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May 3, 2012 9:17 AM   Subscribe

"In other words, credit has become America’s welfare policy," says Sheldon Garon, Princeton University professor and author of Beyond Our Means: Why America Spends While the World Saves. The US savings rate currently = 3.8%, while the Euro Area savings rate = 13.7%[pdf].

Garon comments: Although it’s not clear why welfare states actually correlate with high saving I think there are a couple explanations. One, by keeping most people from falling into destitution, welfare states ensure that most households remain financially stable. This automatically results in a higher national savings rate. Whereas in our country, although stable households also save at pretty good rates, we have a significant portion of our population living in poverty. They have to borrow to make ends meet, and so they go further into debt...

Also, I think welfare states increase saving by providing citizens with national healthcare and free or low-cost higher education. Healthcare and education are big costs for the average American household. These expenditures, I think, further diminished our savings rate.
posted by airing nerdy laundry (106 comments total) 25 users marked this as a favorite

 
Debt's the way, uh huh, uh huh, I like it, uh huh, uh huh
Debt's the way, uh huh, uh huh, I like it, uh huh, uh huh
posted by flapjax at midnite at 9:21 AM on May 3, 2012 [14 favorites]


Believe me, I'd save more if my mortgage weren't half of my take-home pay.
posted by Melismata at 9:30 AM on May 3, 2012 [5 favorites]


The US savings rate currently = 3.8%

Is that before or after everybody's 401k evaporated ?
posted by Pogo_Fuzzybutt at 9:34 AM on May 3, 2012 [3 favorites]


Savings is great when you have a future. But debt is perfect when you don't, because why not now? There won't be a tomorrow to pay it off!

American eschatology dictates that I party hard, hard like hard times are coming, party hard like I'm never gonna ever have money again.
posted by TwelveTwo at 9:38 AM on May 3, 2012 [9 favorites]


And if people saved more, they'd say 'You're hurting the recovery. Get out there and spend.'
posted by AnnElk at 9:46 AM on May 3, 2012 [5 favorites]


I wish I could save but I'm still paying off debt from moving all over the place chasing the next job after getting laid off.
posted by Ghostride The Whip at 9:51 AM on May 3, 2012 [7 favorites]


You can't be a debt slave without debt.
posted by DU at 9:52 AM on May 3, 2012 [8 favorites]


And if people saved more, they'd say 'You're hurting the recovery. Get out there and spend.'

This "they" that you're talking about are not the "them" who wrote the article.
posted by incessant at 9:52 AM on May 3, 2012 [3 favorites]


Bizarrely, the savings rate declines when income rises. When people have more money, they also borrow more money. It's hard to explain why a rational human being would do this.
posted by miyabo at 9:54 AM on May 3, 2012


Saving for the future is irrational right now.

The stock market seems a lot like a casino, so I have no inclination to invest there. I don't have any confidence that my money won't end up in some complicated borderline-fraudulent scheme which will be raided by somebody who is already more well-off than I am, and who will not be prosecuted for the fraud.

Saving in a bank isn't going to beat the cost of inflation.

The major things to save for, like my notional kids' college education and health care for when I'm old, are increasing in price well in excess of the inflation rate.

I don't actually think it's rational to try to save in the belief that it will make anything easier for my retirement-aged self. I'm saving what I can to buy as much of a house as I can purchase outright, or as close to outright as possible, once I find a place where I expect to be for a good long time, and that's my retirement: living on a place that I own outright, and working until I die.
posted by gauche at 9:54 AM on May 3, 2012 [24 favorites]


'You're hurting the recovery. Get out there and spend.'

Apparently this only applies to the 1%.
posted by The 10th Regiment of Foot at 9:56 AM on May 3, 2012


Bizarrely, the savings rate declines when income rises. When people have more money, they also borrow more money. It's hard to explain why a rational human being would do this.

The more money you have, the easier it is to get credit, so a lot of people figure, "why not?"
posted by dortmunder at 9:58 AM on May 3, 2012 [1 favorite]


Bizarrely, the savings rate declines when income rises. When people have more money, they also borrow more money. It's hard to explain why a rational human being would do this.

They don't save money because they invest it not borrow it. "Saving" is for peons and proles.
posted by Talez at 9:59 AM on May 3, 2012


"The road to riches is paved with debt."
-Trammel Crow
posted by charlie don't surf at 10:01 AM on May 3, 2012



Bizarrely, the savings rate declines when income rises. When people have more money, they also borrow more money. It's hard to explain why a rational human being would do this.


Maybe you are incorrectly attributing rationality.
posted by notreally at 10:02 AM on May 3, 2012 [2 favorites]


Believe me, I'd save more if my mortgage weren't half of my take-home pay.
posted by Melismata at 12:30 PM on May 3


For me it's daycare and my entire paycheck.
posted by zizzle at 10:08 AM on May 3, 2012


You could put $50 per month in a "safe" 1% FDIC-insured savings account, hoping that it might actually allow you to pay for something, someday.

Or you could get the new fridge now on a credit card, even if it will cost you a lot to go into debt. At least you'll have the fridge, which might well cost another $100 next year in addition to the credit card interest.

I think I might have to revisit the first couple of chapters of William Greider's Secrets of the Temple: he talks about spending patterns during the "stagflation" (i.e kind of like what we have now) of the 1970's.
posted by Currer Belfry at 10:10 AM on May 3, 2012


Debt going up with income makes sense to me. If I earn 30k, even modest debt risks cutting into my necessary margin, but if I'm earning a couple of million dollars even an enormous percentage going to service debt will leave plenty of cash in absolute terms.
posted by Forktine at 10:11 AM on May 3, 2012 [1 favorite]


You could put $50 per month in a "safe" 1% FDIC-insured savings account, hoping that it might actually allow you to pay for something, someday.

This is the killer, really. Money in a savings account actually *decreases* in real dollars, measured against inflation. Call me crazy, but at least with, say, a $5000 deposit for 5 years, I should get better than 1.1%.
posted by DU at 10:13 AM on May 3, 2012 [4 favorites]


Saving for the future is irrational right now.

Saving is never irrational. Sure, the value of your savings erodes in this interest-rate environment, and no sane person would be in stocks right now. A game for rich people and fools.

But save something, anything, even if its value drops. That $3,000 you saved may have dropped to $2,200 in inflation-adjusted terms. But when the car breaks down and it costs you $2,200 (as just happened to me!) it's nice to have even the eroded savings to fall back on.
posted by kgasmart at 10:13 AM on May 3, 2012 [6 favorites]


You could put $50 per month in a "safe" 1% FDIC-insured savings account, hoping that it might actually allow you to pay for something, someday.

This is the killer, really. Money in a savings account actually *decreases* in real dollars, measured against inflation.


It does grow versus my 0% interest "mattress" account though.
posted by The 10th Regiment of Foot at 10:23 AM on May 3, 2012 [2 favorites]


...and no sane person would be in stocks right now.

Your definition of sane must be different than mine.
posted by COD at 10:28 AM on May 3, 2012 [10 favorites]


Given the way most of the welfare states are bleeding money and piling on debt, private-sector savings is kind of irrelevant. Once those bills start to come due, the taxman cometh.

If everyone is saving, say, $5K/citizen/year, but the government is accumulating debt at $10K/citizen/year, and not using that debt to create things that will liquidate the debt (like, say, power plants, or factories, or perhaps universities), then those savings are going to be destroyed, either through direct confiscation, or through inflation. You may be smart enough to evade some of that wealth loss, or may even be able to profit from it if you are very smart, but taken as a whole, the country gets poorer every year, and living standards will eventually drop... either gradually or sharply, but they will drop.

I don't know what the actual savings versus expenditure figures are like, but I can tell you for damn sure that the REAL saving rate in America is sharply negative, and the European one is way under the claimed 13.7%. In 2009, 10% of the entire American GDP was debt accumulation by the government! And that doesn't even consider a different kind of debt position, trade deficits, when a country's currency flows overseas in exchange for goods. If your overall trade position is roughly balanced, you can run deficits and surpluses to different countries, no problem. But, when your currency is accumulating by the trillion in foreign hands, as is happening for America, that lets those foreign countries outbid you for anything they want. If and when they start consuming, instead of producing, they're going to be demanding American goods and production in exchange for their dollars -- yet another form of debt we have to repay.

The world is simply choking on debt. The entire First World has run up staggering bills that it has no real hope of making good on; we've been eating our seed corn. Eventually, the savers of the world are going to figure out that the debtors of the world are mostly not good for it after all, and things will get Very Bad Indeed.

That tried to happen in 2008, but the government temporarily forestalled it by printing insane amounts of money, and changing rules willy-nilly, revealing that our 'financial system' is really Calvinball, run by the banks. But, since all money is lent into circulation, that's creating more debt to try to fix a debt problem. You can use a home equity line of credit to pay down credit cards, and end up in a better position, but you have to stop spending on your credit cards. We didn't do that. Between the money injection and the bailouts, we took on a massive equity loan with the explicit purpose of running up our credit cards.

Ultimately, instead of dealing with the problem that America, and much of Europe, are simply consuming more wealth than their economies can provide without damage, we kicked the can down the road. We deployed vast resources to tell the economy to keep being stupid, so, sure enough, the stupidity continues and accumulates.

The blowout, when it does arrive, will be the worst in human history. We could have gotten away with just a Second Great Depression in 2000. In 2008, we could have had a Greater Depression that was much worse than the 30s, but still survivable. (Arguably, even with the massive, massive interventions, we're still in a Great Depression -- the 8.4% unemployment figure is laughable, they just stop counting people when they get inconvenient.) But we chose not to fix the problems. We chose to keep accumulating them. So the global system is in far worse shape in 2012 than it was in 2008, and every month that passes, it gets sicker. Even talking about individual savings, in the face of such insanity from governments, is very difficult.

It's kind of funny that Germany, the largest country in Europe that's doing kinda okay on a fiscal basis, is being hated on for being prudent and expecting other countries to live within their means. And they're not even in that wonderful a position, they're just strong in relation to most European countries, and the US. But their neighbors are eager indeed to drag them into the morass of infinite debt accumulation for stuff we want today, with no thought for how that debt will be repaid.
posted by Malor at 10:29 AM on May 3, 2012 [31 favorites]


It does grow versus my 0% interest "mattress" account though.

However, those that chose to invest in the new fridge+interest are only paying a small fee (the interest) while gaining the advantage of the new fridge.

The only drawback is the lack of funds on a future rainy day, but that problem is solved in that through purchasing the fridge on credit now we actually make it less expensive to borrow money on the aforementioned rainy day.
posted by Blue_Villain at 10:29 AM on May 3, 2012


This statistic hardly seems shocking to me. How many Americans are in a position to put aside savings versus the same category of Europeans? Everything is more expensive in the U.S. without the social safety net – medical care, education, child care. Most Americans graduating from a university today wind up with significant student loan debt which delays the age at which they can begin saving. And the percent of the population with mortgages are higher in the U.S. due to government policy encouraging home ownership.
posted by deathpanels at 10:30 AM on May 3, 2012 [4 favorites]


Believe me, I'd save more if my mortgage weren't half of my take-home pay.

Agreed. But read your bill statement. I bet it's expensive because of the friggen taxes that go up every year. It is in my case.
posted by stormpooper at 10:31 AM on May 3, 2012 [1 favorite]


Oh and save? In what? A passbook account that earns less than 1%? Or a 5 year CD that earns 2%? Give us a reason to save and get a return that we're proud of. That's why people go into debt---immediate gratification and pay the bill later (or never).
posted by stormpooper at 10:33 AM on May 3, 2012 [1 favorite]


Or a 5 year CD that earns 2%?

unicorn
posted by DU at 10:41 AM on May 3, 2012 [4 favorites]


Whenever I worry about low-earning savings and investments getting wiped out by runaway inflation, I bear in mind how much consumer debt is out there and am at least vaguely reassured. The banks and the government are not going to allow inflation to take off if they can help it because the thing it will destroy first is the value of all that debt.

If I thought inflation were going to take off I'd get a second mortgage and run up my credit cards, so I could spend todays valuable dollars and pay it off with tomorrow's worthless ones. But I suspect that wont be allowed to happen.
posted by George_Spiggott at 10:42 AM on May 3, 2012 [1 favorite]


The world is simply choking on debt.

This concept bothers me. Not that we have too much debt, but that people don't understand the concept of "owing money" enough to understand that the entire world can't be in debt. Somebody has to own the debt, and the product/capitol that was given as collateral for the debt had to come from somewhere.

The world isn't choking on debt. There are a large number of non-western countries that aren't in this problem. Those are also the countries that produce things, whether it's petroleum in the middle east or manufactured goods out of asia, or whatever, they obtain/create things that weren't there before and exchange them for large amounts of capitol.

It's like those short-term payday loans, that one inevitably has to either change their lifestyle considerably to get out from under them or continually get additional loans to pay off the one that's due next. The American system from previous depressions changed many things to make themselves better; how banks operate (FDIC), how the government takes care of it's people (Medicare), heck even introducing women into the workforce during wartime. The America of today is absolutely refusing to make any changes, and then either too stupid or too gluttonous to understand why they're still in debt after a war and/or depression.
posted by Blue_Villain at 10:43 AM on May 3, 2012 [12 favorites]


Remember yesterday when we were giving that rich asshole who married an excel spreadsheet a lot of shit for saying 'most americans don't understand the economy'?

This thread is convincing me he was right on that single point at least.
posted by spicynuts at 10:51 AM on May 3, 2012 [5 favorites]


You can use a home equity line of credit to pay down credit cards, and end up in a better position, but you have to stop spending on your credit cards. We didn't do that. Between the money injection and the bailouts, we took on a massive equity loan with the explicit purpose of running up our credit cards.

Because our economy depends on it. "The American way of life is non-negotiable," remember? Profligacy is that way of life. There is no cultural change coming. There's no cultural change possible.
posted by kgasmart at 10:53 AM on May 3, 2012


Saving is never irrational. Sure, the value of your savings erodes in this interest-rate environment, and no sane person would be in stocks right now. A game for rich people and fools.

But save something, anything, even if its value drops. That $3,000 you saved may have dropped to $2,200 in inflation-adjusted terms. But when the car breaks down and it costs you $2,200 (as just happened to me!) it's nice to have even the eroded savings to fall back on.


Having a nest egg and a rainy-day fund, yes. Adding to those things, yes. And you'll note that I did say I'm saving to buy a house (as outright as possible). But the idea of saving for retirement or to send the kids to college seems awfully remote to me, because I'm saving pennies on the total cost and I will never get there.

And, as a lot of bullish-on-American-capitalism people like to point out, the riches of American capitalism are distributed to the general public in the form of consumer goods which are cheap for Americans to purchase. If I have a dollar, I can either partake in the (dubious) riches of the consumer economy, or I can put a drop into a bucket that is growing faster than I can fill it. The one virtually guarantees some amount of momentary utility; the other guarantees nothing. I could live my life on gruel and put every spare cent towards retirement: I will still die penniless. That is why saving is irrational.

(Note: I actually do save rather a bit, but I have no confidence that this savings will ever be enough to make a dent in any of the major later-life purchases that I or my children are likely to incur. I'm saving for a house because I'm bearish on housing prices, because I believe that the lion's share of the foreclosure inventory hasn't hit the market yet and it will be a shitshow when it does. I do not foresee similar eventualities bringing down the costs of higher-education or end-of-life care.)
posted by gauche at 10:55 AM on May 3, 2012 [6 favorites]


Federally-insured savings account rates are actually pretty great when you consider what 90-day T Bills are going for. You get the same amount of risk as T Bills (full faith and credit of the US Government, no duration risk) with a much higher return.
posted by indubitable at 10:57 AM on May 3, 2012


By the way, the reason you're getting nothing for your savings is, again, because of the bailouts. Those of who who are being prudent and not consuming everything you're owed by the economy should be able to give your 'turns' at the economic well to other people, in exchange for more turns later. You should be rewarded, in the future, for doing without in the present.

But, in Bailout America, you have to compete with your dollars against unlimited supplies of the same stuff, created from nothing, lent for free. So of course your savings have no value. You might as well consume it now, since anything you want is only going to get more expensive over time.

This thinking is very corrosive to real wealth generation, and the only reason you're not seeing crazy inflation already is because other countries are stepping in and holding their currencies at par with ours. As our dollars flood the world, the other central banks print their own currencies and sop up the extra dollars off the market. So, THEY are getting the inflation instead. It's very high in many countries... I think I was reading 15% in China, and something like 12% in India.

Eventually, those countries are going to figure out that maintaining parity is hurting them more than it's helping them. Once they stop intervening, we'll start seeing truly serious inflation here at home.
posted by Malor at 11:08 AM on May 3, 2012 [1 favorite]


Look at the way the US has been piling on debt relative to these welfare states. If the European welfare states are going to destroy all that savings digging themselves out, what go you think the US going to do?
posted by Kid Charlemagne at 11:08 AM on May 3, 2012


Blue_Villain
""The world is simply choking on debt.""

" This concept bothers me. Not that we have too much debt, but that people don't understand the concept of "owing money" enough to understand that the entire world can't be in debt."

Actually, it is possible. Debt is money, so basically the richer the world is, the higher the debt. Unfortunately the debt can never be repaid and to serve interest you have to create more debt. If everything would be paid back to the last penny (what is not possible by definition). There would be no money left anymore. To make things worse, interest has the nasty habit of growing exponentially, so that a break down is inevitable. This is not a bug of the capitalist system, it is a feature. The world may not be far away from a total reset of the system and then it will start again.
Have a look on this picture which basically shows change in GDP vs change in debt over time
posted by yoyo_nyc at 11:11 AM on May 3, 2012 [1 favorite]


what go you think the US going to do?

At least for now, we're the default reserve currency, so we'll try to print our way out of the mess. It won't work, and it will be the end of America as a global power, just as currency failure has been the doom of so many other empires. There will still be a United States, much as England and Russia still exist, but it will be a pale shadow of what it once was, and it might not even be the same fiscal entity anymore.
posted by Malor at 11:12 AM on May 3, 2012


I could live my life on gruel and put every spare cent towards retirement: I will still die penniless. That is why saving is irrational.

Add to this the fact that Social Security and Medicare will indeed be scaled back in coming years, and you have a world in which retirement is simply not fiscally possible. That's going to be a pretty rough, angry world.
posted by kgasmart at 11:14 AM on May 3, 2012 [1 favorite]


I could live my life on gruel and put every spare cent towards retirement: I will still die penniless. That is why saving is irrational.

I should perhaps elaborate, although I mentioned this a little above. It does not seem to me that there is any way to make my money work for me without putting it at risk not only to the vicissitudes of the market, but to the appetites of dishonest financiers who will never be prosecuted. I, an educated consumer and potential investor, have no way to tell the difference between a good investment and a fraud. So my money doesn't work for me. I don't get exponential growth; I get linear growth.
posted by gauche at 11:16 AM on May 3, 2012 [10 favorites]


I really don't get the arguments against saving money being put forth here. If I have $1000 in a savings account paying 1.2% versus annual inflation of 3% I'm losing ~$18 to inflation (if you believe the government's inflation data, of course). What sort of consumer good depreciates less than that in a year? Certainly not refrigerators.
posted by junco at 11:21 AM on May 3, 2012 [4 favorites]


By the way, the reason you're getting nothing for your savings is, again, because of the bailouts.

I'm pretty sure savings interest rates have been below the inflation rate for at least 10 years, if not more.
posted by DU at 11:22 AM on May 3, 2012 [3 favorites]


If everything would be paid back to the last penny (what is not possible by definition). There would be no money left anymore.

Note that this doesn't happen with currencies that are backed 1:1 by something real. If everyone settles all their debts, and holds only cash, that's the same as holding the backing commodity, likely gold. Even if everyone in the entire economy trades their dollars in for gold or iron or copper or whatever, you could still use the raw material itself as money. If the money is real, it can't disappear.

Historically, money was just the most marketable commodity in a given culture. The necessary features of money, like fungibility, portability, durability, and rarity have collectively caused cultures to usually select copper, silver, and gold, but money can be anything, and something would arise even if all present currencies failed simultaneously. It's just too useful a concept to go away.

But debt-based money? It's too prone to hijack by politicians and bankers, in my view. When wealth tokens can be created from nothing and exchanged for real wealth, then the economy will inevitably reform itself to serve the people creating the tokens, instead of the people creating the wealth.
posted by Malor at 11:23 AM on May 3, 2012 [1 favorite]



This "they" that you're talking about are not the "them" who wrote the article


I just meant 'they' in general, not the authors.
posted by AnnElk at 11:25 AM on May 3, 2012


It is not trivial to "print your way out of the debt".

"...A less costly alternative would be Milton Friedman’s hypothetical solution: simply drop money from helicopters. This has been linked to “quantitative easing” (QE), but QE as currently applied is not what Friedman described. The money has not been showered on the people and the local economy, putting money in people’s pockets, stimulating spending. It has been dropped into the reserve accounts of banks, where it has simply accumulated without reaching the productive economy. “Excess” reserves of $1.6 trillion are now sitting in reserve accounts at the Federal Reserve. A helicopter drop of the sort proposed by Friedman has not been tried."
posted by yoyo_nyc at 11:25 AM on May 3, 2012 [1 favorite]


So, what ya'll sayin is: we party cause we'll never party again cause we've been partying like its already the end!
posted by TwelveTwo at 11:26 AM on May 3, 2012


Actually, it is possible. Debt is money, so basically the richer the world is, the higher the debt.

But even with inflation and the "adding of money" by the fed through the bank bailouts... the world as a whole is a closed system and has a finite amount of money. If the world existed entirely of two parties, and party A borrows $X.00 from party B... then party A is in debt and B is not. In that scenario the "world" is not in debt, just party A.
posted by Blue_Villain at 11:28 AM on May 3, 2012



I"f everything would be paid back to the last penny (what is not possible by definition). There would be no money left anymore."

Note that this doesn't happen with currencies that are backed 1:1 by something real.


Wrong. Even with the gold standard there would be credit and credit, a promise of payment in the future. Credit, due to interest, grows exponentially. Your suggestion may slow a collapse, not prevent it.

BTW, I am not speaking against interest here. Interest is a fundamental principle of risk, time preference and insecurity. The collapse is not a bug of the capitalist system, it is a feature.
posted by yoyo_nyc at 11:29 AM on May 3, 2012


Oh, I misunderstood your argument. That was Minsky's thing, and he was right.
posted by Malor at 11:34 AM on May 3, 2012


Stats make me all warm and fuzzy.

Because of inflation, $1000.00 buys less now that the same $1000.00 bought when I put it in my mattress back in 1994. But I'm not spending it back in 1994, so it doesn't matter that it's worth less.

I should have spent it all in 1994. That way I would be ahead of the game now. If I put it in a 401K in 1994, so the same $1000.00 would be worth about $650.00.

All I know is that I have a modest MM account that pays a flat 7.5% apr, and next year I'm going to draw it all out and spend it on a week in the islands. That way I won't lose anything when the big bust gets here and the inflation curve goes vertical.

I hope the apocalypse waits until after I get the reservations locked in.
posted by mule98J at 11:42 AM on May 3, 2012 [2 favorites]


"But even with inflation and the "adding of money" by the fed through the bank bailouts... the world as a whole is a closed system and has a finite amount of money. If the world existed entirely of two parties, and party A borrows $X.00 from party B... then party A is in debt and B is not. In that scenario the "world" is not in debt, just party A."

This is true. It always is equal. Money=debt.
But if there are 10 gold coins in the world and Person A has 10 coins and lends them to B, how can B pay 10 coins plus 1 coin interest back?
posted by yoyo_nyc at 11:48 AM on May 3, 2012


But if there are 10 gold coins in the world and Person A has 10 coins and lends them to B, how can B pay 10 coins plus 1 coin interest back?

B borrows 10 coins from A to build a machine.

B makes their first payment of 1 coin. A takes that coin and buys a pizza from C. C takes the coin and buys something from B.

B then makes the other 10 payments A.

The economy works through "redistribution of wealth". The money has to move.

But money is like mass - it prefers to accumulate and it distorts things near it when there is enough of it.
posted by Pogo_Fuzzybutt at 11:55 AM on May 3, 2012 [1 favorite]


Did I miss something? We still have 10 coins in the game but a request to pay 11. Soon a request to pay 12, 13.. This will work. At least so long as everybody believes he will get his coin back, what obviously is not possible.
posted by yoyo_nyc at 12:01 PM on May 3, 2012


Relatedly, 1 in 7 worldwide believe the world will end in their lifetime. Highest on the list? The U.S. where more than 1 in 5 believe they will witness armageddon, (1 in 10 think it will come this year!)

Why save?
posted by 2bucksplus at 12:06 PM on May 3, 2012 [2 favorites]


My point was that the world cannot be in debt, but individual parties within it can.

But the 11 coins in a ten coin game is interesting. The problem there is twofold; first someone agreed to pay back 11 coins with out understanding how they were going to accomplish this task, and secondly someone lent the coins out with a repayment plan that simply wasn't feasible.
posted by Blue_Villain at 12:12 PM on May 3, 2012


Why save?

i hear jesus saves
posted by TwelveTwo at 12:28 PM on May 3, 2012 [2 favorites]


yoyo_nyc, you missed the fact that we can mine more gold or apply technology to refine gold from previously unprofitable sources (where gold is a proxy for any kind of natural resource). The world is not, in fact, choking on debt. Important parts of it are running a large surplus. Despite my reservations about fracking and the environmental risks of other fuel extractions within the US, the fact that the country has taken significant steps towards energy independence is a good thing.
posted by anigbrowl at 12:28 PM on May 3, 2012


Did I miss something? We still have 10 coins in the game but a request to pay 11. Soon a request to pay 12, 13.. This will work. At least so long as everybody believes he will get his coin back, what obviously is not possible.

Oops you're right we messed up. Guess we'll have to start over. Why don't we each start with 5 coins each this time?
posted by Golden Eternity at 12:29 PM on May 3, 2012 [1 favorite]


But if there are 10 gold coins in the world and Person A has 10 coins and lends them to B, how can B pay 10 coins plus 1 coin interest back?

Well, in a world where you knew the money supply would never increase, you'd promise something else in exchange, perhaps some goods from the factory you're building with your borrowing. Of course, in reality, new gold is slowly being added to the system all the time, and the value of debt, while related to currency, isn't automatically constrained by it. The more debt there is in relation to a supply of real money, the more unstable and dangerous the economy gets, because the promise chains, the ones that need to stay unbroken for everything to settle, get longer and longer and more and more interdependent.

Marvin Minsky, an amazing economist who wasn't well thought of in his time, thought that expansion of debt related to money supply was inevitable, and that a crash was also inevitable, which would sear the lesson that debt is dangerous into the population well enough to last for a couple of generations. He believed that really big crashes happened about every 70 to 80 years. I've seen that process described as the 'reset button' for capitalism.

Getting back to your base argument, you can make the same observation about fiat money. If the Fed lends $1000 into circulation, and demands $1100 back in two years, it can't be repaid, full stop. The Fed must lend new money into the system to cover, and then it gets to keep some percentage of the total lendings it has created, as profit. It provides nothing into the economy, but has a little vampire tap inserted, sucking out some of the interest fees paid on M1. In exchange for something of no inherent value, it can extract very real goods and services from the real economy.

Then banks get into the deal, and have much larger vampire taps on the M2 and M3 money. Eventually, they end up being the absolute center of everything, the largest entities in the economy, because as long as they don't load up too high on risk and wipe themselves out, getting something for nothing forever means they will always win, and always grow, and always get more powerful, while the economy around them is damaged in direct proportion to the amount they're sucking out as 'profit'.

If they were providing real value, or running real risk, it would be different, but modern "investment" banks do more speculation than anything else, and if they really screw it up, the Fed rides to the rescue with magic money from nothing. Privatized profit, socialized risk, so of course they're enormous, and getting bigger every year.
posted by Malor at 12:38 PM on May 3, 2012 [4 favorites]


The world is not, in fact, choking on debt.

Actually, it is, because debt is two-sided... the people taking out the loans, and the people making the loans. If the debt can't be repaid, then the lenders are in severe trouble also.

<surfer>Everything's connected, man.</surfer>
posted by Malor at 12:41 PM on May 3, 2012


Marvin Minsky, an amazing economist who wasn't well thought of in his time

Did you mean Hyman Minsky?
posted by Golden Eternity at 12:47 PM on May 3, 2012


Oh, yeah, duh, sorry. Total brainfart. I meant to look up "Minsky" before hitting post, but I forgot.

Nur.
posted by Malor at 12:50 PM on May 3, 2012


miyabo: " It's hard to explain why a rational human being would do this."

Actually, it's very simple. A rising income makes the debt service look easy, so it encourages spending even further beyond one's actual means. The problem comes in when interest rates rise or a job is lost and debt service becomes hard again.

Malor: "This thinking is very corrosive to real wealth generation, and the only reason you're not seeing crazy inflation already is because other countries are stepping in and holding their currencies at par with ours."

Malor, your analysis is often interesting, but this is so far out to lunch I don't even know what to say. Interest is not wealth generation. Things like factories and roads and houses (at least when we need them) generate wealth. What's stopping us from generating much wealth at the moment is a lack of demand, which leads to a lack of funds with which to generate those things. Hence the Fed blowing up the money supply. Too bad it's mostly sitting idle on bank balance sheets instead of moving around the economy as intended.

You prefer hard money, I get that. We do not, however, presently have hard money, so theorizing and pontificating as if we did is leading you down the wrong path.
posted by wierdo at 12:59 PM on May 3, 2012 [2 favorites]


Add to this the fact that Social Security and Medicare will indeed be scaled back in coming years, and you have a world in which retirement is simply not fiscally possible. That's going to be a pretty rough, angry world.

Luckily, angry old people are relatively easy to deploy police against. They don't put up much of a fight before their hips break.
posted by kaibutsu at 1:17 PM on May 3, 2012


i hear jesus saves

Yeah but I bet he's getting more than 2 percent interest
posted by kgasmart at 1:17 PM on May 3, 2012 [4 favorites]


@Malor... you're missing a very big piece there. In our little miniature closed system there's no possible scenario where the 10 coins disappear. They're either owned by A or by B or some combination of both. They can't both come out on the bottom.

One party assumes the risk, and the other party holds the 10 coins. If the debt is repaid then the lender is fine. If the debt is not repaid then the debt is only suffocating the party that assumed the risk. But there's no possible scenario where they're both suffocating.
posted by Blue_Villain at 1:20 PM on May 3, 2012


i hear jesus saves

2 percent interest is fine when you're only taking half damage.
posted by kaibutsu at 1:21 PM on May 3, 2012


Americans are told to spend as a way of broadcasting their identity (branding) and going into debt to do it is felt less acutely when the money is "free." So welfare state provides unearned income, and unearned income + debt is not felt the same way as earned income +debt. Unearned income here is defined as "more money than you're worth." That's explicit welfare, but it is also the manager in Office Space who isn't worth one penny of his $80k/yr salary; or subsidized education, or mortgage interest deductions, etc.

We agree that credit is a form of welfare, in that it is unearned. The interesting thing about America is that it HATES welfare and welfare states, but credit is built into its very psychology. To understand America, you have to understand why it requires "welfare" to be in the form of "credit" in order to be palatable, i.e giving Americans a govt. hand out check is infinitely worse than lowering rates so they can borrow the same amount.

I'm not evaluating the economics- which the avg. American wouldn't understand anyway-- but the psychology. I think it starts on the premise not that "credit will be paid back, welfare won't" but on a much deeper narcissistic sentiment: "I am the kind of person who can pay credit back, so I deserve it." Once you've said this, paying it back becomes irrelevant.
posted by TheLastPsychiatrist at 1:28 PM on May 3, 2012 [2 favorites]


All I know is that I have a modest MM account that pays a flat 7.5% apr

Where are you finding a money market account that pays 7.5%?
posted by adamdschneider at 1:30 PM on May 3, 2012 [3 favorites]


Imagine A starts with 6 tokens. A loans 5 tokens to B. B loans 3 tokens to C. C loans 1 token to A. There's 9 tokens outstanding debt in the economy, and the total combined "wealth" (net worth) is 7 tokens. And there's only 6 physical tokens in existence!

Basically, you can't use tokens as an analogy for money. Everyone is creating money all the time.
posted by miyabo at 1:34 PM on May 3, 2012 [1 favorite]


wierdo: Malor, [...]this is so far out to lunch I don't even know what to say. Interest is not wealth generation.

What the heck? I'm saying this:
  1. For several years, the Federal Reserve has been pursuing monetary easing, aka printing money.
  2. Normally, this would cause inflation, as our currency would weaken, due to there being more of it.
  3. This is not happening very strongly, because other countries (China and Japan two huge players) have been buying dollars, printing their own currency to do so. In essence, they soak up the excess dollars we're creating, replacing them with yuan and yen. They do this to keep their exports to the US high.
  4. As a result, inflation in countries that are maintaining currency parity is extremely high in many cases. The inflation that should be happening here is happening there instead.
  5. But this is just delaying the inflation in dollars, because eventually, they're going to want to sell those dollars off and obtain real goods for them instead. The dollars are still out there, stored inflation, in the same way that suspending a rock overhead is stored energy.
I don't understand your criticism, because this has nothing to do with commodity money, it's a straight-up description of the way things are currently being done. Did you maybe mean to quote a different argument?
posted by Malor at 2:01 PM on May 3, 2012


Oh, also, the inflationary pressure will have to start being transmitted into us at the center eventually -- it can't stay out on the fringes forever. And once it starts, it's going to be devilish hard to stop.
posted by Malor at 2:02 PM on May 3, 2012


kgasmart: "and no sane person would be in stocks right now. A game for rich people and fools"

I completely disagree. I am neither, but I have been investing since I was about 16, and even counting the crash of 86 and the dotcom explosion, and the downturn in 08, I'm still outperforming what I would have made in a compound interest account. (Crashes are buying opportunities. Don't panic, purchase.) People who get really screwed in the market are people who a.) buy on margin without understanding it, b.) buy stock based on a tip from Cousin Eddy c.) buy stock without reading the financials, d.) buy stock expecting the market price to triple.

When savings accounts pay rates of less than 1%, and even Jumbo CDs don't beat inflation, dividend aristocrat stocks pay solid returns on dividends. Buying stock in the hopes that the stock will go up? That's a fools game for anyone not sitting on top of the algorithms that drive the market prices, but dividend aristocrat stocks are "buy and forget" long term stocks, that you really only need to look at when you're rebalancing. These are solid companies with billions in market cap, and are unlikely to be much swayed by vagaries in the marketplace. (I also maintain a "do no evil" policy; I won't buy companies like Halliburton or Monsanto, despite their returns.)

And despite the fact that timing the market is another fool's game, there are times when buying makes a lot more sense. Now isn't one of them, imho, because there's almost always a sell off in May, and a rebuy in October. I don't know why hedge funds do it, but its a pattern I've noticed.

So, yeah, never buy anything at record highs, don't buy anything that doesn't pay a dividend with a yield below 2.5%, let it reinvest if you can afford to not collect the dividend check, and in this economy, you will outperform anything the banks can offer.

(All that said; I still keep a "mattress" float in an account that pays virtually nothing, because I don't want to have to sell portfolio bits in there's an emergency.)
posted by dejah420 at 2:17 PM on May 3, 2012 [6 favorites]


Here I am reading this thread and all the arguments and *brain explodes*
posted by marienbad at 2:17 PM on May 3, 2012


mule98J: "All I know is that I have a modest MM account that pays a flat 7.5% apr"

With whom? I would kill to find rates like that.
posted by dejah420 at 2:19 PM on May 3, 2012 [1 favorite]


@anigbrowl
"you missed the fact that we can mine more gold or apply technology to refine gold from previously unprofitable sources"

It was just an example. You could try to back the world money supply (M3) through gold. I think there are 150.000 tonnes of gold already mined. Making the calculation may give you an idea. The problem is, any form of interest will blow up the system in the long run.

"The world is not, in fact, choking on debt."
It is. Most of the debt like retirement benefits etc. won't be paid in the future. Again, this graphic may suggest that we are nearing an ending point. We may be able to pull us out again but we would need a bigger bubble than the housing bubble. Sine real estate is one of the biggest investment in most peoples life time it is hard to imagine a bigger bubble.

"Important parts of it are running a large surplus."
By definition only a few parties can run a surplus. What are they getting in exchange? Promise of payment in the future. This promise in the form of Lehman certificates of government issued debt will have to be written off.
posted by yoyo_nyc at 2:28 PM on May 3, 2012


"Basically, you can't use tokens as an analogy for money. Everyone is creating money all the time."

This is true. Everybody is creating money if he creates debt. As long as this chain reaction is working you are fine. The problem is that at one point you will have to make bigger and bigger bubbles to keep the ball running. And you can create only debt if you have some kind of collateral. At one point people will be maxed out. This is part of the problem with the near 0% interest rates of the feds. If you are maxed out the interest rates will not make you more credit worthy or give you more collateral. The money goes from the fed to the banks but not from the banks to the consumer since he is unable or unwilling to borrow more. And this is also why the "helicopter" analogies from Bernanke are wrong. Getting money to the people this way has actually never been tried.
posted by yoyo_nyc at 2:34 PM on May 3, 2012


Gold bug gold bug gold bug gold bug.
posted by maxwelton at 2:37 PM on May 3, 2012 [1 favorite]


1. For several years, the Federal Reserve has been pursuing monetary easing, aka printing money.

The Fed doesn't print money, the US Treasury does. The Fed just decides to magically create the money and moves on. Paper be damned!

3. This is not happening very strongly, because other countries (China and Japan two huge players) have been buying dollars...

No. China was a net seller of US Treasuries in the second half of last year and you can see the effect by looking at the appreciating value of the yuan.

It is my understanding that the vast sums conjured by the Fed stayed inside the US. The Fed loaned money to American banks. The banks, however, have not loaned out the money but instead re-invested it in US Treasuries.

The TARP-portion of the bank bailout has been largely been paid back, but this quiet bailout in which Fed dollars are being used by the banks to get free money vis-a-vis Treasuries is the reason why this money isn't having the inflationary effect it might otherwise have. The money isn't getting re-loaned to citizens.

Or at least that's what I think. What the hell do I know? Where the hell is JPD? Mutant? Anyone?
posted by Hypnotic Chick at 2:42 PM on May 3, 2012 [1 favorite]


Oops you're right we messed up. Guess we'll have to start over.

Nice idea. William Grieder has outlined the case for debt forgiveness that is basically the only hope for many homeowners and governments in the darkest fathoms of the trillion-dollar debt morass.
posted by Fritz Langwedge at 3:32 PM on May 3, 2012


It's kind of funny that Germany, the largest country in Europe that's doing kinda okay on a fiscal basis, is being hated on for being prudent and expecting other countries to live within their means.

No, Germany gets hated on for expecting every country to run a trade surplus, and also for stymieing any attempt at a common eurozone fiscal policy while demanding that the ECB adopt a monetary policy that serves Germany best despite fucking over a large part of the eurozone. (This is why a lot of claims about the eurozone just don't hold up at all for any country sovereign in its own currency, like the U.S. or Canada—European fiscal policy and European monetary policy aren't coterminous.)

I love Germany, but their attitude is killing the euro.
posted by one more dead town's last parade at 3:32 PM on May 3, 2012 [4 favorites]


What deja420 said.

Everyone should have 6 months living expenses in a savings account or equivalent. And that's all. The rest of your liquid wealth should be almost entirely in stocks, usually in the form of broad-based, no-load mutual funds.

Here's why.

Look at that graph. Look at it again. Where do you want your money? Right. In stocks.

Now, no one invests for the length of time depicted here. Your actual ride will be bumpier than it looks from this perspective. But if you buy as much of your mutual funds as you can possibly afford, each and every pay period, AND DON'T TRY TO PLAY THE MARKET (because your emotions will always steer you false, and tell you to buy and sell at exactly the wrong time), you'll be fine by the time you want to retire.

Consider this: if you had bought the Dow Jones Industrial Average at the worst possible time in the past century, right at the top of the market in 1929, and held on, you would have been back to even by 1940, just 11 years later, despite the worst depression and stock market crash in American history. And then you would have done fine during the 1940s and 1950s.

And that is the worst case scenario. If you hadn't dumped a lump sum into the market at one time, but invested a percent of your paycheck from 1929 through 1959, you would have done far better.
posted by Slithy_Tove at 3:41 PM on May 3, 2012 [4 favorites]


Note that this doesn't happen with currencies that are backed 1:1 by something real.

Note that "a shiny" does not count as "something real." A dollar bill is not any less real than a gold coin—they're both worth what someone will trade for them, and they have essentially no value other than what someone will trade for them.

This is true. It always is equal. Money=debt.

Windmills do not work that way! Good night!
posted by one more dead town's last parade at 3:44 PM on May 3, 2012 [2 favorites]


Malor: "wierdo: Malor, [...]this is so far out to lunch I don't even know what to say. Interest is not wealth generation.

What the heck? I'm saying this:
...
I don't understand your criticism, because this has nothing to do with commodity money, it's a straight-up description of the way things are currently being done. Did you maybe mean to quote a different argument?
"

It actually has a lot to do with commodity money, or the lack thereof. Your view of the mechanisms holding the dollar's value where it is would be make a lot more sense in a commodity money based economy. The fact of the matter is that there is not enough demand for dollars and goods/services sold in dollars to cause a general rise in prices, no matter how much we print. Between that and the massive destruction of dollar-like assets during the crash, we can throw a lot of dollars into the economy before triggering even a reasonable amount of inflation.

China's inflationary episode is/was caused by their fiscal stimulus in the form of massive bank loans to sub-national governments, not by their buying dollars. If they don't take action to counteract it, they'll soon be on the receiving end of a nice deflationary bubble pop as the loans go bad.
posted by wierdo at 3:44 PM on May 3, 2012


If they don't take action to counteract it, they'll soon be on the receiving end of a nice deflationary bubble pop as the loans go bad.

And then maybe Toronto real estate will stop acting like gold you can live in.

posted by one more dead town's last parade at 3:47 PM on May 3, 2012


The Fed doesn't print money, the US Treasury does. The Fed just decides to magically create the money and moves on. Paper be damned!

True, the physical act of printing money is indeed done by the Treasury. But it has to borrow electronic notes from the Fed before it can print any. I call the creation of electronic balances 'printing money', because it's just about the same thing, but you are correct that this is not quite accurate.

No, Germany gets hated on for expecting every country to run a trade surplus,

Well, admittedly my sources are primarily the BBC and a few English-language newspaper articles (from Europe somewhere, don't remember where), but I don't see that to be the case. Germany wants governments to run FISCAL surpluses, or at least break even. I haven't seen anything about TRADE surpluses.

Trade deficits are self-correcting in economies that can't print money, as is true of Eurozone members. As you run a trade deficit, euros leave the country, starving your economy. This naturally slows down everything, and then the parts of the economy doing exporting bring money back in, automatically making them stronger and keeping the economy more in balance. I think the only way to have prolonged, drastic trade deficits is if you can print money to trade for imported goods, and Eurozone members can't.

Fiscal policy, actual government spending, is not automatically self-correcting without drastic pain (cf: Greece), and from what I've seen, this is what Germany harps on. And they are correct to do so.

and also for stymieing any attempt at a common eurozone fiscal policy

That I haven't heard about. Might it be that they just don't think that perpetual fiscal deficits should be enshrined into firm policy? From what I've seen of them, I suspect they'd love a common policy, as long as it's a good one.

while demanding that the ECB adopt a monetary policy that serves Germany best despite fucking over a large part of the eurozone.

The great majority of the Eurozone has already fucked itself over. Germany is just trying to prevent them from reaching out with their tentacles of fiscal irresponsibility and fucking the Germans too.

Gemany most likely want to protect the value of the Euro, and wants to force other countries to actually live within their means. The other countries want Euros to be printed to 'make everything better'. But printing money almost never actually solves economic problems, it just hides them and makes them worse.

Fundamentally, a lot of Europe can't afford to live in the style to which it has become accustomed, and those sections need to either work harder, or have less stuff. Germany is not the bad guy. The bad people in this equation are the ones trying to spend more than they can afford. If Germany were accommodating of this kind of fiscal foolishness, that would mean even more pain down the road. You have to pay your way in the world. Austerity hurts, but the eventual debt defaults if spending isn't brought under control would hurt enormously more.

It's also worth pointing out that Germany obviously has a clue about how to run its economy. So all the broke countries are carping about the nasty Germans, instead of listening to the people that are actually running a successful welfare state. That's a very, very unusual thing in the world, as evinced by most of the other countries in Europe.

Fiscal discipline is never popular, so of course Germany is disliked. But being disliked is not the same as being wrong.
posted by Malor at 4:03 PM on May 3, 2012


Consider this: if you had bought the Dow Jones Industrial Average at the worst possible time in the past century, right at the top of the market in 1929, and held on, you would have been back to even by 1940, just 11 years later, despite the worst depression and stock market crash in American history. And then you would have done fine during the 1940s and 1950s.

The past is not always an accurate predictor of the future.

Computer algorithms that game the market - that is something new under the sun. And I'm simply too small a fish to swim with those sharks, and so is virtually everyone else.

You think you can beat the algos? Go ahead, and good luck to you. But the population as a whole should have faith in a market gamed by the machines, the owners of those machines, and ultimately the Fed? No thanks
posted by kgasmart at 4:11 PM on May 3, 2012


Last time I saw a number that stuck with me (within the last year or two) the savings rate in British Columbia was -8%. Yep, on average, people were spending 8% more than they earned.

With the coming Canadian real estate toiletflush and long malaise to follow (Vancouver and the lower mainland is going to take it on the chin the hardest, because, along with TO, they've gotten the most ludicrously unaffordable) in Canada, people in BC are in for some hard times indeed. The drops that we've seen in America over the past few years -- RE prices in some areas of Arizona and Florida, if I recall correctly, are up to 70% off their peaks of a few years back, and the average for the US is upwards of a 30% decline -- are going to look like best-case scenarios for many parts of Canada, I think.

Things are gonna get weird.
posted by stavrosthewonderchicken at 4:12 PM on May 3, 2012 [1 favorite]


China's inflationary episode is/was caused by their fiscal stimulus in the form of massive bank loans to sub-national governments, not by their buying dollars. If they don't take action to counteract it, they'll soon be on the receiving end of a nice deflationary bubble pop as the loans go bad.

Oh, they're definitely going to go through a huge crash, and their economy will try very hard to deflate. I imagine they'll do what we did, and print tons of money to try to dodge the fallout. This will make things worse over the long haul, but temporarily better in the short run.

That bubble has been building for a decade. But it's fueled primarily by their massive printing of their currency to accumulate dollars -- the huge stimulus caused by absorbing the Fed's over-supply of money for the last, um, twenty or so years has been one of the biggest drivers in their wild expansion. And they really put the pedal to the metal when we went into inflationary hyperdrive, and now they're suffering terribly. They've been leaning on their banks again and again to increase their reserve requirements, trying to cut down their currency supply without changing their policy of parity with the dollar.

When they go boom, the fallout will be immense. I think it may crash the dollar, because they'll probably start selling their reserves to try to prop up their economy and keep themselves in power -- the Chinese people are going to be furious.

As far as my overall approach -- I've been watching all this a long damn time. Maybe my framing is wrong, but I don't think so. Remember, I was one of the people talking about a housing crash in, hmm, certainly by 2006, maybe even by 2005. Likewise, I was talking about a stock market crash in the 1998-1999 timeframe. Things just get more and more complex, and my mental models aren't keeping up, so future returns may not match historical results. But I've felt like I've actually more or less understood what's really been going on in the US for the last fifteen years or so, and while I've consistently been much too early in my claims, I've also been substantially right about the macro picture. It just always takes longer to develop than I expect it to. Markets can remain bizarrely irrational for long periods. :)
posted by Malor at 4:15 PM on May 3, 2012


That bubble has been building for a decade. But it's fueled primarily by their massive printing of their currency to accumulate dollars -- the huge stimulus caused by absorbing the Fed's over-supply of money for the last, um, twenty or so years has been one of the biggest drivers in their wild expansion. And they really put the pedal to the metal when we went into inflationary hyperdrive, and now they're suffering terribly. They've been leaning on their banks again and again to increase their reserve requirements, trying to cut down their currency supply without changing their policy of parity with the dollar.

Now their suffering terribly? Based on household surveys, the poverty rate in China in 1981 was 64% of the population. This rate declined to 10% in 2004, indicating that about 500 million people have climbed out of poverty during this period.

If lifting 500 million people out of poverty is wrong, China probably doesn't want to be right.
posted by Golden Eternity at 4:21 PM on May 3, 2012


Now their they're suffering terribly? Dope!
posted by Golden Eternity at 4:23 PM on May 3, 2012


Germany wants governments to run FISCAL surpluses, or at least break even. I haven't seen anything about TRADE surpluses.

And that is just as impossible, in the same way it is impossible for every individual to spend less than they earn.

Might it be that they just don't think that perpetual fiscal deficits should be enshrined into firm policy? From what I've seen of them, I suspect they'd love a common policy, as long as it's a good one.

What I mean is that Europe has no central government with the ability to redistribute tax dollars between regions to adjust for the fact that there's not 100% economic uniformity throughout the currency zone. The U.S. and Canada both have this ability and use it; the latter even does so explicitly.

It's also worth pointing out that Germany obviously has a clue about how to run its economy.

It is helped immensely by the ECB, which is maintaining not a one-size-fits-all monetary policy, but a one-size-fits-Germany monetary policy.
posted by one more dead town's last parade at 4:37 PM on May 3, 2012


The great majority of the Eurozone has already fucked itself over. Germany is just trying to prevent them from reaching out with their tentacles of fiscal irresponsibility and fucking the Germans too.

Gemany most likely want to protect the value of the Euro, and wants to force other countries to actually live within their means. The other countries want Euros to be printed to 'make everything better'. But printing money almost never actually solves economic problems, it just hides them and makes them worse.

Germany took some pain a decade ago and has done well for itself, but you seem to forget that right now they are the major beneficiary of the spending spree of the Euro countries in trouble (including armaments and public contracts). Germany's interests are tied to the EU, which remains its greatest market, and preemptively discarding options such as 'printing' money or Eurobonds is more an ideological than an economic choice, especially since a unified European response would ease the pressure of markets on the more vulnerable states... and restoring market confidence is supposedly one of the raisons-d'etre of austerity. Focusing on austerity without regard for growth is slowly leading European economies, even strong ones, into a black hole and that, as well as Germany's heavy-handed political behaviour, is what causes resentment against them, not the economic successes of Germany.
posted by ersatz at 5:57 PM on May 3, 2012 [1 favorite]


Germany most likely want to protect the value of the Euro, and wants to force other countries to actually live within their means.

Spain and Ireland were running budget surpluses in the lead up to the crisis. Germany, on the other hand was running a budget deficit in 2007. I know you say that you've been watching this for a long time, but are you paying attention to the many, many things that go against your conservative narrative?
posted by Hypnotic Chick at 6:34 PM on May 3, 2012 [2 favorites]


Computer algorithms that game the market - that is something new under the sun. And I'm simply too small a fish to swim with those sharks, and so is virtually everyone else. You think you can beat the algos? Go ahead, and good luck to you.

The story is not You vs. The Computers unless you're trying do some kind of XTREEM day trading. The computers are playing on a completely different scale than the average investor -- very short-term movements. Across a longer period of time, stock prices have tracked the value of their underlying assets just fine. Buying and holding stocks of solid companies still makes you money. The S&P is almost back to 2008 levels. Assuming you didn't sell at the bottom, it should have recovered its value by now.
posted by the jam at 6:46 PM on May 3, 2012 [2 favorites]


If I put it in a 401K in 1994, so the same $1000.00 would be worth about $650.00.

I don't think that is true. If you put $1000 into an S&P index fund, you would have $2700 today, or about $1700 in 1994 dollars. More or less.
posted by gjc at 6:58 PM on May 3, 2012 [1 favorite]


Oh, they're definitely going to go through a huge crash, and their economy will try very hard to deflate. I imagine they'll do what we did, and print tons of money to try to dodge the fallout. This will make things worse over the long haul, but temporarily better in the short run.

I disagree with this. It is much more damaging to have one year of 10% GDP deflation than it is to have 10 years of 1% deflation.

If a poster upthread was right, and government stimulus / money printing has been worth 10% of our GDP for a couple of the last years, just imagine what would have happened if they hadn't done that?
posted by gjc at 7:05 PM on May 3, 2012


Germany took some pain a decade ago and has done well for itself, but you seem to forget that right now they are the major beneficiary of the spending spree of the Euro countries in trouble (including armaments and public contracts).

Hasn't Germany been funding the spending spree all along as well? Similar to how GM lends money to customers to buy their cars, Germany has been lending money to Greece, Italy, and Spain, to buy German technology.
posted by Golden Eternity at 7:06 PM on May 3, 2012


gjc: "I don't think that is true. "

For a lot of people, it may be. A metric ton of 401k funds are "actively" managed funds, rather than indexed funds. Active fund managers get paid whether the fund makes or loses money. Why so many 401k are active, rather than just being tied to a spdr or index...I don't even know. It makes no sense to me, but then, I'm not trying to figure out how to invest the billions of dollars that happen in state/city/corporate 401k plans.
posted by dejah420 at 7:25 PM on May 3, 2012


Riddle me this, gold bugs.

Let's set aside the merits of abandoning fiat money for a moment and look at the blueprint for how we would do such a thing ("we" being the United States.) Seeing as the almighty dollar is the reserve currency of the world, how exactly would we pull off the trick of moving to the gold standard (or LindenDollars or Bitcoins or whatever) without major negative repercussions to the global economy? Just as the U.S. sees China's currency manipulation as a hostile act against our country's interests, couldn't anyone who holds dollars (or financial instruments valued in dollars) rightly take serious offense to any plan to remove the Federal Reserve's ability to manipulate the currency in which their assets/debts are denominated?

The dollar's "special" status among world currencies is perhaps the only thing keeping our economy afloat right now -- you really want to give the world a reason to abandon it now? Regardless of whether you see the currency manipulation as a feature or a bug, it's been baked into the cake for a long time, and the world is comfortable with it. Taking the Fed's power away creates uncertainty in the global economic system, even if you believe that it leads to more certainty once the dominoes fall.
posted by tonycpsu at 10:03 PM on May 3, 2012


Give me one good reason to save in a frickin' bank when those bastards get rich on the little guy's money, pay out peanuts in interest, and game the system so that the government pays them when they lie, cheat, and steal.

George Carlin should have added an eighth dirty word: bank.
posted by BlueHorse at 10:11 PM on May 3, 2012 [1 favorite]


Computer algorithms that game the market - that is something new under the sun. And I'm simply too small a fish to swim with those sharks, and so is virtually everyone else. You think you can beat the algos? Go ahead, and good luck to you.

So you're saying that, "This time it's different."
posted by Slithy_Tove at 4:23 AM on May 4, 2012


Malor: "As far as my overall approach -- I've been watching all this a long damn time. Maybe my framing is wrong, but I don't think so. Remember, I was one of the people talking about a housing crash in, hmm, certainly by 2006, maybe even by 2005. Likewise, I was talking about a stock market crash in the 1998-1999 timeframe."

So was I, my friend. We just get there by different routes. That's the fun thing about the "science" we call economics.
posted by wierdo at 1:54 PM on May 4, 2012


Cool post. The case of the laptop I'm typing this on was allegedly inspired by the Sea Shadow, otherwise I'd probably never have heard of it.
posted by Thoughtcrime at 5:57 PM on May 4, 2012


Aaaand I shouldn't have multiple tabs open with Metafilter loaded. Wrong thread, sorry!
posted by Thoughtcrime at 5:58 PM on May 4, 2012


Sheldon Garon was my much beloved and respected grad school advisor. I told him about this thread so maybe he'll join the conversation.
posted by vincele at 8:34 PM on May 4, 2012


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