Posted on 08/15/2010 6:46:17 PM PDT by Graybeard58
Even before there was an Obama administration, there was the hue and cry for the government to "do something" to stimulate the economy reeling from the Chris Dodd Bear Market and Recession. But there also were voices warning that stimulating the economy the way Barack Obama and congressional Democrats intended — massive government borrowing to fund massive spending on government employees and infrastructure; government interference in commerce; microscopic interest rates — was failure waiting to happen.
Those voices recalled how Japan stimulated its economy 10 times after the credit bubble burst in 1990. Each time, Japan ramped up government spending and borrowing; interest rates were reduced to almost zero. Investment, consumption and economic growth never rose above anemic, however. Government debt got so out of control that the Bank of Japan couldn't raise interest rates because it might have collapsed the government buried under a mountain of debt. Japan's "Lost Decade" is now in its third decade because it has been unable to escape the economic doldrums.
The lesson lost on the Obama administration is government can't produce prosperity. After trillions in deficit spending, its economic program has failed. Look around: All signs point now to stagnation or worse, yet the push is for further Keynesian pump-priming, only this time with recession-fanning tax increases on entrepreneurs.
The Fed pledges to keep short-term rates near zero. But as John C. Michaelson of Imperium Partners Group of New York City detailed recently in an excellent Wall Street Journal op-ed, the Fed's strategy has "pernicious consequences," as recent history proves. Low rates depress investment returns, so companies must divert money for operating expenses to meet their pension obligations; that leads to job losses and pay cuts that reduce consumer spending. Governments that increase payments to their pension funds to make up for lost investment income exacerbate their budget crises; those that carry these losses as unfunded liabilities worsen future crises.
Banks are discouraged from lending to job-producing companies because they can invest their near-zero-interest loans in zero-risk government bonds. Low rates also failed to produce the promised spike in consumer spending because shell-shocked Americans are deathly afraid the recession may deepen and the government's response will make things even worse. This same fear and loathing has companies, even those making record profits, sitting on their cash reserves, now estimated at nearly $2 trillion.
Mr. Michaelson says it's obvious the United States is near the jaws of the Japan trap. His counterintuitive way out is to raise short-term rates so "more funds will flow to borrowers who will invest them in job-creating activities and increase consumption. And from a recovery perspective, increased returns on cash will cause Americans to feel more confident about their economic future." This would begin a spiral of business expansion, job creation, and higher consumer confidence and consumption that would draw the bulk of that $2 trillion off the sidelines and generate trillions in economic activity.
He is not alone in believing the Obama administration has not put America on the road to recovery. But it appears the only way to get the government to follow his road map is to change the government. That's why America has elections and why elections are important.
They can't.
Then again I don't know if they think more than 2 years ahead anyways.
So banks have so renew the loans to FROM the fed every two weeks
when they loan it to the federal government per t-bill bonds for two years?
Whether they buy a 1 month yielding 0.137%, a 3 month yielding 0.155%, a 6 month yielding 0.185%, a 1 year yielding 0.238%, a 2 year yielding 0.533% or they keep the money as excess reserves, they'd have to renew a loan from the Fed.
8<)
The cogent plan is this:
- End regulations that make no sense
- End subsidies that make no sense
- Repeal Obamacare, which makes no sense
- Avoid tax hikes; Extend all the tax cuts
- Drill here, drill now
- replace corp income tax with business transfer tax and import tax
- allow for full expensing of R&D and investment
- eliminate any interest mortgage deduction
- tort reform
- jaw bone businesses to buy American and find out ways to keep production in the USA
the economy will rebound and with it, demand for credit.
Does it seem to you that Republicans and Dems are both hoping that the other party will be in power when interest rates go up?
I was thinking of the Jimmy Carter economy 1978-1980.
The thing is, there are millions of variable rate mortgages out there with people barely making the payments.
If rates start to rise, there will be another wave of foreclosures and bank failures as a result.
The morons in government have built a catch 22 situation were all paths out have very bad consequences.
A reduction of principal reflective of real market value combined with a government backed, assumable bargain rate refi for every legitimately acquired mortgage that is underwater, in exchange for a majority of any future appreciation upon resale, would have been far, far cheaper than the tens of trillions we’re into thus far. It would have stabilized the initial trigger for the financial crisis as well.
The "grannies" you speak of are people who saved for their whole lives, who lived in a fiscally responsible way for their whole lives, and put savings away while it earned usually 4% or more interest. Have you noticed? While that was happening the US had the best economy in the world.
So what is "granny" doing now? Cutting back on funding grandkids educations and vacations etc., giving less to cultural things, spending less money locally. Why? To subsidize an invasion of foreigners, the take-over of our bodies (you'd be amazed how many seniors who don't like the new intrusive health-care "reforms"), take-over-kids lives education programs and helping people who got mortgages they couldn't afford.
And what about the younger two or three generations? How are they going to save if they can't find steady work, can't pay off their debts, and savings don't get a boost from interest? Who're the feds going to rob next? There's no one left.
STARVE THE RICH, FEED THE POOR, TIL THERE AIN'T NO RICH NO MORE"
Ten Years After
(You really should study your 1960s and '70s rock and roll)
I don't know about that one. A lot of people paying their mortgages and just getting by need that income tax refund to pay their property taxes.
If they want another 500,000 foreclosures, raise the rates.
” The thing is, there are millions of variable rate mortgages out there with people barely making the payments.
If rates start to rise, there will be another wave of foreclosures and bank failures as a result.
The morons in government have built a catch 22 situation were all paths out have very bad consequences. “
WINNER!!
Oh, wait!
Ah yes, we all recall the Peanut Farmer and those wonderful lines at gas stations and mtg rates OF 12%+, INFLATION IN THE TEENS ETC ETC ...Long Live Jimmah Cawta !
Isn’t it about the only and most urgent thing to do ?
Thanks for the ping Graybeard. “Remember in November” as seems now is the battle cry, and yes Michaelson makes sense, but then too....he’s not trying to destroy the country.
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