Posted on 07/04/2008 7:27:54 PM PDT by shrinkermd
interesting.
the market corrects itself after an over-supply of money.
upheaval in the economy.
and things are going to fail.
intervention begets intervention begets excess begets failure begets intervention begets regulation.
To be clear, although Mr. Forstmann talks about "fear and greed" getting out of whack, his is not a condemnation of "greedy speculators" or a "culture of greed" or any of the lamentations so popular among the populists in Washington. It is a diagnosis of the ways in which the financial sector responded to a government policy of printing money that was free, or nearly so. "The creation of much too much money caused all of this excess," he says. In other words, his is not an argument for draconian regulation, but for sound money.
Per the Barron's recent interview with Peter Schiff:
The United States has really been living in a fool's paradise, or a phony economy, probably for more than 20 years. But our economy has been growing and getting bigger and bigger. We have been able to convince the world to lend us money and to provide us with goods that we don't produce and that we can't afford to pay for with exports. And it has gotten to the point now where the problem is so big, especially since the real-estate bubble.
Sounds like Americans are about to wake up to the nasty reality that there is no such thing as a free lunch.
I am referring to it as capital misallocation....since the 1960’s Western Europe and the USA have gone into massive debt...not for roads, water or energy infrastructure...but for welfare transfer payments. Probably the greatest capital misallocation in the history of the world. (the previous was Spain’s failure to invest the wealth it brought back from the New World)As Spain’s foolishness cost it the world’s leadership, our foolishness may have done the same.
the chinese save 30% of their income.
the americans that don’t save out number the ones who do; the result, a negative savings rate.
a restructuring of the economy to savings would decimate many service industries—gm, ford, some banks, housing, most credit card co’s, etc.
on the other hand, it may be a slow process.
In other words, it’s Alan Greenspan’s fault.
We have been led by fabulous marketing campaigns to believe that we must have an expensive SUV with GPS and leather seats, a huge plasma TV, a stunning designer home, etc. That's OK if you make the kind of money to support such a lifestyle, but marketing has convinced the rest of America that they deserve these things too.
Whether or not they deserve them, the fact remains that many people don't really make enough money to afford them. That's OK, say the marketers, easy credit is available. Go ahead and buy that house full of furniture with no payments until 2010. What will people say if you don't have a new Tahoe with a boat behind it? And we have fallen into the entitlement mentality that we must have these things now, and we'll worry about how to pay for them later.
Much of the credit we used to pay for these things came from equity loans or refinancing of our skyrocketing home values. Then, at Christmastime, we were told by the marketers that we must spend a couple of thousand dollars or the economy will be in distress. Gotta keep those stores in the black. Put it on your credit cards.
Simplistically speaking, what we have ended up with is an economy which is unsustainable. Oh, we can fix it all right, but many of us may have to tighten our belts and lose the shiny new SUV and the boat, and give reasonable gifts this Christmas. The stores will have to fend for themselves.
Now we have $4 gasoline which will soon be $5. Less driving, less shopping, less eating out. Oh, the inhumanity. We may actually be forced to live within our means. But, but, the economy will crash if we do so! We must keep up our wild spending spree or terrible things will happen!
Terrible things may indeed happen, but in the long run, what we need to do is to hunker down, spend reasonably within our means, and pay off our high-interest debt and begin saving. Yes, saving, and damn the stores. There are still lots of actual rich people out there who can continue wild spending. But not for me.
I'm going to continue enjoying my 15-year-old Ford and my 20-year-old BMW and my 27-inch regular TV. I'm going to pay down and retire as much credit card debt as possible. I may even make some handmade Christmas presents this year. The economy once did fine with this approach. I'm going to live this way out of necessity, and because it's the right thing to do. The economy will have to adjust to reality, and it may be painful for many people for awhile.
We will survive all this. We still have the greatest free country in the world. It's not going to end. We just have to make some reality adjustments. If some of the bankers who jacked up prices and made subprime loans have to lose a portion of their multimillion-dollar bonuses for awhile, that's just tough luck.
IMF finally knocks on Uncle Sam's door
The IMF's board of directors has ruled that a so-called Financial Sector Assessment Program is to be carried out in the US.
This will separate the boys from the men
Anyone who thinks deserve a lifestyle beyond what they can pay for in cash deserves the agony of defeat.
The end is near!
The end is near!
Oh Golly Wolly, Teddy.
The end is near.
In reality, this is not too complicated. You make a bad investment, you lose your money (unless your Uncle Sam bails you out). If your dear old Uncle bails you out, he does it by spreading the loss among all taxpayers (and through inflation, even to non-taxpayers). Everyone loses except the folks who live off of Uncle’s largesse: social security recipients, welfare whatevers, and government employees, to name a few. And, of course, the guys who made the poor investments in the first place. If dear old Uncle would just stay out of it, the loss would fall where it should, and everyone will be better off. Fat chance!
Afreed. I have seen a lot of ladies who have babies as an economic plan
that’s funny!
i could name a few.
Going cash only can be a wonderful thing, except when real interest rates are below zero, in which case other people gain the opportunity to eat your lunch right in front of you, without you even realizing it.
That may or may not be true. If it were, the U.S. press should have picked up on it by now. The only source is Der Spiegel in Germany. Check the article...it's only covering the coverage.
Note that people who got seriously into debt were making rational decisions. They can file for bankruptcy protection if they can't pay their credit card bills. They can let the bank foreclose if they have non-recourse mortgages or home equity loans. The unfortunate reality is that we will end up paying for rash bankers' and cynical borrowers' decisions, in the form of tax breaks for over-extended borrowers and FDIC bailouts for depositors at risk due to multi-trillion dollar bank losses.
And just how frequently do real interest rates go below zero, and how long do they stay there? In my experience not very often and never more than two quarters.
How many times have we seen something censored from the US media sources? Dozens!
The Chinese have fed their savings into a massive real estate and stock market bubble, courtesy of the government-run banks and insurance companies that have dabbled directly and extended loans to entities that speculated in both markets. The Japanese have very high savings rates, and they only served to feed a massive bubble that blew up over twenty years, resulting in Japanese real estate values that are 10% of what they were at their peak, and a stock market that is 1/3 of its peak value - today. Again - the Japanese market's peak value was 20 years ago, and it's not quite clear that the deflation of that bubble is completely over. The problem isn't too little savings - it was and remains too much money chasing too few profitable investment opportunities.
Personally, of course, it makes sense to save for a rainy day - financially, it's way less stressful on a day-to-day basis. But on a macro level, the problem is too much, rather than too little savings. Which means that whatever you invest in, you want to make sure that the focus is on return of principal, not return on principal, as some wealthy investors in zeroed-out hedge funds are finding out.
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