"Eventually they will stop demanding repayment of the T-Bills. After that they will run out of T-Bills to give away"
Again, ignorant as to what is actually happening. The normal way new money is added to the system is a coupon pass, in which the banking system lets the Fed hold the securities through one interest coupon, then takes them back, and the Fed issues new full powered dollars equal to the coupons. This can be done endlessly, nobody is going to run out of Fed owned treasury securities.
"will give away FRNs instead."
Um, neither the Fed nor the banks decide on the preference between FRNs and bank deposits, that is entirely up to bank depositers themselves. If they want to hold physical notes, and express the preference by visiting their ATM, then the Fed orders more FRNs printed. If they want deposits, then it retires some of the tattered ones regularly returned to it by the backs. FRNs vs deposits is not affected by open market ops in any way.
"the inevitable result as Mises has stated"
Um, he was talking about a gold fractional reserve system with actually convertible notes, we don't have one. The normal thing that happens is the value of the dollar falls on the exchanges and we have a recession, both, until prices adjust and capital is reallocated and real economic growth resumes. Once it does, it is easy for banks to grow their balance sheets again.
"only other choice is recession"
Nothing wrong with those either, entirely normal, etc. Really, you continue to pretend that the mere economic weather is some crisis of capitalism; only socialists believe there is anything fundamental unsound about any of it. There simply isn't. You can wait for the final crisis of capitalism to usher in the glorious revolution and you will be waiting longer than Marx. It isn't going to happen. The 30s were a specific set of avoidable and unforced monetary errors, compounded by gross international mismanagement and the collapse of world trade, and we aren't in the slightest danger of anything remotely like it.
"The policy being advocated by you and Toddster, growing the credit bubble, does not avoid that choice."
Nah, I just say finance the smash liberally, as always, and be a bit quicker on the draw to tighten again after coming out of the current recession. Simple, not earth shattering, nothing epic involved, all utterly routine.
"the currency will be destroyed and replaced with a new one"
Nah, not going to happen, not remotely. Will the exchange value of the dollar fall some? Sure. Perhaps the EU bank and the Fed and B o J collude at some point to halt it, plaza accords style, but I doubt it. Instead it meanders lower and then the recession ends and it comes back about half way vs. the other majors, never quite getting to its full previous value. Again, utterly normal.
I realize that economic doomsayers prefer dramatic ends to all of civilization, but really, they are men in washboards standing on street corners and utter loons. The rest of the real world will buy a few futures and put on a few hedges and try to time their go long bets, and eventually everyone fighting the Fed will rediscover the Wall Street adage.
The more interesting practical question is what course will long rates take through it all. If we get serious outright deflation through debt defaults, then for the treasuries they will go considerably lower than now, lagging inflation be darned. And present commodity prices will prove to be a bubble of their own. Or it could be a significantly more inflationary outcome, stretched over 3-5 years, with long rates ending higher than today. That I regard as the main open question in the matter.
Capitalism halting or the dollar going away, just not going to happen. To the tears and continued bear screeching of the doomster crowd.
You also don't know anything about me, but then you knew that.
You have declared class warfare, and can well have it. You and your half-educated paymaster scam artists try to defend your ill-begotten system of crony capitalism, with a direct line of credit to the federal reserve as conservative freedom. You are morally, financially and intellectually bankrupt no-class louts.
I presume you are paid by your paymasters to make a pursuasive argument about why we should all go along with Federal Reserve subsidies to the bankers who have lost all of these $100B's probably by now closer to $1T out of the financial system on a ruinous interlocking set of loans all backed up by a laughably complex and unfounded system of computer guided derivatives. You don't know how laughably stupid the whole thing is to anyone who knows anything about the behaviour of complex dynamic systems.
Well, you are not smarter than anyone else, but merely arrogantly stupid. And because of your arrogance you can tell your paymasters that you lost the argument. All you have done is PO a lot of folks who now want nothing except your utter complete and total ruin.
That is not jealousy of my betters. It is contempt for an immoral arrogant lout who utterly deserves it.
50% interst rates by tomorrow morning. That is the ticket. I'll be fine. Will you and your overlords?
WTF does this ignorant driveling nonsense mean. Can your overlords at least hire someone who can speak English, even if they can't stop being arrogant louts.
How can you slander an theoretical abstraction? How?
Furthermore, I have no problem with capitalism -private investment in the means of production, and the right to free market returns on the output of that production and on labor provided in the production. None.
The second you go to the federal reserve for a bailout, swap of underperforming debt for money, performing debt or whatever, my tolerance for your definition of freemarket capitalism ends. Right then and there, and if you and your kind come to oblivion because I think you should live with the ruin of the consequences of very poor decision, well tough. That is free market capitalism to a T.
Oh I am now a confirmed adherent to the Austrian school all right. Now that you ahve been such an persuasively arrogant shyster, instead of merely wanting some constraints on the federal printing press, which is where I entered this argument, I want sound money backed by gold tomorrow morning when the market opens, whatever the consequences. Let the markets then do what free markets will with free exchange based on sound currency. And if you come to ruin over it, or can't see your way to manipulating paper instruments to making your next bonus, well, no tears as John Gutfreund once told Meriweather. Many of us have seen it coming for many many years. Von Mises saw it coming in 1912. After all, it is just the markets at work doing what markets do; creative destruction as Schumpeter called it.
I know that you are 1/2 educated, shallow and intellectually dishonest.
Before tonight I was not a gold bug, but Baghdad Todd and Professor C have convinced me that we need an airtight sound currency tomorrow, and the best anyone has yet come up with is the gold standard. I doubt that is what their paymasters had in mind when they started this argument, but that is where I now am. Next time they need to hire altogether more loveable shills. Perhaps Spitzer knows where they could get a couple.
Excuse me, Mr. Super Genius. I automatically bow and genuflect before your awesome self-proclaimed wisdom. Why, you are so smart, you are in a league with these fellows.
“Derivatives have permitted financial risks to be unbundled in ways that have facilitated both their measurement and their management…. As a result, not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.”~~Alan Greenspan, May 2003
"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage."~~Alan Greenspan, February 22, 2004
“The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions.”~~Alan Greenspan, May 2005
"We're not about to go into a situation where (real estate) prices will go down. There is no evidence home prices are going to collapse."~~Alan Greenspan, May 21, 2006
“The damage from the subprime market has been largely contained. Fortunately, the financial system and the economy are strong enough to weather this storm.”~~Richard Fisher, Federal Reserve Bank of Dallas President, Apr 4, 2007
"All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."~~Fed Chairman Ben Bernanke, May 17, 2007
I don't think we're headed into a recession. But there's no question we're in a slow down and that's why we acted with over $150 billion worth of pro-growth economic incentives, mainly money going into the hands of our consumers... The purpose is to encourage our consumers - to give 'em money - to help deal with the adverse effect of the decline in housing values.~~President George W. Bush, Feb 28, 2008
Typing out verbal diarrhea that goes on for screen after nonsensical screen is his substitute for intelligence, and who knows, it probably works with his crowd.
"I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future." ~~E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928
"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."~~Irving Fisher PhD, leading U.S. economist , New York Times, October 17, 1929
"If recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the Federal Reserve System would take steps to ease the money market and so check the movement."~~Harvard Economic Society, October 19, 1929
"This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years." ~~R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929
Followed by an even more violent increase to 280% of GDP by 1938.
Boom and bust cycles are simply as normal as the existence of weather, that is all. There is no contradiction in any of it, in the Fed's job or anything else. The existence of the trade cycle isn't an indictment of capitalism or banking of anything else,
I've told you I agree with that, but you refuse to acknowledge that our credit bubble is a credit-fueled boom which is now 335% of GDP which is not close to unwinding. You only see the current, tiny unwind of a lot less than a trillion out of 47 trillion and declare that we must lower rates to reinflate the bubble.
You can't force capital to be deployed sensibly by outlawing credit expansion. One, because you can't outlaw credit expansion. Two, because capital can be deployed senselessly without credit expansion.
All true and not pertinent. Credit expansion of the reckless Alan Greenspan variety leads to extreme malinvestment like the housing bubble because there is too much credit chasing too much risk. The spreads on junk were lowered to insane levels. Triple A was lowered to a few hundredths of a percent above treasuries and that was triple A that was fraudulently (yes, I know you don't like that word) rated. It is the excessive credit that leads to the excesses in the credit markets (bubble), and the fear of letting the credit bubble unwind leads to the excessive credit.
Financial net worth of US households is around $57 trillion.
Laughable. Paper assets versus real debt: there's no contest which persists. Paper assets that produce negative income since they are taxable versus real debt requiring real payments. Why are people mailing their keys to the bank? They should be ignoring their trivial debt and concentrating on all those wonderful assets.
Why? What's wrong with transfers from prior contracting parties to later ones being the same scale as trade or taxation or refinancing capital transactions? What do you consider unsound or unsustainable about it?
There is nothing sustainable about using 15% of national income to pay interest on debt when that income grows by $1 for every 6 or 7 dollars of new debt (comparing flow of funds for consecutive quarters). Debt cannot stabilize at those rates, there is new debt created simply to pay off old debt which the Fed participates in. Credit sources are not a bottomless well and if you think they are, then you are admitting that Mises was right because lower in the well lies hyperinflation.
Lots of it could liquidate without any defaults anyway, since a lot of it is tiered intermediation, and there sizable blocks of collateral involved. The same dollar of collateral moving from end borrower up an intermediate chain can settle 3-5 dollars in debts, easy.
Not easy since defaults go up the same chain.
Nothing wrong with those [recessions] either, entirely normal, etc. Really, you continue to pretend that the mere economic weather is some crisis of capitalism; only socialists believe there is anything fundamental unsound about any of it.
I agree, so why is the Fed still lowering rates? They are already too low as we learned from the last bubble.
Nah, I just say finance the smash liberally, as always, and be a bit quicker on the draw to tighten again after coming out of the current recession. Simple, not earth shattering, nothing epic involved, all utterly routine.
So why is the Fed creating 200B in new credit and will ultimately monetize bad securities? What excuse are you going to use when they do that? That it is routine? That inflation is ok since we are not guaranteed any particular value of money? That these people are just trying to help get across a routine soft patch?
The problem is not the nonfinancial economy; it is rotating out of real estate like it should. The problem is the inevitable and unstoppable contraction of the credit bubble. If the Fed does manage to stop it, it will be at great expense to investors and savers (which is why I am a speculator in gold and other things). Then, after we go through another bubble cycle (perhaps in alternative energy, energy and commodities), the credit bubble will collapse from an even higher point and you will be here arguing for even more negative real interest rates, helicopter drops and whatnot.
It is a little disappointing that we can’t get better shills here. Maybe they can outsource them from India. In a decade or two all the shills will be bots anyway.
If you are going to hire someone to put out I kind of like Kristen. I know it is a minority opinion, but I think she is in the not guilty category, unlike these guys. If someone is going to talk trash, at least let it be someone who is sort of cute.
Exactly. They are, at this point, torn between 1/ not going down in history as idiots, like those in my 1928-9 quotes above, and 2/ not being blamed for causing a panic.
But they are tiptoing toward the truth, now that it is shining so brightly that even the sheeple are looking up.
Who would ever have known. You mean like now, through fractional reserve banking, the banks could end up lending out 10 times that amount. WOW! Really.
None of us would ever have guessed that this was the whole point of the exercise. I thought it was just to trade around some paper like Baghdad Todd explained, pointlessly since, after all it is just a loan that has to be repaid at the onerous terms set by the Federal Reserve. Never figured it might actually lead to an expansion of available credit.
I mean, man, like who knew? [/f'in sarcasm]
Palmer, do you smell pig stuff?
If we get another rate cut, where do you think gold and oil end up by the end of August?
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