Posted on 05/16/2009 5:56:38 PM PDT by Lazamataz
I don't want to nitpick, but I will. There are actually two forces you are talking about there. One is the change in consumption patterns from that fourth laptop to savings which hopefully results in investment (versus speculation) or spending on education, or consumption that will result in more production in our country. The second factor is deleveraging which is what Southack was talking about. We've figured out that borrowing 99 cents to buy a penny's worth of securities is not a good idea even if those securities are rated "AAA" and "insured". The Fed is attempting to counteract that develeraging because rapid deleveraging can lead to systematic failure with all of our derivatives and fractional reserves. But that much leverage is bad, everyone knows that, even the Fed.
I would argue that preventing deleveraging by providing government loans in the tens of trillions guarantees collapse of the magnitude suggested in the article. Alternatively letting the big banks get repriced to zero and liquidated is also expensive and will be painful to the rest of the economy, but not catastrophic because alternative financing will quickly spring up for worthwhile businesses. This is basically because the market will know that the government isn't going to ruin their investment by trashing the currency (all of the world's currencies included).
Higher interest rates won't increase consumer demand and won't reverse housing deflation.
Deflation is how the Market removes surplus capacity. Thus, there is no magic bullet such as changing interest rates that will solve the current deflationary depression.
Nor is there a pain-free solution.
The solution will occur, of course, but it will be painful. Prices will drop until enough capacity is removed from the industrial, transportation, service, housing, office, and retail industries.
If you want an easy Gedanken mental thought experiment to illustrate the above, simply imagine yourself walking in to a bank to ask for a commercial loan for a building based upon future rental rates to your tenant increasing.
After you've had a good chuckle realizing that no banker would make such a loan any longer, you'll catch on to the stagnant or falling price zeitgeist that is making its way through the entire planet's economy.
That's deflation...the one thing that a fiat currency and central banks were supposed to be able to solve...turns out to be more difficult to do in practice than in theory.
As far as if collapse really happened through the stage of political collapse, I have no doubt we would have roving gangs take advantage of turmoil worse they they already do. Whether it would cause us to collapse socially or result in a lot of dead gang members, is another question.
Obama’s debt legacy in handling this crisis and spending like a drunken socialist will have a negative legacy on our economy and government for a long time. How bad it will be, is really is not known.
You are right in the observation that Americans are not spending like nuts and have adjusted their behavior and views of material based on economic reality. This will help.
We have been in a deflationary phase but I think the Obamaites have pumped in money and created enough money out of thin air to produce inflation in some sectors perhaps energy is one
Get ready for deflation and inflation at the same time. All depends what sector of the economy
Re post 61. I agree with what you are saying. Let me ask you a question, or several. Seemingly several states are already bankrupt: California, Michigan, perhaps New York and others. Many major cities are also too far in the red to ever get out: Detroit comes to mind first. Can the federal government be far behind? What happens then?
I really don't think it's overproduction. Rather, I think we collectively reached our credit limit.
For the record, the Russian author is not far off, but he doesn't hit the mark ... yet.
BTTT
bump
How did that work?
The federal reserve creates a loan to the federal government, which makes you and me the debtors. That loan is then used to fund social programs and pay graft to such as Fannie Mae and Freddie Mac, as well as paying on the debt load (the interest payments to those holding our debt) and funding things like military spending. Every time spending exceeds revenues, we the people are the indebted parties, not the chuckie schumer types.
The ‘money’ to bail out anything not the federal government is debt transferred to you and me and our grandchildren and great grandchildren, etc.
Yes we did. We have way too much debt; as consumers, as a government, and as businesses.
You are mistaken.
That loan is then used to fund social programs and pay graft to such as Fannie Mae and Freddie Mac
At least half of all government spending is wasted, as far as I'm concerned, but that's not caused by the Federal Reserve.
Every time spending exceeds revenues, we the people are the indebted parties,
You bet. Congress and the President spend (waste) way too much money. Blame the spenders.
Yes, the TARP bailout money spent by the Treasury increased our debt.
***
And here is a seven part explanation, from Griffin, author of The Creature From Jekyll Island. The Federal Reserve does create a loan to the federal government, but it is touted as something else. It is a ponzi scheme deception.
The federal government borrows all their money before the Federal Reserve does anything. If Edward Griffin claims anything differently, he is mistaken as well.
but it is touted as something else.
The truth hurts.
Wow, that is a lot of reading.
Todd, I know you like to take a literal approach towards the Fed v Congress in terms of which party technically originates debt obligations. However, there are activities which the Fed undertakes that in many ways forces the FedGov to cover the losses via Treasury obligations.
TARP is a perfect example. A lot of economists believe if the Fed had taken a more conservative approach during the Greenspan era, we wouldn't have had the housing bubble that ended up threatening our largest financial institutions to the point were they required a bailout.
Likewise, with Bernanke & Co accepting $trillions in agency debt & MBS (previously a big no-no), he is committing the Fed to greater risk than that of the individual member banks that used them as collateral to access funds. Who here doesn't believe that We The People are not going to be asked to cover the losses in these bonds when they inevitably occur and threaten the entire system with insolvency?
So, of course you are correct that the Fed doesn't technically have anything to do with increasing our national debt. But they are an indirect party with limited oversight that is able to threaten us to cover (that is, issue debt) the results of their bad decisions.
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