Why everything new in finance has already been new at least once before
May 8, 2008 4:27 AM Subscribe
The year was 1978. The US Dollar was collapsing, inflation was beginning to surge, the American economy was on the brink of recession and many warned of the perils of easy money. Needless to say, Arthur Burns, 10th Chairman of the US Federal Reserve, had a tough job.
While Burns is widely credited with igniting the late 70's inflationary fires, it was G. William Miller, the 11th Federal Reserve Chairman who poured gasoline on the flames.
Before Miller's tenure was complete inflation had peaked at roughly 13% pa and American wealth was being destroyed at an unprecedented rate. Commentators at the time compared America to Germany's Wiemar republic, often employing colourful phrases such as "banana republic"
Stern fiscal medicine was needed and the 12th Chairman of the Federal Reserve, Paul Volcker was just the man to do it. Before "Tall Paul" Volcker's reign was over inflation had been markedly reduced - down to 3.2% in 1983 - but at a price. The United States endured a long, deep recession, driven by high interest rates and the highest level of unemployment since 1934.
However many economists consider Volcker's remedy, his fiscal discipline as laying a solid foundation for the economic success of the late 80's and early 90's.
So the year is 2008. The US Dollar is collapsing, inflation is beginning to surge, the United States is on the brink of recession and some are warning about the dangers of easy money.
Will the legacy of the 14th Chairman of the Federal Reserve be Ben Bernanke as Arthur Burns or Ben Bernanke as Paul Volcker?
Remember, there is no right or wrong answer. But please do try to avoid wearisome and inevitably grim (not to mention, oft repeated!!) predictions of impending economic disaster. The long view, the history of finance tells us not only has the United States been presented with similar, arguably identical problems in the past, we have dealt with them effectively. These times are hardly unique. We will get through them just fine.
While Burns is widely credited with igniting the late 70's inflationary fires, it was G. William Miller, the 11th Federal Reserve Chairman who poured gasoline on the flames.
Before Miller's tenure was complete inflation had peaked at roughly 13% pa and American wealth was being destroyed at an unprecedented rate. Commentators at the time compared America to Germany's Wiemar republic, often employing colourful phrases such as "banana republic"
Stern fiscal medicine was needed and the 12th Chairman of the Federal Reserve, Paul Volcker was just the man to do it. Before "Tall Paul" Volcker's reign was over inflation had been markedly reduced - down to 3.2% in 1983 - but at a price. The United States endured a long, deep recession, driven by high interest rates and the highest level of unemployment since 1934.
However many economists consider Volcker's remedy, his fiscal discipline as laying a solid foundation for the economic success of the late 80's and early 90's.
So the year is 2008. The US Dollar is collapsing, inflation is beginning to surge, the United States is on the brink of recession and some are warning about the dangers of easy money.
Will the legacy of the 14th Chairman of the Federal Reserve be Ben Bernanke as Arthur Burns or Ben Bernanke as Paul Volcker?
Remember, there is no right or wrong answer. But please do try to avoid wearisome and inevitably grim (not to mention, oft repeated!!) predictions of impending economic disaster. The long view, the history of finance tells us not only has the United States been presented with similar, arguably identical problems in the past, we have dealt with them effectively. These times are hardly unique. We will get through them just fine.
I would say Burns = Greenspan and Bernanke is trying really hard to be Miller. Paying interest to banks with deposits at the Fed? Don't they get the entire concept of fractional reserve banking in return for doing that?
posted by PenDevil at 4:43 AM on May 8, 2008
posted by PenDevil at 4:43 AM on May 8, 2008
These times are hardly unique. We will get through them just fine.
NON-SEQUIBOT HAS DETECTED SOMETHING
posted by DU at 4:54 AM on May 8, 2008 [13 favorites]
NON-SEQUIBOT HAS DETECTED SOMETHING
posted by DU at 4:54 AM on May 8, 2008 [13 favorites]
The FPP scans surprisingly well when you humg the words along to Barret's Privateers.
posted by Space Coyote at 4:58 AM on May 8, 2008 [2 favorites]
posted by Space Coyote at 4:58 AM on May 8, 2008 [2 favorites]
This post is an editorial, with the intent of pushing a particular viewpoint.
posted by Malor at 4:58 AM on May 8, 2008
posted by Malor at 4:58 AM on May 8, 2008
In other words: you have asserted that things are 'the same as they've ever been', and have explicitly tried to pre-empt people from posting contrary opinions.
'Educated stupid' comes to mind; ignoring the gigantic debt load and the multiple bubbles of the last few years is ridiculously irresponsible.
posted by Malor at 5:00 AM on May 8, 2008
'Educated stupid' comes to mind; ignoring the gigantic debt load and the multiple bubbles of the last few years is ridiculously irresponsible.
posted by Malor at 5:00 AM on May 8, 2008
Yeah, mutant, but don't forget that those interest rates were offset by an inflation rate of 13-14% in the late 1970s/early 1980s.
Volker's restraint of the money supply sent interest rates soaring, but it also produced a pretty nasty recession. The beginning of Reagan's first term was pretty grim. Volker's monetarism was strong medicine, it produced a hard landing, but it got inflation back under control.
Bernanke has already set his course. He looks like neither Burns or Volker, but like the governors of the Bank of Japan in the 1970s. With the shameless bailout of his buddies at Bear Stearns he's shown he has no stomach for hard medicine.
Ben will go to zero.
posted by three blind mice at 5:19 AM on May 8, 2008
Volker's restraint of the money supply sent interest rates soaring, but it also produced a pretty nasty recession. The beginning of Reagan's first term was pretty grim. Volker's monetarism was strong medicine, it produced a hard landing, but it got inflation back under control.
Bernanke has already set his course. He looks like neither Burns or Volker, but like the governors of the Bank of Japan in the 1970s. With the shameless bailout of his buddies at Bear Stearns he's shown he has no stomach for hard medicine.
Ben will go to zero.
posted by three blind mice at 5:19 AM on May 8, 2008
Your small-text editorial really needs to go.
posted by Avenger at 5:37 AM on May 8, 2008 [2 favorites]
posted by Avenger at 5:37 AM on May 8, 2008 [2 favorites]
The economic success of the late 80's and early 90's.
Average inflation-weighted gdp/capita growth:
1950-1959 1.64%
1960-1969 2.99%
1970-1979 2.25%
1980-1989 2.22%
1990-1999 1.78%
2000-2007 1.39%
posted by bonecrusher at 5:47 AM on May 8, 2008 [1 favorite]
Average inflation-weighted gdp/capita growth:
1950-1959 1.64%
1960-1969 2.99%
1970-1979 2.25%
1980-1989 2.22%
1990-1999 1.78%
2000-2007 1.39%
posted by bonecrusher at 5:47 AM on May 8, 2008 [1 favorite]
(oh, values are from here, plus a little spreadsheet work. Original source for the time period above was the bea.)
posted by bonecrusher at 5:48 AM on May 8, 2008
posted by bonecrusher at 5:48 AM on May 8, 2008
Malor --"This post is an editorial, with the intent of pushing a particular viewpoint."
Malor, please. If you have taken time to read through the links BEFORE commenting, you'd see the FPP is brief review of factual history, linking the past to the present. Those with an open mind will read the various points and either agree or disagree with the topic at hand, perhaps citing sources of their own. Many in the industry have a long term perspective, and can look back across the history of finance, in some cases a very long history, to interpret current events. The hypothesis is clear: 2008 looks pretty similar to 1978, and has for a while now. I haven't posted an FPP on this topic before as I waited for events to unfold. And they have.
You are, of course, welcome to cite your own sources to refute this hypothesis, but why should I ask? You never bother to quote other than a handful of invariably negative blogs. No finance books, no finance journals, not a personal perspective gained from industry, no, just a handful of blogs. Sadly, it would appear that is the sole extent of your financial expertise.
"'Educated stupid' comes to mind; ignoring the gigantic debt load and the multiple bubbles of the last few years is ridiculously irresponsible."
Thanks for once again adding value to our discussion Malor; this comment is just about what we've come to expect of you when reasonable discourse on economics is invited. The off topic comments we see you post time and time again on MeFi finance threads are really getting disruptive to the topic we'd like to discuss.
Suggestion: look at debt loads and financial bubbles in the late 70's and report back to the group. These are hardly unique times, special cases, new problems. No, 2008 looks very, very similar to 1978 and the question seems to be in what direction will The Fed go?
I fully expect you to know revert with, as is your pattern at this point in our economics threads, profanity.
Carry on then.
three blind mice -- "Bernanke has already set his course. He looks like neither Burns or Volker, but like the governors of the Bank of Japan in the 1970s. With the shameless bailout of his buddies at Bear Stearns he's shown he has no stomach for hard medicine.
Ben will go to zero."
Yeh, it certainly does look like he's headed that way, doesn't it?
Curious, but the way TIPS are trading these days the market seems to be predicting inflation running at about 3%, ten years out.
Of course, there's lots of up and downs along the way - 3% is, of course, an average of expectations, so we could easily see inflation approaching 20% for a brief time before reverting.
I think commodities are the key here, and until we start to see some stablisation in commodity prices pretty much any market based prediction (CPI Futures, TIPS, etc) will be suspect. Too many other factors can influence market based instruments.
On that note, we're seeing lots of money betting on a US Dollar rally, which can only help temper the growth in commodity prices.
Given that both BOE and ECB are showing no signs of further cuts and in fact are holding rates fixed (BOE announced thirty minutes ago), at least two of the World's Central Banks are carefully watching inflation.
Finally, that US Government Yield Curve is looking very healthy these days.
Interesting times, lots of opportunity to make money.
Avenger -- "Your small-text editorial really needs to go."
Yeh, I vacillated on adding it, but even so it seems we get the same people shitting on the finance threads time and time again. I was hoping to preempt this time around, but, oh well.
bonecrusher -- "Average inflation-weighted gdp/capita growth:"
Yeh, the other factors we'd have to look at would, of course, be inflation across the term as well as productivity growth (I didn't want to introduce the latter into this FPP as it would cause loss of focus).
I've seen academic papers arguing that about 3% pa growth in GDP is the maximum achievable, without giving rise to inflation, as long as productivity growth outstrips GDP gains (can't cite source as they're on my University PC).
Richard Berner, Chief US Economist over at Morgan Stanley, seems to think that slowing productivity growth is driving inflationary fears (important, as we know that expectations of inflation are far more important to realised inflation than snap shot metrics (e.g., CPI).
In any case, I think that by viewing what's happened before we can gain some insight into what might happen next. The US has some problems at hand, and some difficult choices ahead of it.
posted by Mutant at 6:33 AM on May 8, 2008 [3 favorites]
Malor, please. If you have taken time to read through the links BEFORE commenting, you'd see the FPP is brief review of factual history, linking the past to the present. Those with an open mind will read the various points and either agree or disagree with the topic at hand, perhaps citing sources of their own. Many in the industry have a long term perspective, and can look back across the history of finance, in some cases a very long history, to interpret current events. The hypothesis is clear: 2008 looks pretty similar to 1978, and has for a while now. I haven't posted an FPP on this topic before as I waited for events to unfold. And they have.
You are, of course, welcome to cite your own sources to refute this hypothesis, but why should I ask? You never bother to quote other than a handful of invariably negative blogs. No finance books, no finance journals, not a personal perspective gained from industry, no, just a handful of blogs. Sadly, it would appear that is the sole extent of your financial expertise.
"'Educated stupid' comes to mind; ignoring the gigantic debt load and the multiple bubbles of the last few years is ridiculously irresponsible."
Thanks for once again adding value to our discussion Malor; this comment is just about what we've come to expect of you when reasonable discourse on economics is invited. The off topic comments we see you post time and time again on MeFi finance threads are really getting disruptive to the topic we'd like to discuss.
Suggestion: look at debt loads and financial bubbles in the late 70's and report back to the group. These are hardly unique times, special cases, new problems. No, 2008 looks very, very similar to 1978 and the question seems to be in what direction will The Fed go?
I fully expect you to know revert with, as is your pattern at this point in our economics threads, profanity.
Carry on then.
three blind mice -- "Bernanke has already set his course. He looks like neither Burns or Volker, but like the governors of the Bank of Japan in the 1970s. With the shameless bailout of his buddies at Bear Stearns he's shown he has no stomach for hard medicine.
Ben will go to zero."
Yeh, it certainly does look like he's headed that way, doesn't it?
Curious, but the way TIPS are trading these days the market seems to be predicting inflation running at about 3%, ten years out.
Of course, there's lots of up and downs along the way - 3% is, of course, an average of expectations, so we could easily see inflation approaching 20% for a brief time before reverting.
I think commodities are the key here, and until we start to see some stablisation in commodity prices pretty much any market based prediction (CPI Futures, TIPS, etc) will be suspect. Too many other factors can influence market based instruments.
On that note, we're seeing lots of money betting on a US Dollar rally, which can only help temper the growth in commodity prices.
Given that both BOE and ECB are showing no signs of further cuts and in fact are holding rates fixed (BOE announced thirty minutes ago), at least two of the World's Central Banks are carefully watching inflation.
Finally, that US Government Yield Curve is looking very healthy these days.
Interesting times, lots of opportunity to make money.
Avenger -- "Your small-text editorial really needs to go."
Yeh, I vacillated on adding it, but even so it seems we get the same people shitting on the finance threads time and time again. I was hoping to preempt this time around, but, oh well.
bonecrusher -- "Average inflation-weighted gdp/capita growth:"
Yeh, the other factors we'd have to look at would, of course, be inflation across the term as well as productivity growth (I didn't want to introduce the latter into this FPP as it would cause loss of focus).
I've seen academic papers arguing that about 3% pa growth in GDP is the maximum achievable, without giving rise to inflation, as long as productivity growth outstrips GDP gains (can't cite source as they're on my University PC).
Richard Berner, Chief US Economist over at Morgan Stanley, seems to think that slowing productivity growth is driving inflationary fears (important, as we know that expectations of inflation are far more important to realised inflation than snap shot metrics (e.g., CPI).
In any case, I think that by viewing what's happened before we can gain some insight into what might happen next. The US has some problems at hand, and some difficult choices ahead of it.
posted by Mutant at 6:33 AM on May 8, 2008 [3 favorites]
Interesting times, lots of opportunity to make money.
You gonna just leave the gem hanging out there without telling us HOW? Come on, Poppa wants a brand new bag.
posted by spicynuts at 6:52 AM on May 8, 2008 [1 favorite]
ever seen a post where the links were pretty interesting, but it kinda got ruined from the get go when the poster tried to pre-emptively control the conversation, and then vigorously attacked anyone who disagreed with that approach? if a poster wanted control over the thread that way, one could imagine it might be easier if they had, say, their own blog and then moderated the comments.
posted by snofoam at 6:58 AM on May 8, 2008 [2 favorites]
posted by snofoam at 6:58 AM on May 8, 2008 [2 favorites]
How bout you take it to Metatalk and the rest of us can get on with learning about the link and about how to make money in this environment, hmmm??
posted by spicynuts at 7:04 AM on May 8, 2008 [2 favorites]
posted by spicynuts at 7:04 AM on May 8, 2008 [2 favorites]
This post is an editorial.. you have asserted that things are 'the same as they've ever been', and have explicitly tried to pre-empt people from posting contrary opinions. - Malor
You are posting an unsupported opinion as fact and explicitly trying to pre-empt any contrary opinions to your opinion.
posted by stbalbach at 7:10 AM on May 8, 2008
You are posting an unsupported opinion as fact and explicitly trying to pre-empt any contrary opinions to your opinion.
posted by stbalbach at 7:10 AM on May 8, 2008
If anybody really knew the answers to all this we wouldn't be in this mess. Any analysis of the macro economy requires a holistic approach, and the system is so large, diverse and complex that such an effort may well be impossible. I liken it to our attempts at regulating actions within the human body. Every time we figure out how to regulate one pathway it seems we find ourselves confronted with some competing regulatory pathway which undoes our regulation and brings us back to where we started. We haven't quite grasped all the complexities of the human body, and neither have we grasped all the complexities of our economy.
posted by caddis at 7:16 AM on May 8, 2008
posted by caddis at 7:16 AM on May 8, 2008
i think he could be the next Marriner Stoddard Eccles, but only if he changes his name to something cooler.
posted by snofoam at 7:17 AM on May 8, 2008
posted by snofoam at 7:17 AM on May 8, 2008
spicynuts -- "You gonna just leave the gem hanging out there without telling us HOW? Come on, Poppa wants a brand new bag."
Ha! Look at the early 80's, what asset classes performed well and which got hammered. That's pretty much what anyone can do. That does, of course, suggest that history will repeat itself. Which it may do or it might do. And while it seems as though there are many parallels, well, you pays your money and you makes your bet.
snofoam -- "...and then vigorously attacked anyone who disagreed with that approach?"
And being called "Educated Stupid" (whatever on earth that means) disagreed with precisely what part of the FPP?
I'm sorry, but name calling is hardly reasonable discourse, and isn't even remotely disagreeing with the FPP. Disagree with any or all parts of the FPP. Do it eloquently or do it in monosyllables, but please do it without name calling.
I am pleased, however, that you found the links interesting. They've been piling up for a while now. Fascinating topic and an amazing period of US history; one that I wish I knew more about.
posted by Mutant at 7:17 AM on May 8, 2008
Ha! Look at the early 80's, what asset classes performed well and which got hammered. That's pretty much what anyone can do. That does, of course, suggest that history will repeat itself. Which it may do or it might do. And while it seems as though there are many parallels, well, you pays your money and you makes your bet.
snofoam -- "...and then vigorously attacked anyone who disagreed with that approach?"
And being called "Educated Stupid" (whatever on earth that means) disagreed with precisely what part of the FPP?
I'm sorry, but name calling is hardly reasonable discourse, and isn't even remotely disagreeing with the FPP. Disagree with any or all parts of the FPP. Do it eloquently or do it in monosyllables, but please do it without name calling.
I am pleased, however, that you found the links interesting. They've been piling up for a while now. Fascinating topic and an amazing period of US history; one that I wish I knew more about.
posted by Mutant at 7:17 AM on May 8, 2008
Every time we figure out how to regulate one pathway it seems we find ourselves confronted with some competing regulatory pathway which undoes our regulation and brings us back to where we started.
What the links and FPP are arguing is that the place we are in now we have been in before and the body has not died, and so we will figure out the proper regulatory pathway this time, just like we did last time.
posted by spicynuts at 7:19 AM on May 8, 2008
What the links and FPP are arguing is that the place we are in now we have been in before and the body has not died, and so we will figure out the proper regulatory pathway this time, just like we did last time.
posted by spicynuts at 7:19 AM on May 8, 2008
Ha! Look at the early 80's,
I was 12 in the early 80s...the asset classes performing well for me then were baseball cards, star wars figures and my Kiss album collection. I don't believe any of those will provide me long term stability, unless there's a rookie card worth a billion in there somewhere.
Where could I find links that outline the asset classes that did well in the early 80s?
posted by spicynuts at 7:21 AM on May 8, 2008 [4 favorites]
I was 12 in the early 80s...the asset classes performing well for me then were baseball cards, star wars figures and my Kiss album collection. I don't believe any of those will provide me long term stability, unless there's a rookie card worth a billion in there somewhere.
Where could I find links that outline the asset classes that did well in the early 80s?
posted by spicynuts at 7:21 AM on May 8, 2008 [4 favorites]
Suggestion: look at debt loads and financial bubbles in the late 70's and report back to the group.
Or why not let the group see the data themselves and make their own decisions?
US Household Debt as a Percent of Disposable Income
Absolute US Household Debt, each line is 2 Trillion dollars
I think we will probably be fine, too, but not anytime soon. I think we have the effects of a major real-estate bubble to work through, and that will take a few years of economic pain.
posted by procrastination at 7:28 AM on May 8, 2008
Or why not let the group see the data themselves and make their own decisions?
US Household Debt as a Percent of Disposable Income
Absolute US Household Debt, each line is 2 Trillion dollars
I think we will probably be fine, too, but not anytime soon. I think we have the effects of a major real-estate bubble to work through, and that will take a few years of economic pain.
posted by procrastination at 7:28 AM on May 8, 2008
All of this is really undermining my sense of exceptionalism.
Goddammit, I am unique, ergo the times I live in must also be unique! History must not be allowed to repeat itself; if this means we must destroy the world, then so be it.
posted by aramaic at 7:28 AM on May 8, 2008 [2 favorites]
Goddammit, I am unique, ergo the times I live in must also be unique! History must not be allowed to repeat itself; if this means we must destroy the world, then so be it.
posted by aramaic at 7:28 AM on May 8, 2008 [2 favorites]
On that note, we're seeing lots of money betting on a US Dollar rally, which can only help temper the growth in commodity prices.
Yeah, easy dollar shorting is gone. But temper the growth in commodity prices? I wish. The retail money being poured into oil and other commodities is ridiculous. There are people putting money into oil ETFs who have no idea of backwardation or contago. It is driving me crazy.
Before Miller's tenure was complete inflation had peaked at roughly 13% pa and American wealth was being destroyed at an unprecedented rate. Commentators at the time compared America to Germany's Wiemar republic, often employing colourful phrases such as "banana republic"
I'm rereading A History of Interest Rates (Sidney Homer and
Richard Sylla), which is probably one of the more comprehensive historical books I ever read. It doesn't present interest rates quite to the level of historia that early modern empirics did (see: Historia: Empiricism and Erudition in Early Modern Europe), but it works. Anyway the point being that inflation and interest rates tend to rise in fall no matter who is in charge, foreign debts or global warming. In any case, the more it seems like 1978 (which I agree it does, at least on paper), the more reasons I find it not to be like 1978.
posted by geoff. at 7:31 AM on May 8, 2008 [1 favorite]
Yeah, easy dollar shorting is gone. But temper the growth in commodity prices? I wish. The retail money being poured into oil and other commodities is ridiculous. There are people putting money into oil ETFs who have no idea of backwardation or contago. It is driving me crazy.
Before Miller's tenure was complete inflation had peaked at roughly 13% pa and American wealth was being destroyed at an unprecedented rate. Commentators at the time compared America to Germany's Wiemar republic, often employing colourful phrases such as "banana republic"
I'm rereading A History of Interest Rates (Sidney Homer and
Richard Sylla), which is probably one of the more comprehensive historical books I ever read. It doesn't present interest rates quite to the level of historia that early modern empirics did (see: Historia: Empiricism and Erudition in Early Modern Europe), but it works. Anyway the point being that inflation and interest rates tend to rise in fall no matter who is in charge, foreign debts or global warming. In any case, the more it seems like 1978 (which I agree it does, at least on paper), the more reasons I find it not to be like 1978.
posted by geoff. at 7:31 AM on May 8, 2008 [1 favorite]
The situation is different for a few reasons - the demographic shift to older Americans means a greater burden on medicare and social security at a time when we are already running a deficit, and when many foreign economies are approaching parity with the US, which was decidedly not the case in 1978.
Furthermore, Reagan was instrumental in shifting the economy to a high tech/ service based economy, from the aging post-war manufacturing economy, and the massive tax cuts were are major part of this as it encouraged considerable spending. Furthermore, the massive increases in defense spending amounted to the creation of many defense industry related jobs.
But this has been done now - the consumption/spending well has been tapped.
The reason the balance will tip in the U.S.'s favor is that the next year is about to be a lot worse for the rest of the world than the previous year. They are going to have to start cutting rates, they are going to experience inflation, and that will serve to raise the relative value of the dollar.
The problem as always is that viewing the situation collectively is wrong. "We" aren't going to experience anything together. Some of us are going to figure out a way to profit off the situation, either by changing jobs or investing our money carefully, and some of us won't.
If you are waiting for someone else to figure the situation out but don't make any changes in your own life, you won't be better off at the end of this.
Think of it this way - houses are pretty cheap now, right? But gas isn't. So maybe this is the time to move closer to where your job is or is going to be, or closer to public transport? This is the time to realign the foundation of your life to minimize the effect of these game-changing forces.
And the system will never collapse. It didn't collapse in the depression, it won't now. It didn't collapse in Germany after the war, and it didn't collapse in Russia after the fall of the Soviet Union. The system actually hasn't collapsed since the start of the Renaissance. So everybody relax.
posted by Pastabagel at 7:36 AM on May 8, 2008 [3 favorites]
Furthermore, Reagan was instrumental in shifting the economy to a high tech/ service based economy, from the aging post-war manufacturing economy, and the massive tax cuts were are major part of this as it encouraged considerable spending. Furthermore, the massive increases in defense spending amounted to the creation of many defense industry related jobs.
But this has been done now - the consumption/spending well has been tapped.
The reason the balance will tip in the U.S.'s favor is that the next year is about to be a lot worse for the rest of the world than the previous year. They are going to have to start cutting rates, they are going to experience inflation, and that will serve to raise the relative value of the dollar.
The problem as always is that viewing the situation collectively is wrong. "We" aren't going to experience anything together. Some of us are going to figure out a way to profit off the situation, either by changing jobs or investing our money carefully, and some of us won't.
If you are waiting for someone else to figure the situation out but don't make any changes in your own life, you won't be better off at the end of this.
Think of it this way - houses are pretty cheap now, right? But gas isn't. So maybe this is the time to move closer to where your job is or is going to be, or closer to public transport? This is the time to realign the foundation of your life to minimize the effect of these game-changing forces.
And the system will never collapse. It didn't collapse in the depression, it won't now. It didn't collapse in Germany after the war, and it didn't collapse in Russia after the fall of the Soviet Union. The system actually hasn't collapsed since the start of the Renaissance. So everybody relax.
posted by Pastabagel at 7:36 AM on May 8, 2008 [3 favorites]
Reagan was instrumental in shifting the economy to a high tech/ service based economy
High oil prices were the cause, not Reagan. Look at the economic impact of oil shocks on the economy over the last 50 years. Every oil shock / bubble / crisis was followed by a decrease in manufacturing reliance on oil. It is as if every time industry adjusted, pulled more processes of oil and became more efficient. Diversification of business processes is what caused this. We're going to begin to see it at a consumer level. Not everyone will drive hybrid / electric cars, but we'll see a slow shift as people switch. The best thing to happen is for oil prices to drop in response to the shift, let people recover financially, then see another shock to convert even more people. At least from the perspective of "best" being less oil dependence for our transportation needs.
posted by geoff. at 7:41 AM on May 8, 2008
High oil prices were the cause, not Reagan. Look at the economic impact of oil shocks on the economy over the last 50 years. Every oil shock / bubble / crisis was followed by a decrease in manufacturing reliance on oil. It is as if every time industry adjusted, pulled more processes of oil and became more efficient. Diversification of business processes is what caused this. We're going to begin to see it at a consumer level. Not everyone will drive hybrid / electric cars, but we'll see a slow shift as people switch. The best thing to happen is for oil prices to drop in response to the shift, let people recover financially, then see another shock to convert even more people. At least from the perspective of "best" being less oil dependence for our transportation needs.
posted by geoff. at 7:41 AM on May 8, 2008
pulled more process away from oil. It is way too early in the morning to be talking about this ...
posted by geoff. at 7:41 AM on May 8, 2008
posted by geoff. at 7:41 AM on May 8, 2008
The off topic comments we see you post time and time again on MeFi finance threads are really getting disruptive to the topic we'd like to discuss.
just because someone doesn't agree with you doesn't mean they're off-topic
posted by pyramid termite at 8:16 AM on May 8, 2008 [2 favorites]
just because someone doesn't agree with you doesn't mean they're off-topic
posted by pyramid termite at 8:16 AM on May 8, 2008 [2 favorites]
I do wonder if the interest rates hikes by Volcker actually broke inflation. How much of the rampant inflation in the late 1970s was the result of repeated oil shocks and an inflexible manufacturing driven economy that couldn't adapt quickly enough to keep up with demand. Might it be possible that the very high interest rates in the early eighties actually slowed the transformation of the economy by limiting capital available for investment and transformation? Did the oil price crash from 1983-1986 and again after the first gulf war actually contribute more to the economic recovery than fiscal and monetary policies? I wonder if monetary policy is just a placebo. Is 50 basis points the equivalent of taking a goat to the city center and sacraficing it to the gods?
posted by humanfont at 8:21 AM on May 8, 2008 [2 favorites]
posted by humanfont at 8:21 AM on May 8, 2008 [2 favorites]
Interesting post, Mutant. My only comment would be that the huge elephant in the room for both historical periods is the crushing cost and debt incurred from waging wars in Vietnam and Iraq. That war money did nothing for the country's collapsing physical and social infrastructure and will never be seen again.
posted by Blazecock Pileon at 8:27 AM on May 8, 2008
posted by Blazecock Pileon at 8:27 AM on May 8, 2008
Mutant, I thought the post was quite interesting until you smeared it with your own opinion and told everyone what they should and should not say in the thread. You may not like the contrary opinions that are espoused by other members of this community but you don't get to run your thread your way. That's not how it works. Flagged and moved on.
posted by afflatus at 8:43 AM on May 8, 2008 [1 favorite]
posted by afflatus at 8:43 AM on May 8, 2008 [1 favorite]
But this has been done now - the consumption/spending well has been tapped.
I don't think so...why can't the same methods be used to spur a move away from oil to greener energy solutions that spark a completely new industry with a completely new set of job and manufacturing needs? The well doesn't have to be considered tapped simply because it was utilized in another context.
Instead of massive tax cuts, why couldn't Obama (couldn't resist) spur the consumption/spending cycle by giving massive subsidies to green entrepreneurs that reduce our oil dependency and require new jobs? Or by giving larege tax incentives to people who buy cars that get over 30 mpg, install solar panels or commit to public transportation?
posted by spicynuts at 9:10 AM on May 8, 2008
I don't think so...why can't the same methods be used to spur a move away from oil to greener energy solutions that spark a completely new industry with a completely new set of job and manufacturing needs? The well doesn't have to be considered tapped simply because it was utilized in another context.
Instead of massive tax cuts, why couldn't Obama (couldn't resist) spur the consumption/spending cycle by giving massive subsidies to green entrepreneurs that reduce our oil dependency and require new jobs? Or by giving larege tax incentives to people who buy cars that get over 30 mpg, install solar panels or commit to public transportation?
posted by spicynuts at 9:10 AM on May 8, 2008
What happened in the 70s won't happen now or in quite the same way. Economics seems to assume a self-aware system. But, the system is actually more like the subconcious. Being acted upon by forces beyond the brain (instincts, bodily functions, sensory input etc) it will react as a collective unit where many small forces push it to where it will go. It is a theoretically predictable system. But, you cannot assume your end product and hope that just a few people (ie, the fed chairman, a few small national gov'ts and some big corp boards) will guide us to that bright new future.
This system, in dynamic tension, will get pulled along unless some major road-block is put in its way.
My most common prediction for the next few years is Stagnation with some major force (like a war) kicking the legs out to mark the end of the era. What happens then will be anyone's guess. But, I give total destruction of the system as we now know it followed by a ressurgance to a new paradigm (with no discernable interregnum) high odds. And i'd be willing to bet that the assumption that you can get a job as a marketing director (or some other knowledge profession) will be close to nil within our lifetimes.
posted by Sam.Burdick at 9:18 AM on May 8, 2008
This system, in dynamic tension, will get pulled along unless some major road-block is put in its way.
My most common prediction for the next few years is Stagnation with some major force (like a war) kicking the legs out to mark the end of the era. What happens then will be anyone's guess. But, I give total destruction of the system as we now know it followed by a ressurgance to a new paradigm (with no discernable interregnum) high odds. And i'd be willing to bet that the assumption that you can get a job as a marketing director (or some other knowledge profession) will be close to nil within our lifetimes.
posted by Sam.Burdick at 9:18 AM on May 8, 2008
Mutant, I thought the post was quite interesting until you smeared it with your own opinion
But that's not really what mutant did. Mutant tried to pre-empt malor wandering in and raving about gold-backed currency and we're all going to die, as he does in most threads about the economy.
Which is to say: there is someone out there who habitually makes the same comments in most threads even tangentially about a given topic, and does so in inflammatory ways so that the threads inevitably devolve into his personal issues. Mutant tried to nip that in the bud.
What amuses me about this time is that malor called mutant "educated stupid," implying that... malor is Gene Ray, Cubic, or is claiming his moral authority?
posted by ROU_Xenophobe at 9:18 AM on May 8, 2008 [3 favorites]
But that's not really what mutant did. Mutant tried to pre-empt malor wandering in and raving about gold-backed currency and we're all going to die, as he does in most threads about the economy.
Which is to say: there is someone out there who habitually makes the same comments in most threads even tangentially about a given topic, and does so in inflammatory ways so that the threads inevitably devolve into his personal issues. Mutant tried to nip that in the bud.
What amuses me about this time is that malor called mutant "educated stupid," implying that... malor is Gene Ray, Cubic, or is claiming his moral authority?
posted by ROU_Xenophobe at 9:18 AM on May 8, 2008 [3 favorites]
Flagged and moved on.
No, you didn't. You flagged and shat in the thread. Big difference.
posted by mkb at 9:32 AM on May 8, 2008
No, you didn't. You flagged and shat in the thread. Big difference.
posted by mkb at 9:32 AM on May 8, 2008
(or some other knowledge profession)
Really? We won't need doctors? Or engineers? Or chemists? Maybe I misunderstand your definition of knowledge profession. Are you saying that the idea that people will use their minds to invent, develop or build something they want to sell and that the idea that those things will need to be advertised to consumers will disappear? How will politicians run their campaigns without Marketing Directors (PR, etc)?
Even in the 'total' destruction of the system, people with knowledge skills will be needed. Someone has to know how to put stones together to make a shelter or a road. People will not be forgetting how to write, will they? Someone will need to write laws.
posted by spicynuts at 9:49 AM on May 8, 2008
Really? We won't need doctors? Or engineers? Or chemists? Maybe I misunderstand your definition of knowledge profession. Are you saying that the idea that people will use their minds to invent, develop or build something they want to sell and that the idea that those things will need to be advertised to consumers will disappear? How will politicians run their campaigns without Marketing Directors (PR, etc)?
Even in the 'total' destruction of the system, people with knowledge skills will be needed. Someone has to know how to put stones together to make a shelter or a road. People will not be forgetting how to write, will they? Someone will need to write laws.
posted by spicynuts at 9:49 AM on May 8, 2008
And i'd be willing to bet that the assumption that you can get a job as a marketing director (or some other knowledge profession) will be close to nil within our lifetimes.
Getting a job as a skyfallogist seems to be a pretty safe bet, though. Skyfallogy is a growing field.
posted by oaf at 10:11 AM on May 8, 2008 [1 favorite]
Getting a job as a skyfallogist seems to be a pretty safe bet, though. Skyfallogy is a growing field.
posted by oaf at 10:11 AM on May 8, 2008 [1 favorite]
You post a lot of fed-oriented links, and claim we've "been there, done that". I feel that you are discounting the true nature of the current situation.
We run a monetary system where the only entity authorized to create money always creates it as a loan with interest attached. This bakes in the need for future inflation (to pay the interest), which is accomplished by creating more loans with more interest attached, etc.
The US "economy" is now essentially defined as the financial industry. This is understandable, as it is the only machine capable of creating the ever more exotic ways necessary to service the mounting heap of chained loans that define our monetary system. Obviously, a debt-stacking system will eventually hit real-world limits, only the when is debatable.
Why is it that in reality, the world is becoming more productive overall, while at the same time the world is falling further in debt? As an average, your grandfather and father both had more money to save than you do. One income used to suffice for a family to live a decent life, now two are required in most places. Young people coming out of school are now in debt that will require 10 years to pay off in many cases.
These days we are constantly assaulted with messages about how this is our fault, we spend too much, we consume too much. This is blaming the victim. The system was broken as designed from the standpoint of a free society. On the other hand, it is not such a bad system for an elite few to have iron control over the rest by putting them in lifelong debt.
Money is a tool for exchange, and one of mankind's great inventions. Unfortunately, it's central role in people's lives has made it a constant target for those who would gain at the expense of society. The US has had many money systems over its history, some balanced more towards the people and some balanced more towards big money interests. You can guess which kind we have right now.
posted by b1ff at 10:31 AM on May 8, 2008 [2 favorites]
We run a monetary system where the only entity authorized to create money always creates it as a loan with interest attached. This bakes in the need for future inflation (to pay the interest), which is accomplished by creating more loans with more interest attached, etc.
The US "economy" is now essentially defined as the financial industry. This is understandable, as it is the only machine capable of creating the ever more exotic ways necessary to service the mounting heap of chained loans that define our monetary system. Obviously, a debt-stacking system will eventually hit real-world limits, only the when is debatable.
Why is it that in reality, the world is becoming more productive overall, while at the same time the world is falling further in debt? As an average, your grandfather and father both had more money to save than you do. One income used to suffice for a family to live a decent life, now two are required in most places. Young people coming out of school are now in debt that will require 10 years to pay off in many cases.
These days we are constantly assaulted with messages about how this is our fault, we spend too much, we consume too much. This is blaming the victim. The system was broken as designed from the standpoint of a free society. On the other hand, it is not such a bad system for an elite few to have iron control over the rest by putting them in lifelong debt.
Money is a tool for exchange, and one of mankind's great inventions. Unfortunately, it's central role in people's lives has made it a constant target for those who would gain at the expense of society. The US has had many money systems over its history, some balanced more towards the people and some balanced more towards big money interests. You can guess which kind we have right now.
posted by b1ff at 10:31 AM on May 8, 2008 [2 favorites]
Perhaps I should have been more clear when I said "knowledge profession". IF the economy of pushing ideas around (marketing, communication, data entry etc) is not a viable one in the long term then you'd have to find something different to do. What I'm hopeing is that this idea that people need to be told what to buy, who to vote for and how to live will go very far away. That structure is one that we can certainly do without.
posted by Sam.Burdick at 10:32 AM on May 8, 2008
posted by Sam.Burdick at 10:32 AM on May 8, 2008
Saying that the present situation is like the 1970s is somewhat true, but it's not even close to the same magnitude.
First, you have the simple fact that we're the world's largest debtor nation; our present debt, per the GAO, exceeds fifty trillion dollars in net present value. That means we need to have fifty trillion dollars in the bank, right now, earning interest, to be sure we can cover all the liabilities we've taken on. And that's just the government's part of the debt, not even touching our personal indebtedness.
Second, we have a wild trade imbalance, on the order of two billion dollars a day.
Third, we've allowed a gigantic amount of American currency to build up in foreign hands; the last number I saw put the figure in excess of six trillion dollars. This is another form of indebtedness.
Fourth, the Fed has cut rates to 2%. Already. The interest rate is well below the real rate of inflation; the government is literally paying you to take money, and the economy is still struggling. We should be a hyper-boom with interest rates that low, and the fact that we aren't, and that the Fed is busy bailing out companies and making absolutely unprecedented loans into the private sector -- not to banks -- should be telling you something.
Fifth, our manufacturing base has been eviscerated. We have a few bright spots, like farm equipment, but by and large we make very little that we can send overseas to pay our debts.
In the 1970s, we were both the world's largest creditor and the world's largest manufacturer. Saying that 2008 is like 1978 is wishful thinking. Any one of our modern problems would be huge. All of them at once are unsolvable. We can't solve all these problems at the same time. We don't have the strength left in the economy to do it.
If inflation continues to get worse, as I expect it will, the Fed can't raise interest rates much to combat it, because doing so will immediately put the ARMs in danger, not to mention the interest payments by the government. But if the ARMs start blowing up anyway, as they may, the Fed can't cut interest rates much more; there's only 2% left.
This is like the 1970s in the same way that dynamite is like a nuclear bomb. It's true, for a useless definition of true.
But scoffing at people for 'being alarmist', with numbers like that, is bullshit. It's not sky-is-falling alarmism when that many things are fucked up to that magnitude.
posted by Malor at 10:55 AM on May 8, 2008 [2 favorites]
First, you have the simple fact that we're the world's largest debtor nation; our present debt, per the GAO, exceeds fifty trillion dollars in net present value. That means we need to have fifty trillion dollars in the bank, right now, earning interest, to be sure we can cover all the liabilities we've taken on. And that's just the government's part of the debt, not even touching our personal indebtedness.
Second, we have a wild trade imbalance, on the order of two billion dollars a day.
Third, we've allowed a gigantic amount of American currency to build up in foreign hands; the last number I saw put the figure in excess of six trillion dollars. This is another form of indebtedness.
Fourth, the Fed has cut rates to 2%. Already. The interest rate is well below the real rate of inflation; the government is literally paying you to take money, and the economy is still struggling. We should be a hyper-boom with interest rates that low, and the fact that we aren't, and that the Fed is busy bailing out companies and making absolutely unprecedented loans into the private sector -- not to banks -- should be telling you something.
Fifth, our manufacturing base has been eviscerated. We have a few bright spots, like farm equipment, but by and large we make very little that we can send overseas to pay our debts.
In the 1970s, we were both the world's largest creditor and the world's largest manufacturer. Saying that 2008 is like 1978 is wishful thinking. Any one of our modern problems would be huge. All of them at once are unsolvable. We can't solve all these problems at the same time. We don't have the strength left in the economy to do it.
If inflation continues to get worse, as I expect it will, the Fed can't raise interest rates much to combat it, because doing so will immediately put the ARMs in danger, not to mention the interest payments by the government. But if the ARMs start blowing up anyway, as they may, the Fed can't cut interest rates much more; there's only 2% left.
This is like the 1970s in the same way that dynamite is like a nuclear bomb. It's true, for a useless definition of true.
But scoffing at people for 'being alarmist', with numbers like that, is bullshit. It's not sky-is-falling alarmism when that many things are fucked up to that magnitude.
posted by Malor at 10:55 AM on May 8, 2008 [2 favorites]
hopeing is that this idea that people need to be told what to buy, who to vote for and how to live will go very far away.
Good luck with that...people have looked to others for this stuff since the days when tribes selected shamans and burned livestock as offerings to oracles. People, looked at as a whole, are sheep. If we didn't inately look to things outside of ourselves for insight into how to live, there never would have been religion, poetry, music, art, etc etc.
posted by spicynuts at 10:56 AM on May 8, 2008
Good luck with that...people have looked to others for this stuff since the days when tribes selected shamans and burned livestock as offerings to oracles. People, looked at as a whole, are sheep. If we didn't inately look to things outside of ourselves for insight into how to live, there never would have been religion, poetry, music, art, etc etc.
posted by spicynuts at 10:56 AM on May 8, 2008
y'see that's the kind of attitude I want to fight against. It's all well and good to say that humanity looks outside of itself for inspiration thus the birth of beautiful things like art. But to call our species sheep-like gives you the assumption that people on the whole need to be driven. And, probably idealistically, I don't like that idea.
posted by Sam.Burdick at 11:13 AM on May 8, 2008
posted by Sam.Burdick at 11:13 AM on May 8, 2008
ever seen a post where the links were pretty interesting, but it kinda got ruined from the get go when the poster tried to pre-emptively control the conversation,
I think Mutant is/was trying to pre-empt the inevitable idiotic hand wringing and gleeful doomsday predictions ("I'm getting my shotgun and a copy of Farnham's Freehold! Hee hee!) that often accompany recent FPP's about economics.
But I also agree with Mutant: the world is not coming to an end (Global Warming, now, that's another story).
posted by KokuRyu at 11:14 AM on May 8, 2008 [1 favorite]
I think Mutant is/was trying to pre-empt the inevitable idiotic hand wringing and gleeful doomsday predictions ("I'm getting my shotgun and a copy of Farnham's Freehold! Hee hee!) that often accompany recent FPP's about economics.
But I also agree with Mutant: the world is not coming to an end (Global Warming, now, that's another story).
posted by KokuRyu at 11:14 AM on May 8, 2008 [1 favorite]
Pastabagel writes "Think of it this way - houses are pretty cheap now, right?"
HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA
Haha. ha. lol.
Yep, they're real cheap. Why, I only need to make about 4x what I make now in order to buy a starter home. It's like a big blue light special!
posted by mullingitover at 11:16 AM on May 8, 2008 [1 favorite]
HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA
Haha. ha. lol.
Yep, they're real cheap. Why, I only need to make about 4x what I make now in order to buy a starter home. It's like a big blue light special!
posted by mullingitover at 11:16 AM on May 8, 2008 [1 favorite]
And, probably idealistically, I don't like that idea.
What you like and what is reality are two different things. But this thread is not about this issue. So I'll not get into it - even though I find it interesting.
posted by spicynuts at 11:33 AM on May 8, 2008
What you like and what is reality are two different things. But this thread is not about this issue. So I'll not get into it - even though I find it interesting.
posted by spicynuts at 11:33 AM on May 8, 2008
we're the world's largest debtor nation
This is merely the result of a monetary system that creates money with interest attached, like all modern nations do, coupled with the fact that we have been the reserve currency of the world for many decades. We are the victims of our success.
To pay for operations, the treasury issues bonds with interest attached, which is inherently inflationary, since it requires more notes at maturity to retire the bond.
Even if the government taxes to get the interest to retire the bond, that still means that the people had to have this extra money to pay the interest. Where did they get it, since they cannot create money? It came from the issuance of other notes, also with interest attached. As long as there is interest attached to all money creation, inflation is baked in.
I have never understood people's revulsion at having the government just create money to pay for expenses, since this is less inflationary than creating money as a loan with interest attached.
Of course, the system is much more inflationary, since fractional reserve banking means that 10 times more money is created in the private banking sector, all structured as loans with interest attached.
If you believe nothing else, at least believe that a system like this is not really designed to minimize the "business cycle" of inflationary / deflationary periods, as is commonly trotted out. It actually enhances cycles, benefitting the financial industry at the expense of practically everyone else.
If inflation continues to get worse, as I expect it will
Inflation is grossly understated for political reasons, Inflation contained within one sector, say equities or real estate, is considered beneficial (e.g. "a bull market") until it spills into other areas, say commodities. A Forex chart does not show the full effects of inflation when all global currencies are inflating together to some extent.
USD vs Basket of Commodities
Even the euro loses some of its attraction when compared to commodities.
Euro vs same Basket
Money is a claim against a portion of the Gross World Product. More money means each note represents a smaller claim on that product. Since transactions are the atomic mechanism, inflation is not homogeneous, it moves from one sector to another. All prices are ratios. Most people have stopped thinking about the common denominator, their home currency. That's how they getchya!
The US will face more inflation to the extent that foreign held USDs start coming home. On the other hand, other currencies are also going to face inflation against the Gross World Product, since that is the nature of a global debt-backed monetary system.
posted by b1ff at 12:19 PM on May 8, 2008 [1 favorite]
This is merely the result of a monetary system that creates money with interest attached, like all modern nations do, coupled with the fact that we have been the reserve currency of the world for many decades. We are the victims of our success.
To pay for operations, the treasury issues bonds with interest attached, which is inherently inflationary, since it requires more notes at maturity to retire the bond.
Even if the government taxes to get the interest to retire the bond, that still means that the people had to have this extra money to pay the interest. Where did they get it, since they cannot create money? It came from the issuance of other notes, also with interest attached. As long as there is interest attached to all money creation, inflation is baked in.
I have never understood people's revulsion at having the government just create money to pay for expenses, since this is less inflationary than creating money as a loan with interest attached.
Of course, the system is much more inflationary, since fractional reserve banking means that 10 times more money is created in the private banking sector, all structured as loans with interest attached.
If you believe nothing else, at least believe that a system like this is not really designed to minimize the "business cycle" of inflationary / deflationary periods, as is commonly trotted out. It actually enhances cycles, benefitting the financial industry at the expense of practically everyone else.
If inflation continues to get worse, as I expect it will
Inflation is grossly understated for political reasons, Inflation contained within one sector, say equities or real estate, is considered beneficial (e.g. "a bull market") until it spills into other areas, say commodities. A Forex chart does not show the full effects of inflation when all global currencies are inflating together to some extent.
USD vs Basket of Commodities
Even the euro loses some of its attraction when compared to commodities.
Euro vs same Basket
Money is a claim against a portion of the Gross World Product. More money means each note represents a smaller claim on that product. Since transactions are the atomic mechanism, inflation is not homogeneous, it moves from one sector to another. All prices are ratios. Most people have stopped thinking about the common denominator, their home currency. That's how they getchya!
The US will face more inflation to the extent that foreign held USDs start coming home. On the other hand, other currencies are also going to face inflation against the Gross World Product, since that is the nature of a global debt-backed monetary system.
posted by b1ff at 12:19 PM on May 8, 2008 [1 favorite]
Pastabagel writes "Think of it this way - houses are pretty cheap now, right?"
Not necessarily. In many markets the median price has dropped, but it's rarely at a price that the median incomes of the people who are in the market can realistically afford. Where I live, the price of some of the more expensive land has dropped 10-20%, but that doesn't mean it's affordable - it has been climbing at unrealistic rates for years due to speculation. It will take some drastic reductions to make that happen. We're not there yet.
posted by krinklyfig at 1:04 PM on May 8, 2008
Not necessarily. In many markets the median price has dropped, but it's rarely at a price that the median incomes of the people who are in the market can realistically afford. Where I live, the price of some of the more expensive land has dropped 10-20%, but that doesn't mean it's affordable - it has been climbing at unrealistic rates for years due to speculation. It will take some drastic reductions to make that happen. We're not there yet.
posted by krinklyfig at 1:04 PM on May 8, 2008
Mutant writes "The off topic comments we see you post time and time again on MeFi finance threads are really getting disruptive to the topic we'd like to discuss."
Who is this "we" you speak of?
There is no such thing as OT in a FPP, and trying to control the comments in a thread is a rookie mistake. There can be offensive or inappropriate comments. (Heck, this might be considered such, since this is more meta than anything, but I don't want to open a Metatalk thread just for this.)
posted by krinklyfig at 1:09 PM on May 8, 2008
Who is this "we" you speak of?
There is no such thing as OT in a FPP, and trying to control the comments in a thread is a rookie mistake. There can be offensive or inappropriate comments. (Heck, this might be considered such, since this is more meta than anything, but I don't want to open a Metatalk thread just for this.)
posted by krinklyfig at 1:09 PM on May 8, 2008
krinklyfig writes "There is no such thing as OT in a FPP"
I meant to say, there is no such thing as an OT comment in a thread from a FPP.
posted by krinklyfig at 1:10 PM on May 8, 2008
I meant to say, there is no such thing as an OT comment in a thread from a FPP.
posted by krinklyfig at 1:10 PM on May 8, 2008
I really love grapefruit.
posted by spicynuts at 1:18 PM on May 8, 2008 [1 favorite]
posted by spicynuts at 1:18 PM on May 8, 2008 [1 favorite]
Good post Mutant: shame about the editorial on the end. If you actually intented to rile Malor then you pretty much succeeded in that goal, but I'm not sure it really helped things much otherwise!
Anyway, back to the topic at hand: what will Bernanke do? To some extent he's already told us in a speech to the National Economists Club in 2002: Bernanke will do everything in the Fed's power & add in some new ones to boot in order to avoid a repeat of the 1930s depression.
posted by pharm at 1:18 PM on May 8, 2008
Anyway, back to the topic at hand: what will Bernanke do? To some extent he's already told us in a speech to the National Economists Club in 2002: Bernanke will do everything in the Fed's power & add in some new ones to boot in order to avoid a repeat of the 1930s depression.
posted by pharm at 1:18 PM on May 8, 2008
spicynuts -- "Where could I find links that outline the asset classes that did well in the early 80s?"
Well, I'd first suggest looking at US Equities to see how they preformed across the term in question. Not all were up and not all were down either. Certain asset classes will outperform in different interest rate environments. For example, usually banks perform well in periods of lower or decreasing interest rates. Now, that bet is largely off until balance sheets are cleared down. But look at other types of financial institutions; money managers and the like. There will be systemic issues you'll have to be cognizant of (e.g., overall growth of the mutual fund industry, etc) that might distort your research, but this is a good place to start.
Also look at bonds and other instruments. Don't restrict yourself to US Government securities, look at corporates as well. We can expect interest rates to increase in the intermediate term (perhaps earlier than any of us might anticipate), so solidly rated floating rate corporate debt might be a nice place.
Try to not pick securities yourself, rather chose vehicles such as Unit Trusts / Investment Trusts / Mutual Funds.
But do your own research, and make sure you purchase a fund - that its not sold to you. Know why you've bought it, how its performing, and when to sell it.
Folks did make money, loads of money in the period under question.
humanfont -- "I do wonder if the interest rates hikes by Volcker actually broke inflation."
Very interesting comment. I'm reading a paper now about the psychological element to inflation expectations, the premise being the expectations of market participants become self-fulfilled. Interesting concept, and it seems to make some sense. After all, if you're negotiating for a wage increase and believe inflation to burn away at 10% over the next year, you're clearly gonna ask for 10% plus a little something extra for the great job you've been doing.
Volcker seems to have inspired confidence in people, and that meant a lot more than just a shrinking monetary base, and sky high interest rates.
Blazecock Pileon -- "My only comment would be that the huge elephant in the room for both historical periods is the crushing cost and debt incurred from waging wars in Vietnam and Iraq."
Absolutely, and I've often thought they'd inflate their way out of the current problem, much like happened after Vietnam.
b1ff -- "I feel that you are discounting the true nature of the current situation."
Well, I do think the system is resilient, capable of adapting and, to some extent, learning from the past. That doesn't mean to say that there won't be a variation on these themes (dollar collapsing, inflation surging, recession on the horizon) that won't render our past experience in dealing with this problem null and void.
What are the chances of that happening? Non zero, but I'd suggest not too large.
Malor -- "First, you have the simple fact that we're the world's largest debtor nation; our present debt, per the GAO, exceeds fifty trillion dollars ... "
Well, ok, I'm aware that the folks at Shadow Stats seem to think the debt is running that large - actually, almost sixty trillion. Which seem to agree remarkably with the GAO's own numbers. [.pdf]
So on the surface that does appear to be a staggering load.
But hold on a minute. That's only one side of the balance sheet - the liability side. This would cover (at a very, very high level mind you) explicit liabilities such as publicly held debt, federal pensions & health benefits, and, what many consider the real problem to keeping our affairs in order, implicit liabilities or entitlements such as expected social security and medicare benefits (these do increase YOY).
So balance sheets have two sides, we've only talked about the liability side. What about assets?
What is the value of American assets? ALL American assets. Starting from raw land owned by the government, to developed land, buildings, military assets, foreign bases, hardware, software, etc.
How much are all those assets worth? Less than our outstanding debt, more than or equal? I'd argue more, perhaps much, much more than our liabilities, meaning the country could pay down or make a serious reduction of our outstanding debt if the will was there.
"...exceeds fifty trillion dollars in net present value. "
Now you seem to have bolded Net Present Value for a reason, and I'm not sure why. Can you please elaborate? I suspect this is really the present value of the future obligation stream, and not NPV.
In any case, NPV is sensitive to the discount rate used, and there assumptions to using the results of any NPV calculation, one being the yield curve applied to discount future cash flows, hurdle rates being another. Was the yield curve adjusted for inflation or not? And over what horizon was the NPV calculation performed?
In fact, two different people could crunch the same set of numbers and arrive at different, perhaps markedly different NPVs as well as decisions based upon the NPV.
Curious - why are we concerned about NPV here?
"That means we need to have fifty trillion dollars in the bank, right now, earning interest, to be sure we can cover all the liabilities we've taken on."
No, an NPV of fifty trillion means the Present Value of the future obligations is fifty trillion. You're confusing year zero (aka, the present) with sum of all cash flows across the entire term. NPV is a sum of future cash flows, each discounted back to the present value (using, one would hope, a discount rate appropriate for that period). We don't need fifty trillion in the bank, now. We need a series of cash flows that, over the horizon, and discounted back to present value, will net out to fifty trillion. Big difference. Wikipedia has a good entry on NPV.
"Second, we have a wild trade imbalance, on the order of two billion dollars a day."
Sure, what's the problem other than its a BIG number? Weaker dollar causes exports to be cheaper, imports to be more dear. Exports increase, imports reduce, trade balance shrinks. Classic, textbook economics. As it happened in the late 70's / early 80's. And as it's happening now.
In fact, in another sign the weaker US Dollar is rattling the cages of our trading partners, Europeans are already complaining about the impact unfavourable exchange rates are having on their economy.
"Third, we've allowed a gigantic amount of American currency to build up in foreign hands; the last number I saw put the figure in excess of six trillion dollars. This is another form of indebtedness."
Sure, heard the same argument during the late 70's / early 80's - what between OPEC and the Japanese, the country was being sold off. Last I heard there is still a lot of property, owned by Americans no less, in The United States.
And those dollar reserves? Well, if I were long US Dollars what better use to put them than to start to buy up American assets. Like we're seeing The Chinese doing now, as well as other nations (under the guise of Sovereign Wealth Funds). America on the cheap. Dollars flow back to The United States.
One shouldn't assume The Chinese and other countries sitting on those dollars are inept money managers; no, for every large deal we read about in the newspaper there are dozens, perhaps hundreds that we don't hear of. Those dollar reserves will shrink over time and probably already have, as the US Dollar has weakened. Prudent money management dictates that we sell assets as or before they decline in value (the corollary is we purchase assets before they appreciate in value, but that's for another thread).
"Fourth, the Fed has cut rates to 2%."
Agreed, there are some issues there. Don't seem to have much wiggle room left, at least using traditional mechanisms. It will be interesting to see how they wiggle out of this one. But in any case, seems like inflation will be picking up in the near term.
"Fifth, our manufacturing base has been eviscerated. We have a few bright spots, like farm equipment, but by and large we make very little that we can send overseas to pay our debts.
In the 1970s, we were both the world's largest creditor and the world's largest manufacturer. "
Great, two points: first of all, there is always a worlds largest creditor as well as a worlds largest debtor; what country do you think was the world's largest creditor nation before the United States?
Second, we're living in a post manufacturing era; there are three sectors to the economy. Primary - agriculture & the extraction of raw materials. Second, manufacturing - taking raw materials and creating something from them. And the third sector, where the United States appears to be transitioning towards (as well as much of the G7, perhaps even the broader G20) is services.
Apple Computer doesn't have to build a computer along lines of vertical integration; it's enough that they can design the machine, conceptualise product lines built along the idea of a computer. Extract value from the concept, rather than actually construct it.
And that value add, this design work at a higher level actually generates far more revenue (and ultimately income) than simple manufacturing.
"Saying that 2008 is like 1978 is wishful thinking."
Not really. Just illustrating historical parallels and speculating about possible outcomes.
"All of them at once are unsolvable. We can't solve all these problems at the same time."
Yeh, nice rhetoric, but nobody absolutely nobody, when presented with a set of problems, solves "all of them at once". Divide and conquer. And as I've illustrated in my response, some can be easily ignored (worlds largest debtor nation, there's always one), others are sorting themselves out (trade imbalance correcting via weaker dollar), while some are real problems that will require tough choises (lack of budget flexibility due to entitlements i.e., social security, medicare, etc).
"But if the ARMs start blowing up anyway, as they may,..."
Why would ARMS blow up if interest rates are held constant? In any case, this outcome (default rates on ARMS increasing which is what I think you meant by "blow up") isn't a cause of a systemic problem. Problem for the homeowner, now homeless. Problem for the bank, taking a loss (maybe, depends upon LTV). But WOW! Opportunity for the speculator who purchases a home a relatively lower price.
"But scoffing at people for 'being alarmist',..."
Malor, you know I've never "scoffed" at people for their views. I've only asked for what you've accomplished in this comment; thoughtful, non alarmist discourse, without name calling. Well done.
KokuRyu -- "Global Warming, now, that's another story"
Uhhm, am I likely to hear the roar of the crowd if I tell you guys I don't really believe in Global Warming? Not like vehemently against the notion, mind you, its just that The Thames ain't crowding up towards my flat too much at present, if you know what I mean.
And besides, almost any long run time series reverts to the mean (certain commodity series excluded), and I haven't seen much evidence that says global temperatures don't behave in a similar manner.
But, I've got an open mind on the topic.
posted by Mutant at 1:19 PM on May 8, 2008
Well, I'd first suggest looking at US Equities to see how they preformed across the term in question. Not all were up and not all were down either. Certain asset classes will outperform in different interest rate environments. For example, usually banks perform well in periods of lower or decreasing interest rates. Now, that bet is largely off until balance sheets are cleared down. But look at other types of financial institutions; money managers and the like. There will be systemic issues you'll have to be cognizant of (e.g., overall growth of the mutual fund industry, etc) that might distort your research, but this is a good place to start.
Also look at bonds and other instruments. Don't restrict yourself to US Government securities, look at corporates as well. We can expect interest rates to increase in the intermediate term (perhaps earlier than any of us might anticipate), so solidly rated floating rate corporate debt might be a nice place.
Try to not pick securities yourself, rather chose vehicles such as Unit Trusts / Investment Trusts / Mutual Funds.
But do your own research, and make sure you purchase a fund - that its not sold to you. Know why you've bought it, how its performing, and when to sell it.
Folks did make money, loads of money in the period under question.
humanfont -- "I do wonder if the interest rates hikes by Volcker actually broke inflation."
Very interesting comment. I'm reading a paper now about the psychological element to inflation expectations, the premise being the expectations of market participants become self-fulfilled. Interesting concept, and it seems to make some sense. After all, if you're negotiating for a wage increase and believe inflation to burn away at 10% over the next year, you're clearly gonna ask for 10% plus a little something extra for the great job you've been doing.
Volcker seems to have inspired confidence in people, and that meant a lot more than just a shrinking monetary base, and sky high interest rates.
Blazecock Pileon -- "My only comment would be that the huge elephant in the room for both historical periods is the crushing cost and debt incurred from waging wars in Vietnam and Iraq."
Absolutely, and I've often thought they'd inflate their way out of the current problem, much like happened after Vietnam.
b1ff -- "I feel that you are discounting the true nature of the current situation."
Well, I do think the system is resilient, capable of adapting and, to some extent, learning from the past. That doesn't mean to say that there won't be a variation on these themes (dollar collapsing, inflation surging, recession on the horizon) that won't render our past experience in dealing with this problem null and void.
What are the chances of that happening? Non zero, but I'd suggest not too large.
Malor -- "First, you have the simple fact that we're the world's largest debtor nation; our present debt, per the GAO, exceeds fifty trillion dollars ... "
Well, ok, I'm aware that the folks at Shadow Stats seem to think the debt is running that large - actually, almost sixty trillion. Which seem to agree remarkably with the GAO's own numbers. [.pdf]
So on the surface that does appear to be a staggering load.
But hold on a minute. That's only one side of the balance sheet - the liability side. This would cover (at a very, very high level mind you) explicit liabilities such as publicly held debt, federal pensions & health benefits, and, what many consider the real problem to keeping our affairs in order, implicit liabilities or entitlements such as expected social security and medicare benefits (these do increase YOY).
So balance sheets have two sides, we've only talked about the liability side. What about assets?
What is the value of American assets? ALL American assets. Starting from raw land owned by the government, to developed land, buildings, military assets, foreign bases, hardware, software, etc.
How much are all those assets worth? Less than our outstanding debt, more than or equal? I'd argue more, perhaps much, much more than our liabilities, meaning the country could pay down or make a serious reduction of our outstanding debt if the will was there.
"...exceeds fifty trillion dollars in net present value. "
Now you seem to have bolded Net Present Value for a reason, and I'm not sure why. Can you please elaborate? I suspect this is really the present value of the future obligation stream, and not NPV.
In any case, NPV is sensitive to the discount rate used, and there assumptions to using the results of any NPV calculation, one being the yield curve applied to discount future cash flows, hurdle rates being another. Was the yield curve adjusted for inflation or not? And over what horizon was the NPV calculation performed?
In fact, two different people could crunch the same set of numbers and arrive at different, perhaps markedly different NPVs as well as decisions based upon the NPV.
Curious - why are we concerned about NPV here?
"That means we need to have fifty trillion dollars in the bank, right now, earning interest, to be sure we can cover all the liabilities we've taken on."
No, an NPV of fifty trillion means the Present Value of the future obligations is fifty trillion. You're confusing year zero (aka, the present) with sum of all cash flows across the entire term. NPV is a sum of future cash flows, each discounted back to the present value (using, one would hope, a discount rate appropriate for that period). We don't need fifty trillion in the bank, now. We need a series of cash flows that, over the horizon, and discounted back to present value, will net out to fifty trillion. Big difference. Wikipedia has a good entry on NPV.
"Second, we have a wild trade imbalance, on the order of two billion dollars a day."
Sure, what's the problem other than its a BIG number? Weaker dollar causes exports to be cheaper, imports to be more dear. Exports increase, imports reduce, trade balance shrinks. Classic, textbook economics. As it happened in the late 70's / early 80's. And as it's happening now.
In fact, in another sign the weaker US Dollar is rattling the cages of our trading partners, Europeans are already complaining about the impact unfavourable exchange rates are having on their economy.
"Third, we've allowed a gigantic amount of American currency to build up in foreign hands; the last number I saw put the figure in excess of six trillion dollars. This is another form of indebtedness."
Sure, heard the same argument during the late 70's / early 80's - what between OPEC and the Japanese, the country was being sold off. Last I heard there is still a lot of property, owned by Americans no less, in The United States.
And those dollar reserves? Well, if I were long US Dollars what better use to put them than to start to buy up American assets. Like we're seeing The Chinese doing now, as well as other nations (under the guise of Sovereign Wealth Funds). America on the cheap. Dollars flow back to The United States.
One shouldn't assume The Chinese and other countries sitting on those dollars are inept money managers; no, for every large deal we read about in the newspaper there are dozens, perhaps hundreds that we don't hear of. Those dollar reserves will shrink over time and probably already have, as the US Dollar has weakened. Prudent money management dictates that we sell assets as or before they decline in value (the corollary is we purchase assets before they appreciate in value, but that's for another thread).
"Fourth, the Fed has cut rates to 2%."
Agreed, there are some issues there. Don't seem to have much wiggle room left, at least using traditional mechanisms. It will be interesting to see how they wiggle out of this one. But in any case, seems like inflation will be picking up in the near term.
"Fifth, our manufacturing base has been eviscerated. We have a few bright spots, like farm equipment, but by and large we make very little that we can send overseas to pay our debts.
In the 1970s, we were both the world's largest creditor and the world's largest manufacturer. "
Great, two points: first of all, there is always a worlds largest creditor as well as a worlds largest debtor; what country do you think was the world's largest creditor nation before the United States?
Second, we're living in a post manufacturing era; there are three sectors to the economy. Primary - agriculture & the extraction of raw materials. Second, manufacturing - taking raw materials and creating something from them. And the third sector, where the United States appears to be transitioning towards (as well as much of the G7, perhaps even the broader G20) is services.
Apple Computer doesn't have to build a computer along lines of vertical integration; it's enough that they can design the machine, conceptualise product lines built along the idea of a computer. Extract value from the concept, rather than actually construct it.
And that value add, this design work at a higher level actually generates far more revenue (and ultimately income) than simple manufacturing.
"Saying that 2008 is like 1978 is wishful thinking."
Not really. Just illustrating historical parallels and speculating about possible outcomes.
"All of them at once are unsolvable. We can't solve all these problems at the same time."
Yeh, nice rhetoric, but nobody absolutely nobody, when presented with a set of problems, solves "all of them at once". Divide and conquer. And as I've illustrated in my response, some can be easily ignored (worlds largest debtor nation, there's always one), others are sorting themselves out (trade imbalance correcting via weaker dollar), while some are real problems that will require tough choises (lack of budget flexibility due to entitlements i.e., social security, medicare, etc).
"But if the ARMs start blowing up anyway, as they may,..."
Why would ARMS blow up if interest rates are held constant? In any case, this outcome (default rates on ARMS increasing which is what I think you meant by "blow up") isn't a cause of a systemic problem. Problem for the homeowner, now homeless. Problem for the bank, taking a loss (maybe, depends upon LTV). But WOW! Opportunity for the speculator who purchases a home a relatively lower price.
"But scoffing at people for 'being alarmist',..."
Malor, you know I've never "scoffed" at people for their views. I've only asked for what you've accomplished in this comment; thoughtful, non alarmist discourse, without name calling. Well done.
KokuRyu -- "Global Warming, now, that's another story"
Uhhm, am I likely to hear the roar of the crowd if I tell you guys I don't really believe in Global Warming? Not like vehemently against the notion, mind you, its just that The Thames ain't crowding up towards my flat too much at present, if you know what I mean.
And besides, almost any long run time series reverts to the mean (certain commodity series excluded), and I haven't seen much evidence that says global temperatures don't behave in a similar manner.
But, I've got an open mind on the topic.
posted by Mutant at 1:19 PM on May 8, 2008
Mutant writes "And besides, almost any long run time series reverts to the mean (certain commodity series excluded), and I haven't seen much evidence that says global temperatures don't behave in a similar manner."
Where is your evidence that applying such an economic model works for climate modeling?
posted by krinklyfig at 1:29 PM on May 8, 2008
Where is your evidence that applying such an economic model works for climate modeling?
posted by krinklyfig at 1:29 PM on May 8, 2008
As an average, your grandfather and father both had more money to save than you do.
That's because there was nothing to spend it on. How many times was rationing in place so that when you had money to spend you couldn't buy what you wanted? They had only a couple of channels of television. Long distance phone calls and airplane trips were luxuries. Fresh fruit and vegetables were only available in season. Houses had one bathroom, and the square feet per person was 1/6th of today. Not to mentional all the everyday personal freedoms we take for granted. If you had to go back in time and live the life of a typical american in the 1940s, you would find that they were not nearly as wealthy as you think they were.
posted by humanfont at 1:32 PM on May 8, 2008
That's because there was nothing to spend it on. How many times was rationing in place so that when you had money to spend you couldn't buy what you wanted? They had only a couple of channels of television. Long distance phone calls and airplane trips were luxuries. Fresh fruit and vegetables were only available in season. Houses had one bathroom, and the square feet per person was 1/6th of today. Not to mentional all the everyday personal freedoms we take for granted. If you had to go back in time and live the life of a typical american in the 1940s, you would find that they were not nearly as wealthy as you think they were.
posted by humanfont at 1:32 PM on May 8, 2008
Why would ARMS blow up if interest rates are held constant? In any case, this outcome (default rates on ARMS increasing which is what I think you meant by "blow up") isn't a cause of a systemic problem. Problem for the homeowner, now homeless. Problem for the bank, taking a loss (maybe, depends upon LTV). But WOW! Opportunity for the speculator who purchases a home a relatively lower price.
Go easy on me, I'm a financial newb, but couldn't ARMs "blow up"--in the sense of massive foreclosure--if we hit depression territory, unemployment skyrockets, and people can't afford their ARM even at low interest rates? Not necessarily a result of ARMs but rather loose lending practices. The systemic problem then is that the government would rather bail out the banks than watch them fail.
posted by Durin's Bane at 1:46 PM on May 8, 2008
Go easy on me, I'm a financial newb, but couldn't ARMs "blow up"--in the sense of massive foreclosure--if we hit depression territory, unemployment skyrockets, and people can't afford their ARM even at low interest rates? Not necessarily a result of ARMs but rather loose lending practices. The systemic problem then is that the government would rather bail out the banks than watch them fail.
posted by Durin's Bane at 1:46 PM on May 8, 2008
The Board, comprised of Glass and other individuals appointed by Glass, approved his bid of $96 million for the Royals despite the fact a competing bid by Miles Prentice was 25% higher, at $120 million.
ARMS are tied to 1 year t-bill rates, or something similar. They don't "blow up" unless you have the US Government going into bankruptcy or some other end-of-the-world scenerio. I guess you could have a case with massive defaults on ARMS but it wouldn't be because the ARM itself, as a financial vehicle, is a bad thing.
posted by geoff. at 2:01 PM on May 8, 2008
ARMS are tied to 1 year t-bill rates, or something similar. They don't "blow up" unless you have the US Government going into bankruptcy or some other end-of-the-world scenerio. I guess you could have a case with massive defaults on ARMS but it wouldn't be because the ARM itself, as a financial vehicle, is a bad thing.
posted by geoff. at 2:01 PM on May 8, 2008
Hmmm .... well that's a Samuel Beckett type response. Uhm, I think you get what I was quoting.
posted by geoff. at 2:01 PM on May 8, 2008
posted by geoff. at 2:01 PM on May 8, 2008
Not to mentional all the everyday personal freedoms we take for granted. If you had to go back in time and live the life of a typical american in the 1940s, you would find that they were not nearly as wealthy as you think they were.
Freedom does not mean Playstation and TV to keep you distracted. It means having savings, and free time to enjoy life. Freedom is not having both parents working 10 hour days and weekends to keep their job to pay a mortgage on the same house their grandparents bought on one income with money left over for savings.
posted by b1ff at 2:13 PM on May 8, 2008 [2 favorites]
Freedom does not mean Playstation and TV to keep you distracted. It means having savings, and free time to enjoy life. Freedom is not having both parents working 10 hour days and weekends to keep their job to pay a mortgage on the same house their grandparents bought on one income with money left over for savings.
posted by b1ff at 2:13 PM on May 8, 2008 [2 favorites]
ARMS are tied to 1 year t-bill rates, or something similar. They don't "blow up" unless you have the US Government going into bankruptcy or some other end-of-the-world scenerio. I guess you could have a case with massive defaults on ARMS but it wouldn't be because the ARM itself, as a financial vehicle, is a bad thing.
The same could be said of a top fuel dragster, and most people shouldn't be entering one of those vehicles either.
Anyway, I think the poster meant "what if the foreclosure rates on ARMS blew up?" Home Loans are highly leveraged debt instruments. It only takes a small % change in loan rate to eat up the available cash flow of most buyers. It only takes a small % change in market value of the underlying to make most of these "investments" worthless.
Keeping rates low is inflationary, which hits the borrower in the income side, rather than the expense side. Things are very tenuous right now. Add in inflation, and unemployment , and there could be a lot more walkaways and foreclosures, which will pressure both the housing market and the overall monetary system, which needs continuous new debt to maintain its structure.
posted by b1ff at 3:27 PM on May 8, 2008
The same could be said of a top fuel dragster, and most people shouldn't be entering one of those vehicles either.
Anyway, I think the poster meant "what if the foreclosure rates on ARMS blew up?" Home Loans are highly leveraged debt instruments. It only takes a small % change in loan rate to eat up the available cash flow of most buyers. It only takes a small % change in market value of the underlying to make most of these "investments" worthless.
Keeping rates low is inflationary, which hits the borrower in the income side, rather than the expense side. Things are very tenuous right now. Add in inflation, and unemployment , and there could be a lot more walkaways and foreclosures, which will pressure both the housing market and the overall monetary system, which needs continuous new debt to maintain its structure.
posted by b1ff at 3:27 PM on May 8, 2008
Freedom does not mean Playstation and TV to keep you distracted. It means having savings, and free time to enjoy life. Freedom is not having both parents working 10 hour days and weekends to keep their job to pay a mortgage on the same house their grandparents bought on one income with money left over for savings.
No I'm talking about reproductive freedom, the expanded civil rights for minorities, the unprecidented level social freedom gays have today, the lack of an active open draft for 18 year old men, and so on. I know plenty of people who don't buy play stations, 50' HDTVs, cable tv, dvd's. They drive old beaters that get good gas milage, bike or take the bus. It is amazing how far your money goes when you stop buying lattes, cigarettes, and dinner out three times a week.
posted by humanfont at 4:24 PM on May 8, 2008
No I'm talking about reproductive freedom, the expanded civil rights for minorities, the unprecidented level social freedom gays have today, the lack of an active open draft for 18 year old men, and so on. I know plenty of people who don't buy play stations, 50' HDTVs, cable tv, dvd's. They drive old beaters that get good gas milage, bike or take the bus. It is amazing how far your money goes when you stop buying lattes, cigarettes, and dinner out three times a week.
posted by humanfont at 4:24 PM on May 8, 2008
No I'm talking about reproductive freedom, the expanded civil rights for minorities, the unprecidented level social freedom gays have today, the lack of an active open draft for 18 year old men, and so on. I know plenty of people who don't buy play stations, 50' HDTVs, cable tv, dvd's. They drive old beaters that get good gas milage, bike or take the bus. It is amazing how far your money goes when you stop buying lattes, cigarettes, and dinner out three times a week.
How much reproductive freedom do you have if you cannot afford to have children?
None of those things you mentioned have anything to do with the problems of the Fed, banking, or finance. Problems which can't be fixed merely by having everyone cut back on smoking, Starbucks, Sizzler. Now, please, let the grownups talk.
posted by b1ff at 5:17 PM on May 8, 2008
How much reproductive freedom do you have if you cannot afford to have children?
None of those things you mentioned have anything to do with the problems of the Fed, banking, or finance. Problems which can't be fixed merely by having everyone cut back on smoking, Starbucks, Sizzler. Now, please, let the grownups talk.
posted by b1ff at 5:17 PM on May 8, 2008
Sorry about that last crack, humanfont. It was uncalled for.
posted by b1ff at 6:23 PM on May 8, 2008
posted by b1ff at 6:23 PM on May 8, 2008
Mutant, about half of the column inches on this thread are you. I don't even necessarily disagree with you, but you might want to save up some of your words for your own blog, rather than making this your pulpit.
posted by blacklite at 6:45 PM on May 8, 2008
posted by blacklite at 6:45 PM on May 8, 2008
Okay, well, now that I've waded through the swamps of more recent comments, I actually do disagree with a number of the things you've said. The rest still stands though.
posted by blacklite at 6:50 PM on May 8, 2008
posted by blacklite at 6:50 PM on May 8, 2008
For the love of small animals, mutant, you have *got* to get off your hobby horse before it drops dead from under you! GYOBFW and all that, y'know?
posted by five fresh fish at 8:07 PM on May 8, 2008
posted by five fresh fish at 8:07 PM on May 8, 2008
Okay, I've got to bite: What's the 1978 equivalent of the 2006-2008 housing bubble?
posted by storybored at 8:43 PM on May 8, 2008
posted by storybored at 8:43 PM on May 8, 2008
None of those things you mentioned have anything to do with the problems of the Fed, banking, or finance.
Problems which can't be fixed merely by having everyone cut back on smoking, Starbucks, Sizzler.
The whole problem is that status chasers bought houses they couldn't afford with credit they shouldn't have been given, which was then securitized and presented to investors as top investment grade?
To tie it all together. It is my opinion that your claim that you can't have what your grandparents did ignores the differences between what they considered middle class in 1950 and what is considered middle class today. These differences are the result of a status oreinted consumer society. These differences also explain why two paychecks can't afford to be middle class while one paycheck did in 1950. This vision of middle class life has become bloated and riddled with inefficiencies of which SUV's, Starbucks and Sizzler are great examples. Get folks back to being frugal and efficient instead of wasteful and spendthrift. Efficiency and savings create prosperity. Hence cutting back on all the crap you waste your money on is exactly the tonic the economy needs. Sadly this will only be accomplished by a signifigant economic realignment and recession.
posted by humanfont at 10:53 PM on May 8, 2008
Problems which can't be fixed merely by having everyone cut back on smoking, Starbucks, Sizzler.
The whole problem is that status chasers bought houses they couldn't afford with credit they shouldn't have been given, which was then securitized and presented to investors as top investment grade?
To tie it all together. It is my opinion that your claim that you can't have what your grandparents did ignores the differences between what they considered middle class in 1950 and what is considered middle class today. These differences are the result of a status oreinted consumer society. These differences also explain why two paychecks can't afford to be middle class while one paycheck did in 1950. This vision of middle class life has become bloated and riddled with inefficiencies of which SUV's, Starbucks and Sizzler are great examples. Get folks back to being frugal and efficient instead of wasteful and spendthrift. Efficiency and savings create prosperity. Hence cutting back on all the crap you waste your money on is exactly the tonic the economy needs. Sadly this will only be accomplished by a signifigant economic realignment and recession.
posted by humanfont at 10:53 PM on May 8, 2008
Freedom does not mean Playstation and TV to keep you distracted. It means having savings, and free time to enjoy life.
i can't argue with that, but if you think the life of someone who was working during the 30s and 40s was representative of that kind of freedom, you don't know much - for starters, people considered themselves lucky they were working ...
don't hold up that time period as some kind of idyllic past that we've somehow descended from - those were bad times, much badder than anything you and i have experienced
for example a LOT of people got foreclosed on in the 30s ...
posted by pyramid termite at 12:47 AM on May 9, 2008
i can't argue with that, but if you think the life of someone who was working during the 30s and 40s was representative of that kind of freedom, you don't know much - for starters, people considered themselves lucky they were working ...
don't hold up that time period as some kind of idyllic past that we've somehow descended from - those were bad times, much badder than anything you and i have experienced
for example a LOT of people got foreclosed on in the 30s ...
posted by pyramid termite at 12:47 AM on May 9, 2008
Humanfont,
Actually, it is a common misconception that most people are spending more money on discretionary items. In fact, it is spending on insurance, healthcare, housing, food, energy that has been rising rapidly. People have little control over these costs. I also think you will have a hard time telling the government taxman to go pound salt when he comes for his cut. After all, there are >100K government salaries to pay, as well as that Bear Stearns Bailout.
Did you ever vote for WW1, WW2, Vietnam, Iraq1, Iraq2? Do you blame consumers for war too? Wars cost a lot.
You seem to ignore inflation as a factor in robbing people of their savings. Overall, from the feds inception, a dollar has lost about 99% of its buying power. Recently, if you have been fortunate enough to have a couple dimes to rub together, your savings have been decimated at the rate of about 15% per year right now, when compared to a wide basket of commodities, including all the things that go into what you need to eat, drive, etc.
Please look back over my first few posts in the thread and try to understand what I am saying about how our modern money system works. The main features are:
We run a monetary system where the only entity authorized to create money always creates it as a loan with interest attached. This bakes in the need for future inflation (to pay the interest), which is accomplished by creating more loans with more interest attached, etc.
Fractional reserve banking allows the private banking sector to create up to 10 times more money through loans at interest on top of what is created by the fed when it buys treasury bonds. That is actually a conservative estimate.
The history of the Fed has been to bail out the financial "masters of the universe" who get themselves in the most trouble. This is the epitome of a moral hazard. Of course the little businesses and consumers foot the bill.
Under the circumstances, I think smugly blaming the victim is not so bright, especially since the victim is YOU.
posted by b1ff at 12:52 AM on May 9, 2008 [1 favorite]
Actually, it is a common misconception that most people are spending more money on discretionary items. In fact, it is spending on insurance, healthcare, housing, food, energy that has been rising rapidly. People have little control over these costs. I also think you will have a hard time telling the government taxman to go pound salt when he comes for his cut. After all, there are >100K government salaries to pay, as well as that Bear Stearns Bailout.
Did you ever vote for WW1, WW2, Vietnam, Iraq1, Iraq2? Do you blame consumers for war too? Wars cost a lot.
You seem to ignore inflation as a factor in robbing people of their savings. Overall, from the feds inception, a dollar has lost about 99% of its buying power. Recently, if you have been fortunate enough to have a couple dimes to rub together, your savings have been decimated at the rate of about 15% per year right now, when compared to a wide basket of commodities, including all the things that go into what you need to eat, drive, etc.
Please look back over my first few posts in the thread and try to understand what I am saying about how our modern money system works. The main features are:
We run a monetary system where the only entity authorized to create money always creates it as a loan with interest attached. This bakes in the need for future inflation (to pay the interest), which is accomplished by creating more loans with more interest attached, etc.
Fractional reserve banking allows the private banking sector to create up to 10 times more money through loans at interest on top of what is created by the fed when it buys treasury bonds. That is actually a conservative estimate.
The history of the Fed has been to bail out the financial "masters of the universe" who get themselves in the most trouble. This is the epitome of a moral hazard. Of course the little businesses and consumers foot the bill.
Under the circumstances, I think smugly blaming the victim is not so bright, especially since the victim is YOU.
posted by b1ff at 12:52 AM on May 9, 2008 [1 favorite]
i can't argue with that, but if you think the life of someone who was working during the 30s and 40s was representative of that kind of freedom, you don't know much - for starters, people considered themselves lucky they were working ...
Below is the original comment I made that seems to have spun up humanfont. It is buried in a lot of other observations about modern money that I felt would be more controversial than a comment about my ancestors' buying power.
As an average, your grandfather and father both had more money to save than you do.
My grandparents, like many grandparents, lived more than the 20 years between 1929 and 1949. They lived through most of the 20th century, including the prosperous decades before the depression and following WWII. Taxes were lower, inflation was lower. Why is it so hard to believe that they were able to save more?
Of course people had it hard during the depression and during WWII, but like I said, ON AVERAGE, our parents and grandparents had more to save over their lifetimes than we do. Do you dispute this?
those were bad times, much badder than anything you and i have experienced
I think the overarching theme of what I have been saying is that we could very well experience times like those again. Remember that the Fed was around for the first one too.
posted by b1ff at 1:40 AM on May 9, 2008
Below is the original comment I made that seems to have spun up humanfont. It is buried in a lot of other observations about modern money that I felt would be more controversial than a comment about my ancestors' buying power.
As an average, your grandfather and father both had more money to save than you do.
My grandparents, like many grandparents, lived more than the 20 years between 1929 and 1949. They lived through most of the 20th century, including the prosperous decades before the depression and following WWII. Taxes were lower, inflation was lower. Why is it so hard to believe that they were able to save more?
Of course people had it hard during the depression and during WWII, but like I said, ON AVERAGE, our parents and grandparents had more to save over their lifetimes than we do. Do you dispute this?
those were bad times, much badder than anything you and i have experienced
I think the overarching theme of what I have been saying is that we could very well experience times like those again. Remember that the Fed was around for the first one too.
posted by b1ff at 1:40 AM on May 9, 2008
I meant to say, there is no such thing as an OT comment in a thread from a FPP.
Then why do I have a derail flag?
Uhhm, am I likely to hear the roar of the crowd if I tell you guys I don't really believe in Global Warming?
No, but you'll find me giggling about the way you've castigated Malor for posting unsubstantiated nonsense that runs counter to expert opinion developed from available evidence, and now you're... doing exactly that!
posted by rodgerd at 1:41 AM on May 9, 2008
Then why do I have a derail flag?
Uhhm, am I likely to hear the roar of the crowd if I tell you guys I don't really believe in Global Warming?
No, but you'll find me giggling about the way you've castigated Malor for posting unsubstantiated nonsense that runs counter to expert opinion developed from available evidence, and now you're... doing exactly that!
posted by rodgerd at 1:41 AM on May 9, 2008
But hold on a minute. That's only one side of the balance sheet - the liability side. This would cover (at a very, very high level mind you) explicit liabilities such as publicly held debt, federal pensions & health benefits, and, what many consider the real problem to keeping our affairs in order, implicit liabilities or entitlements such as expected social security and medicare benefits (these do increase YOY).
So balance sheets have two sides, we've only talked about the liability side. What about assets?
What is the value of American assets? ALL American assets. Starting from raw land owned by the government, to developed land, buildings, military assets, foreign bases, hardware, software, etc.
This is misdirection and misinformation. Go look at the GAO's report. In 1978, our balance sheet was extremely strong; we had enormous assets, few liabilities. We probably have more assets now than we did then, but our debt position is so gigantic that that growth is pretty much irelevant.
You are, in essence, arguing that we're fine because we can sell off the National Parks. This is disingenuous. You are misleading people with pure bullshit. Anyone who's relying on your arguments, thinking that things are just fine, is being misinformed. Your arguments of this nature are so specious that I truly believe you're misleading people deliberately.
Either you're arguing to win, you're arguing to misinform, or you're arguing because you don't like the way I assemble my knowledge of economics..... but regardless of your motivation, you are obscuring the truth, not illuminating it. Shame on you.
Sure, what's the problem other than its a BIG number? Weaker dollar causes exports to be cheaper, imports to be more dear. Exports increase, imports reduce, trade balance shrinks. Classic, textbook economics. As it happened in the late 70's / early 80's. And as it's happening now.
The problem is that it should have happened a long time ago. The size of the adjustment required to wean us off an 800 billion dollar deficit is enormous. But the Fed was willing to supply any number of dollars at a fixed interest rate, so enormous structures were built that involve shipping us real goods in exchange for the unlimited supply of dollars. But dollars are just a claim on future production, so that trade deficit is a gigantic debt position. We are enormously in debt based on our currency as well as our stated balance sheets. And almost all of this debt has been used for non-productive consumption.
The adjustments you talk about would have been painful but doable if we'd started them eight or ten years ago, but the maladjustment has gotten so large that just fixing THIS ONE PROBLEM will cause us enormous economic pain. Our trade deficit is somewhere around 7% of GDP, which by all historic standards is a disaster. 5% is the usual level at which Mr. Market takes powerful punitive action.
I think you know that. I'm not sure what game you're playing here, but arguing that a 7% trade deficit is okay and nothing to worry about is egregious misinformation, and you should once again be ashamed.
Those dollar reserves will shrink over time and probably already have, as the US Dollar has weakened. Prudent money management dictates that we sell assets as or before they decline in value (the corollary is we purchase assets before they appreciate in value, but that's for another thread).
Dude, do you think the money just, like, goes away? That only happens when loans are paid off or defaulted. There's another word for that: debt deflation. What do you think the Fed is trying so desperately, desperately hard to prevent?
Foreign entities hold a six trillion dollar position; this is somewhere around half of the entire GDP. (I'm not sure what last year's numbers are; I'm still at 'ten trillion' for the US economy size, but I think it's larger than that now.) It's not like that money just evaporates. If it starts getting repatriated and dropping in value, then it could easily start a landslide of dollar-selling. One could argue, in fact, that this is already happening. Were it not for the Chinese and Japanese central banks' massive intervention, the dollar would be far, far lower than it is now.
Prudent money management says sell first, but that has no bearing on the actual reality of the situation. You seem to think that this is somehow a refutation of the facts on the ground, and I'm entirely mystified as to why.
Yeh, nice rhetoric, but nobody absolutely nobody, when presented with a set of problems, solves "all of them at once". Divide and conquer. And as I've illustrated in my response, some can be easily ignored (worlds largest debtor nation, there's always one), others are sorting themselves out (trade imbalance correcting via weaker dollar), while some are real problems that will require tough choises (lack of budget flexibility due to entitlements i.e., social security, medicare, etc).
We have to solve them all at once, because all them impact all the others. The trade deficit causes the huge dollar holdings. The easy money by the Fed prevents the adjustment to the deficit. The flagrant mismanagement of the budget by Congress puts our hands in chains and makes fiscal stimulus packages largely impossible; we're already on a gigantic stimulus of enormous debt accumulation, and we're STILL failing. Everything affects everything else, and we can't pick out problems and fix them in isolation.
Oh, and I missed the NPV thing. Whatever the actual term is: to be sure we can pay our debts, we need fifty trillion in the bank right now, paying interest. That's straight from the GAO. Use whatever term you like.
posted by Malor at 2:22 AM on May 9, 2008
So balance sheets have two sides, we've only talked about the liability side. What about assets?
What is the value of American assets? ALL American assets. Starting from raw land owned by the government, to developed land, buildings, military assets, foreign bases, hardware, software, etc.
This is misdirection and misinformation. Go look at the GAO's report. In 1978, our balance sheet was extremely strong; we had enormous assets, few liabilities. We probably have more assets now than we did then, but our debt position is so gigantic that that growth is pretty much irelevant.
You are, in essence, arguing that we're fine because we can sell off the National Parks. This is disingenuous. You are misleading people with pure bullshit. Anyone who's relying on your arguments, thinking that things are just fine, is being misinformed. Your arguments of this nature are so specious that I truly believe you're misleading people deliberately.
Either you're arguing to win, you're arguing to misinform, or you're arguing because you don't like the way I assemble my knowledge of economics..... but regardless of your motivation, you are obscuring the truth, not illuminating it. Shame on you.
Sure, what's the problem other than its a BIG number? Weaker dollar causes exports to be cheaper, imports to be more dear. Exports increase, imports reduce, trade balance shrinks. Classic, textbook economics. As it happened in the late 70's / early 80's. And as it's happening now.
The problem is that it should have happened a long time ago. The size of the adjustment required to wean us off an 800 billion dollar deficit is enormous. But the Fed was willing to supply any number of dollars at a fixed interest rate, so enormous structures were built that involve shipping us real goods in exchange for the unlimited supply of dollars. But dollars are just a claim on future production, so that trade deficit is a gigantic debt position. We are enormously in debt based on our currency as well as our stated balance sheets. And almost all of this debt has been used for non-productive consumption.
The adjustments you talk about would have been painful but doable if we'd started them eight or ten years ago, but the maladjustment has gotten so large that just fixing THIS ONE PROBLEM will cause us enormous economic pain. Our trade deficit is somewhere around 7% of GDP, which by all historic standards is a disaster. 5% is the usual level at which Mr. Market takes powerful punitive action.
I think you know that. I'm not sure what game you're playing here, but arguing that a 7% trade deficit is okay and nothing to worry about is egregious misinformation, and you should once again be ashamed.
Those dollar reserves will shrink over time and probably already have, as the US Dollar has weakened. Prudent money management dictates that we sell assets as or before they decline in value (the corollary is we purchase assets before they appreciate in value, but that's for another thread).
Dude, do you think the money just, like, goes away? That only happens when loans are paid off or defaulted. There's another word for that: debt deflation. What do you think the Fed is trying so desperately, desperately hard to prevent?
Foreign entities hold a six trillion dollar position; this is somewhere around half of the entire GDP. (I'm not sure what last year's numbers are; I'm still at 'ten trillion' for the US economy size, but I think it's larger than that now.) It's not like that money just evaporates. If it starts getting repatriated and dropping in value, then it could easily start a landslide of dollar-selling. One could argue, in fact, that this is already happening. Were it not for the Chinese and Japanese central banks' massive intervention, the dollar would be far, far lower than it is now.
Prudent money management says sell first, but that has no bearing on the actual reality of the situation. You seem to think that this is somehow a refutation of the facts on the ground, and I'm entirely mystified as to why.
Yeh, nice rhetoric, but nobody absolutely nobody, when presented with a set of problems, solves "all of them at once". Divide and conquer. And as I've illustrated in my response, some can be easily ignored (worlds largest debtor nation, there's always one), others are sorting themselves out (trade imbalance correcting via weaker dollar), while some are real problems that will require tough choises (lack of budget flexibility due to entitlements i.e., social security, medicare, etc).
We have to solve them all at once, because all them impact all the others. The trade deficit causes the huge dollar holdings. The easy money by the Fed prevents the adjustment to the deficit. The flagrant mismanagement of the budget by Congress puts our hands in chains and makes fiscal stimulus packages largely impossible; we're already on a gigantic stimulus of enormous debt accumulation, and we're STILL failing. Everything affects everything else, and we can't pick out problems and fix them in isolation.
Oh, and I missed the NPV thing. Whatever the actual term is: to be sure we can pay our debts, we need fifty trillion in the bank right now, paying interest. That's straight from the GAO. Use whatever term you like.
posted by Malor at 2:22 AM on May 9, 2008
Of course people had it hard during the depression and during WWII, but like I said, ON AVERAGE, our parents and grandparents had more to save over their lifetimes than we do. Do you dispute this?
how can i? - this is utterly vague - for starters, it's very likely that your grandparents went to school with my parents, so that doesn't even make sense
not only that, but i thought we were talking about freedom, not the ability to save money - although it's very typically american to confuse having money for having freedom ...
so, ON AVERAGE, do you think people were more free back in the 30s and 40s?
posted by pyramid termite at 2:24 AM on May 9, 2008
how can i? - this is utterly vague - for starters, it's very likely that your grandparents went to school with my parents, so that doesn't even make sense
not only that, but i thought we were talking about freedom, not the ability to save money - although it's very typically american to confuse having money for having freedom ...
so, ON AVERAGE, do you think people were more free back in the 30s and 40s?
posted by pyramid termite at 2:24 AM on May 9, 2008
As I said in the other thread... in 1970, the average wage was about 175 ounces of gold a year. That's average, across the entire country. At today's prices, those 175 ounces would be worth about $155,000. On average.... meaning about half of everyone in the entire country should be making MORE than that.
But, after a generation of fiat money, with players who make their livings manipulating that debt extracting enormous value from the economy, the average earnings in this country are about $38K. A few people near the center have become immensely rich, while everyone else is impoverished.
Mutant likes this system because he's close to the center: he gets a high salary because he works manipulating the debt. And he argues fervently in favor of it because he likes the puzzles of trying to outgame everyone else to extract the most value possible from the economy. Many people do. It pays a lot better than actually generating or helping to generate wealth, which is real goods in the real world. If, instead, you can manipulate the output of the wealth producers, you can extract a much larger fraction for yourself. Abstractions of wealth are highly beneficial to the people who make and work with the abstractions.
But, when too much of the economy becomes about manipulating debt, instead of generating wealth, wealth production slows. In our case, it has slowed dramatically. On average, we're far, far worse off than we were in 1970; we have to maintain enormous debt loads to keep anything like the standard of living our parents enjoyed, debt-free. Meanwhile, the people at the center reap enormous profits from that debt, along with its myriad other forms.
The economy is choked with it, and it's having trouble even functioning anymore. That's what's going on with the bank bailouts; the debt has gotten so overwhelming that the economy can't service it anymore. This is not a sustainable system, and the adjustments are going to be harsh and extremely painful.
posted by Malor at 4:19 AM on May 9, 2008 [2 favorites]
But, after a generation of fiat money, with players who make their livings manipulating that debt extracting enormous value from the economy, the average earnings in this country are about $38K. A few people near the center have become immensely rich, while everyone else is impoverished.
Mutant likes this system because he's close to the center: he gets a high salary because he works manipulating the debt. And he argues fervently in favor of it because he likes the puzzles of trying to outgame everyone else to extract the most value possible from the economy. Many people do. It pays a lot better than actually generating or helping to generate wealth, which is real goods in the real world. If, instead, you can manipulate the output of the wealth producers, you can extract a much larger fraction for yourself. Abstractions of wealth are highly beneficial to the people who make and work with the abstractions.
But, when too much of the economy becomes about manipulating debt, instead of generating wealth, wealth production slows. In our case, it has slowed dramatically. On average, we're far, far worse off than we were in 1970; we have to maintain enormous debt loads to keep anything like the standard of living our parents enjoyed, debt-free. Meanwhile, the people at the center reap enormous profits from that debt, along with its myriad other forms.
The economy is choked with it, and it's having trouble even functioning anymore. That's what's going on with the bank bailouts; the debt has gotten so overwhelming that the economy can't service it anymore. This is not a sustainable system, and the adjustments are going to be harsh and extremely painful.
posted by Malor at 4:19 AM on May 9, 2008 [2 favorites]
rodgerd -- "No, but you'll find me giggling about the way you've castigated Malor for posting unsubstantiated nonsense that runs counter to expert opinion developed from available evidence, and now you're... doing exactly that!"
Ha you caught me! Just goes to show we've got our respective areas of expertise. I fully admit I don't know much about global warming, sorta OT but I haven't studied the issue too much. Finance is my area, and its all consuming (not that the cool water from The Thames wouldn't be if global warming is indeed true... as I said, I've got an open mind). Not to quibble, but I wasn't posting so much as opining.
Malor -- "This is misdirection and misinformation."
No Malor, as we see this time and time again in the finance threads, you're misdirecting and misinforming. Largely by ignorance, it would seem, but the end result is still the same. Case in point: this time you've only presented a single side, a factoid about liabilities, and from that reached a conclusion. I'm only trying to complete the picture.
So once again, what about the asset side of the balance sheet? And what about the income side?
You see, these are all those pesky real world details you've omited from your arguments.
"You are misleading people with pure bullshit."
Come on, you use that word a lot when you don't like the way an argument is going and can't present facts to back up your opinion. Lots of very thoughtful threads have been disrupted by that tactic. Case in point: this comment. A colleague makes a very thoughtful, very well structured argument, provides lots of citations, on top of an interesting first person anecdote. And you dismiss him as "full of bullshit". And your SOLE citation to back up this conclusion is a vague reference about ".... I've gone around and around with someone here about this, a year or so ago,...". So you're now claiming to be an acknowledged expert on Hedonic Adjustments? The final word on the subject? I had no idea.
"Shame on you."
And there you go again. Admonishment. What degree of value do you think this is adding to a reasonable discourse on economics? I've been in lots of academic debates and disagreements at the bank over market strategy, and I have say - I've never once had someone try to ignore a point by saying "shame on you". About the only thing that's missing is you wagging a finger in my face. Please do try harder to elevate your arguments.
"The problem is that it should have happened a long time ago. "
Ok, but says who? Once again, you're presenting your personal opinion as fact. And THAT'S obscuring the truth (I won't go so far as to admonish you though).
These are very, very large systems and processes we're dealing with. These adjustments sometimes take years to complete. Other times, they are done very, very quickly. As the history of finance shows us. So who says in this case the adjustment "should have happened a long time ago"?
There are exogenous factors - mostly, but not all, on the demand side - that we must take into account here that once again you're ignoring. You can't look at simple exchange rates / interest rates / deficits and draw reasonable conclusions.
"Our trade deficit is somewhere around 7% of GDP, which by all historic standards is a disaster. "
A disaster? Says who?
Well, Milton Friedman certainly didn't think trade deficits (at all!) presented a problem, and in fact would help to drive forward what he called "a worldwide transformation that promises a major improvement in human well-being around the world.", further commenting that in the process deficits and surpluses in balances of payments are unavoidable.
Looking to the history of finance again, John Nye notes that from 1751 to 1915, Britain ran trade deficits. Some people think EVERY YEAR, for well over a century. But that is when Britain ruled the world.
The history of finance tells us such deficits are not a "disaster". Problematic? Perhaps. Consistently a disaster? Nope.
In fact that 7% view is rather orthodox, and clashes with what we're now observing in the market. Mankiw presents this orthodox view fairly well. Those theoretical caps on deficits stem from a lot of David Ricardo's work, something that many modern economists refer to as "fossil economics" (I certainly wouldn't but there you go).
Simple fact is a lot of the textbook stuff breaks down in The Real World, for reasons we don't understand. That's the role of academic journals. I think there is a lot of work going on now looking at the US Dollar / Trade & Budget deficits, but I'm more of a Capital Markets specialist, and don't track current research into macroeconomics.
And you're omitting (or ignoring) the fact the high GDP countries historically have carried trade deficits. You are presenting only part of the data - a BIG deficit - and reaching a conclusion based on this.
"We have to solve them all at once, because all them impact all the others. "
As I pointed out, even interlinked problems can be effectively solved one at a time. Its a question of priorities, and we've got to focus on the entitlements that are chewing up more and more of the budget each year. But those are politically dangerous targets, so I'm not sure how that will shake out.
"Oh, and I missed the NPV thing. Whatever the actual term is: to be sure we can pay our debts, we need fifty trillion in the bank right now, paying interest."
No, Malor. You clearly don't understand NPV. You are using a phrase without knowing what it means, and what's worse - you don't seem to see a problem in this. What you're describing is actually the present value of our outstanding debt. This is straight from the GAO [.pdf, page five]. If you had taken the time to look this up yourself before citing you would have seen that you're flat out wrong.
There is a BIG difference between present value and net present value.
"Use whatever term you like."
Malor, in finance, like in your field, we use specific terms to mean specific things. You've really gotta stop your hand waving in the finance threads. 'Cause you do post some good stuff from time to time, but it's this baseless and totally wrong stuff that detracts from your value add in these threads.
If you don't understand the term, its simple - DONT USE IT. Otherwise, its pretty obvious you're seeking to obfuscate or otherwise elevate your argument by adding mysterious and complicated sounding words.
"Mutant likes this system because he's close to the center: he gets a high salary because he works manipulating the debt. And he argues fervently in favor of it because he likes the puzzles of trying to outgame everyone else to extract the most value possible from the economy. Many people do. It pays a lot better than actually generating or helping to generate wealth, which is real goods in the real world. If, instead, you can manipulate the output of the wealth producers, you can extract a much larger fraction for yourself. Abstractions of wealth are highly beneficial to the people who make and work with the abstractions."
WOW. That's a pretty interesting tactic Malor. If you can't back up your arguments with facts and someone calls you on it, someone who knows the material and presents citations to support his position, you try to discredit them. Instead of refuting the points I raise, rather than trying to support your arguments with the views of noted authorities in the field, papers, books, journals on the topic, you instead chose to try and tarnish my character. Imply I'm some kind of parasite on society? Nice one. Thanks.
Come on Malor, you can do better than that. Admit it: you don't know ANYTHING about me. What I (did) at the bank. How much I made. And yet somehow you are able to reach such sweeping conclusions.
Question: are your economic arguments on MeFi backed up by as much rigour?
The objective reader of these posts, of our debates, the observer of your behaviour in other threads already knows the answer to that question.
posted by Mutant at 5:22 AM on May 9, 2008 [4 favorites]
Ha you caught me! Just goes to show we've got our respective areas of expertise. I fully admit I don't know much about global warming, sorta OT but I haven't studied the issue too much. Finance is my area, and its all consuming (not that the cool water from The Thames wouldn't be if global warming is indeed true... as I said, I've got an open mind). Not to quibble, but I wasn't posting so much as opining.
Malor -- "This is misdirection and misinformation."
No Malor, as we see this time and time again in the finance threads, you're misdirecting and misinforming. Largely by ignorance, it would seem, but the end result is still the same. Case in point: this time you've only presented a single side, a factoid about liabilities, and from that reached a conclusion. I'm only trying to complete the picture.
So once again, what about the asset side of the balance sheet? And what about the income side?
You see, these are all those pesky real world details you've omited from your arguments.
"You are misleading people with pure bullshit."
Come on, you use that word a lot when you don't like the way an argument is going and can't present facts to back up your opinion. Lots of very thoughtful threads have been disrupted by that tactic. Case in point: this comment. A colleague makes a very thoughtful, very well structured argument, provides lots of citations, on top of an interesting first person anecdote. And you dismiss him as "full of bullshit". And your SOLE citation to back up this conclusion is a vague reference about ".... I've gone around and around with someone here about this, a year or so ago,...". So you're now claiming to be an acknowledged expert on Hedonic Adjustments? The final word on the subject? I had no idea.
"Shame on you."
And there you go again. Admonishment. What degree of value do you think this is adding to a reasonable discourse on economics? I've been in lots of academic debates and disagreements at the bank over market strategy, and I have say - I've never once had someone try to ignore a point by saying "shame on you". About the only thing that's missing is you wagging a finger in my face. Please do try harder to elevate your arguments.
"The problem is that it should have happened a long time ago. "
Ok, but says who? Once again, you're presenting your personal opinion as fact. And THAT'S obscuring the truth (I won't go so far as to admonish you though).
These are very, very large systems and processes we're dealing with. These adjustments sometimes take years to complete. Other times, they are done very, very quickly. As the history of finance shows us. So who says in this case the adjustment "should have happened a long time ago"?
There are exogenous factors - mostly, but not all, on the demand side - that we must take into account here that once again you're ignoring. You can't look at simple exchange rates / interest rates / deficits and draw reasonable conclusions.
"Our trade deficit is somewhere around 7% of GDP, which by all historic standards is a disaster. "
A disaster? Says who?
Well, Milton Friedman certainly didn't think trade deficits (at all!) presented a problem, and in fact would help to drive forward what he called "a worldwide transformation that promises a major improvement in human well-being around the world.", further commenting that in the process deficits and surpluses in balances of payments are unavoidable.
Looking to the history of finance again, John Nye notes that from 1751 to 1915, Britain ran trade deficits. Some people think EVERY YEAR, for well over a century. But that is when Britain ruled the world.
The history of finance tells us such deficits are not a "disaster". Problematic? Perhaps. Consistently a disaster? Nope.
In fact that 7% view is rather orthodox, and clashes with what we're now observing in the market. Mankiw presents this orthodox view fairly well. Those theoretical caps on deficits stem from a lot of David Ricardo's work, something that many modern economists refer to as "fossil economics" (I certainly wouldn't but there you go).
Simple fact is a lot of the textbook stuff breaks down in The Real World, for reasons we don't understand. That's the role of academic journals. I think there is a lot of work going on now looking at the US Dollar / Trade & Budget deficits, but I'm more of a Capital Markets specialist, and don't track current research into macroeconomics.
And you're omitting (or ignoring) the fact the high GDP countries historically have carried trade deficits. You are presenting only part of the data - a BIG deficit - and reaching a conclusion based on this.
"We have to solve them all at once, because all them impact all the others. "
As I pointed out, even interlinked problems can be effectively solved one at a time. Its a question of priorities, and we've got to focus on the entitlements that are chewing up more and more of the budget each year. But those are politically dangerous targets, so I'm not sure how that will shake out.
"Oh, and I missed the NPV thing. Whatever the actual term is: to be sure we can pay our debts, we need fifty trillion in the bank right now, paying interest."
No, Malor. You clearly don't understand NPV. You are using a phrase without knowing what it means, and what's worse - you don't seem to see a problem in this. What you're describing is actually the present value of our outstanding debt. This is straight from the GAO [.pdf, page five]. If you had taken the time to look this up yourself before citing you would have seen that you're flat out wrong.
There is a BIG difference between present value and net present value.
"Use whatever term you like."
Malor, in finance, like in your field, we use specific terms to mean specific things. You've really gotta stop your hand waving in the finance threads. 'Cause you do post some good stuff from time to time, but it's this baseless and totally wrong stuff that detracts from your value add in these threads.
If you don't understand the term, its simple - DONT USE IT. Otherwise, its pretty obvious you're seeking to obfuscate or otherwise elevate your argument by adding mysterious and complicated sounding words.
"Mutant likes this system because he's close to the center: he gets a high salary because he works manipulating the debt. And he argues fervently in favor of it because he likes the puzzles of trying to outgame everyone else to extract the most value possible from the economy. Many people do. It pays a lot better than actually generating or helping to generate wealth, which is real goods in the real world. If, instead, you can manipulate the output of the wealth producers, you can extract a much larger fraction for yourself. Abstractions of wealth are highly beneficial to the people who make and work with the abstractions."
WOW. That's a pretty interesting tactic Malor. If you can't back up your arguments with facts and someone calls you on it, someone who knows the material and presents citations to support his position, you try to discredit them. Instead of refuting the points I raise, rather than trying to support your arguments with the views of noted authorities in the field, papers, books, journals on the topic, you instead chose to try and tarnish my character. Imply I'm some kind of parasite on society? Nice one. Thanks.
Come on Malor, you can do better than that. Admit it: you don't know ANYTHING about me. What I (did) at the bank. How much I made. And yet somehow you are able to reach such sweeping conclusions.
Question: are your economic arguments on MeFi backed up by as much rigour?
The objective reader of these posts, of our debates, the observer of your behaviour in other threads already knows the answer to that question.
posted by Mutant at 5:22 AM on May 9, 2008 [4 favorites]
Actually, it is a common misconception that most people are spending more money on discretionary items. In fact, it is spending on insurance, healthcare, housing, food, energy that has been rising rapidly.
Yes because health insurance covers many more expensive things than were even possible in 1949. How many diagnostic tests were covered in 1949? How many life extending medicinces were available to take starting in your thirties like the statins? Energy consumption has risen rapidly as we've more than doubled the size of our homes, and increased the number of cars we drive, and we've created a whole class of consumer electronics. Food may be more expensive, but I challenge you to ask your grandparents how much food they threw away. Look at Briton where 33% is being thrown out.
posted by humanfont at 6:24 AM on May 9, 2008
Yes because health insurance covers many more expensive things than were even possible in 1949. How many diagnostic tests were covered in 1949? How many life extending medicinces were available to take starting in your thirties like the statins? Energy consumption has risen rapidly as we've more than doubled the size of our homes, and increased the number of cars we drive, and we've created a whole class of consumer electronics. Food may be more expensive, but I challenge you to ask your grandparents how much food they threw away. Look at Briton where 33% is being thrown out.
posted by humanfont at 6:24 AM on May 9, 2008
but I challenge you to ask your grandparents how much food they threw away
That would be a good trick.
posted by b1ff at 8:31 AM on May 9, 2008
That would be a good trick.
posted by b1ff at 8:31 AM on May 9, 2008
i thought we were talking about freedom, not the ability to save money - although it's very typically american to confuse having money for having freedom ...
What is up with all the ankle-biting? Why do you scrupulously select-quote, deliberately ignoring what is obviously the main point of my posts:
We run a monetary system where the only entity authorized to create money always creates it as a loan with interest attached. This bakes in the need for future inflation (to pay the interest), which is accomplished by creating more loans with more interest attached, etc.
Fractional reserve banking allows the private banking sector to create up to 10 times more money through loans at interest on top of what is created by the fed when it buys treasury bonds. That is actually a conservative estimate.
Are you not capable of seeing how this ultimately erodes the savings of the majority to the benefit of a few elites?
Go sell troll somewhere else. We're all full up here.
posted by b1ff at 8:37 AM on May 9, 2008
What is up with all the ankle-biting? Why do you scrupulously select-quote, deliberately ignoring what is obviously the main point of my posts:
We run a monetary system where the only entity authorized to create money always creates it as a loan with interest attached. This bakes in the need for future inflation (to pay the interest), which is accomplished by creating more loans with more interest attached, etc.
Fractional reserve banking allows the private banking sector to create up to 10 times more money through loans at interest on top of what is created by the fed when it buys treasury bonds. That is actually a conservative estimate.
Are you not capable of seeing how this ultimately erodes the savings of the majority to the benefit of a few elites?
Go sell troll somewhere else. We're all full up here.
posted by b1ff at 8:37 AM on May 9, 2008
Mutant: Question: are your economic arguments on MeFi backed up by as much rigour?
Lessee here. Tappity Tap ...
b1ff: "We run a monetary system where the only entity authorized to create money always creates it as a loan with interest attached. This bakes in the need for future inflation (to pay the interest), which is accomplished by creating more loans with more interest attached, etc." ... "To pay for operations, the treasury issues bonds with interest attached, which is inherently inflationary, since it requires more notes at maturity to retire the bond."
Mutant response?: "Well, I do think the system is resilient, capable of adapting and, to some extent, learning from the past. That doesn't mean to say that there won't be a variation on these themes (dollar collapsing, inflation surging, recession on the horizon) that won't render our past experience in dealing with this problem null and void.
What are the chances of that happening? Non zero, but I'd suggest not too large."
------
spicynuts: "Where could I find links that outline the asset classes that did well in the early 80s?"
Mutant response?: "Well, I'd first suggest looking at US Equities to see how they preformed across the term in question. Not all were up and not all were down either. Certain asset classes will outperform in different interest rate environments. There will be systemic issues you'll have to be cognizant of (e.g., overall growth of the mutual fund industry, etc) that might distort your research, but this is a good place to start. But do your own research, and make sure you purchase a fund - that its not sold to you." [Eh? purchase a fund not sold to you?]
-----
Malor: "As I said in the other thread... in 1970, the average wage was about 175 ounces of gold a year. That's average, across the entire country. At today's prices, those 175 ounces would be worth about $155,000. On average.... meaning about half of everyone in the entire country should be making MORE than that.
But, after a generation of fiat money, with players who make their livings manipulating that debt extracting enormous value from the economy, the average earnings in this country are about $38K. A few people near the center have become immensely rich, while everyone else is impoverished.
When too much of the economy becomes about manipulating debt, instead of generating wealth, wealth production slows. In our case, it has slowed dramatically. On average, we're far, far worse off than we were in 1970; we have to maintain enormous debt loads to keep anything like the standard of living our parents enjoyed, debt-free. Meanwhile, the people at the center reap enormous profits from that debt, along with its myriad other forms.
The economy is choked with it, and it's having trouble even functioning anymore. That's what's going on with the bank bailouts; the debt has gotten so overwhelming that the economy can't service it anymore. This is not a sustainable system, and the adjustments are going to be harsh and extremely painful."
Mutant Response?: " "
Um, yeah, "rigour".
posted by b1ff at 10:17 AM on May 9, 2008
Lessee here. Tappity Tap ...
b1ff: "We run a monetary system where the only entity authorized to create money always creates it as a loan with interest attached. This bakes in the need for future inflation (to pay the interest), which is accomplished by creating more loans with more interest attached, etc." ... "To pay for operations, the treasury issues bonds with interest attached, which is inherently inflationary, since it requires more notes at maturity to retire the bond."
Mutant response?: "Well, I do think the system is resilient, capable of adapting and, to some extent, learning from the past. That doesn't mean to say that there won't be a variation on these themes (dollar collapsing, inflation surging, recession on the horizon) that won't render our past experience in dealing with this problem null and void.
What are the chances of that happening? Non zero, but I'd suggest not too large."
------
spicynuts: "Where could I find links that outline the asset classes that did well in the early 80s?"
Mutant response?: "Well, I'd first suggest looking at US Equities to see how they preformed across the term in question. Not all were up and not all were down either. Certain asset classes will outperform in different interest rate environments. There will be systemic issues you'll have to be cognizant of (e.g., overall growth of the mutual fund industry, etc) that might distort your research, but this is a good place to start. But do your own research, and make sure you purchase a fund - that its not sold to you." [Eh? purchase a fund not sold to you?]
-----
Malor: "As I said in the other thread... in 1970, the average wage was about 175 ounces of gold a year. That's average, across the entire country. At today's prices, those 175 ounces would be worth about $155,000. On average.... meaning about half of everyone in the entire country should be making MORE than that.
But, after a generation of fiat money, with players who make their livings manipulating that debt extracting enormous value from the economy, the average earnings in this country are about $38K. A few people near the center have become immensely rich, while everyone else is impoverished.
When too much of the economy becomes about manipulating debt, instead of generating wealth, wealth production slows. In our case, it has slowed dramatically. On average, we're far, far worse off than we were in 1970; we have to maintain enormous debt loads to keep anything like the standard of living our parents enjoyed, debt-free. Meanwhile, the people at the center reap enormous profits from that debt, along with its myriad other forms.
The economy is choked with it, and it's having trouble even functioning anymore. That's what's going on with the bank bailouts; the debt has gotten so overwhelming that the economy can't service it anymore. This is not a sustainable system, and the adjustments are going to be harsh and extremely painful."
Mutant Response?: " "
Um, yeah, "rigour".
posted by b1ff at 10:17 AM on May 9, 2008
As I said in the other thread... in 1970, the average wage was about 175 ounces of gold a year. That's average, across the entire country. At today's prices, those 175 ounces would be worth about $155,000. On average.... meaning about half of everyone in the entire country should be making MORE than that.
first of all, that would be median salary, not average
second, there's nothing about gold that makes it any more special than any other commodity
---
What is up with all the ankle-biting?
it seems that neither you or malor are able to debate your opponents directly and have to resort to personal insults to "win"
you still haven't proven your case about freedom - nor have you said any thing about "parents" and "grandparents" that is falsifiable, due to the utter vagueness you've expressed yourself with
all you've done is recite chapter and verse from the gold-bug screed, which is an outdated 19th century economic philosophy
posted by pyramid termite at 10:43 AM on May 9, 2008 [1 favorite]
first of all, that would be median salary, not average
second, there's nothing about gold that makes it any more special than any other commodity
---
What is up with all the ankle-biting?
it seems that neither you or malor are able to debate your opponents directly and have to resort to personal insults to "win"
you still haven't proven your case about freedom - nor have you said any thing about "parents" and "grandparents" that is falsifiable, due to the utter vagueness you've expressed yourself with
all you've done is recite chapter and verse from the gold-bug screed, which is an outdated 19th century economic philosophy
posted by pyramid termite at 10:43 AM on May 9, 2008 [1 favorite]
b1ff - Gosh b1ff, didn't mean to ignore you (i was prioritising as I was already getting complaints about verbosity); let's see what you've posted.
" [Eh? purchase a fund not sold to you?]"
Sure. You want to purchase the fund (or any asset), not have it sold to you. There's a subtle distinction; if you're purchasing something, the implication is you've made an informed choice. If something is sold to you, well, you're the sucker as you don't know fair value.
So many retail investors don't research, don't know why they're purchasing a financial asset (or an alarmingly large percentage of assets purchased for investment purposes).
Instead they chase last years returns, or listen to promises. They're sold to. Then they expect to be told when to sell. As if. The salesperson doesn't have your best interests in mind. The only person that will build wealth for YOU is YOU. Nobody else (like all generalisations, this is wrong, there are good, even great financial planners out there, but if approach the topic and the person suspiciously, questioning everything, you'll make out much better).
At the end of the day, folks have to take some degree of responsibility for their own financial well being.
I reviewed mistakes retail investors make, classic and a few new ones here. If you haven't looked at it please do so as it's relevant to some comments I make later.
The other stuff you've posted from upthread, the stuff I didn't reply to (in my already huge response) doesn't make a lot of sense, wasn't relevant overall to the FPP, and was accompanied by the usual hand waving, lack of citations, and personal-opinion-presented-as-fact (e.g.,
"...while everyone else is impoverished." -- how many here feel "impoverished"? And while there are no doubt poor people on MeFi, I'd say its a tad extreme to speak for everyone else,
"...wealth production slows..." -- the phrase is "creation", not "production", and I'd like to see some citation backing this opinion,
"...[the economy is] having trouble even functioning anymore." -- I don't know, people go to work, get paid, seems to be working just fine, truth be told its tough for me to reconcile this view with the facts.).
In fact the comment really seemed to be nothing more than a lead in so I could be attacked - "a manipulator of debt" as I was labeled - personally in a subsequent thread.
b1ff I invite you to take a look at my commenting history in the finance threads, starting with the link I provided. That link is representative of the time I take when structuring a response, the research I undertake to augment what I might already know.
So lots of citations to personal experience, books, academic papers & researchers in the field. I'm not presenting my opinion-as-fact, no I try to always cite sources anyone can reference and identify those sources: papers, books, journals. I try to structure my arguments so they are supported by others opinions. I try to clearly identify my opinion, and not use buzz words that I don't understand (finance is a BIG field, there are LOTS I don't understand), seeking to obfuscate a comment with jargon to make it "sound good" (in fact a valid criticism is I'm too verbose! And folks I promise I'm working on that).
I do try to explain things as clearly as possible. I'm a strong believer that if you can't explain it simply, without jargon, then you don't understand it.
So rigour? Absolutely. By anyones standards.
posted by Mutant at 11:40 AM on May 9, 2008
" [Eh? purchase a fund not sold to you?]"
Sure. You want to purchase the fund (or any asset), not have it sold to you. There's a subtle distinction; if you're purchasing something, the implication is you've made an informed choice. If something is sold to you, well, you're the sucker as you don't know fair value.
So many retail investors don't research, don't know why they're purchasing a financial asset (or an alarmingly large percentage of assets purchased for investment purposes).
Instead they chase last years returns, or listen to promises. They're sold to. Then they expect to be told when to sell. As if. The salesperson doesn't have your best interests in mind. The only person that will build wealth for YOU is YOU. Nobody else (like all generalisations, this is wrong, there are good, even great financial planners out there, but if approach the topic and the person suspiciously, questioning everything, you'll make out much better).
At the end of the day, folks have to take some degree of responsibility for their own financial well being.
I reviewed mistakes retail investors make, classic and a few new ones here. If you haven't looked at it please do so as it's relevant to some comments I make later.
The other stuff you've posted from upthread, the stuff I didn't reply to (in my already huge response) doesn't make a lot of sense, wasn't relevant overall to the FPP, and was accompanied by the usual hand waving, lack of citations, and personal-opinion-presented-as-fact (e.g.,
"...while everyone else is impoverished." -- how many here feel "impoverished"? And while there are no doubt poor people on MeFi, I'd say its a tad extreme to speak for everyone else,
"...wealth production slows..." -- the phrase is "creation", not "production", and I'd like to see some citation backing this opinion,
"...[the economy is] having trouble even functioning anymore." -- I don't know, people go to work, get paid, seems to be working just fine, truth be told its tough for me to reconcile this view with the facts.).
In fact the comment really seemed to be nothing more than a lead in so I could be attacked - "a manipulator of debt" as I was labeled - personally in a subsequent thread.
b1ff I invite you to take a look at my commenting history in the finance threads, starting with the link I provided. That link is representative of the time I take when structuring a response, the research I undertake to augment what I might already know.
So lots of citations to personal experience, books, academic papers & researchers in the field. I'm not presenting my opinion-as-fact, no I try to always cite sources anyone can reference and identify those sources: papers, books, journals. I try to structure my arguments so they are supported by others opinions. I try to clearly identify my opinion, and not use buzz words that I don't understand (finance is a BIG field, there are LOTS I don't understand), seeking to obfuscate a comment with jargon to make it "sound good" (in fact a valid criticism is I'm too verbose! And folks I promise I'm working on that).
I do try to explain things as clearly as possible. I'm a strong believer that if you can't explain it simply, without jargon, then you don't understand it.
So rigour? Absolutely. By anyones standards.
posted by Mutant at 11:40 AM on May 9, 2008
Termite. This is the second time you have attributed other people's comments to me.
I never posted anything about gold at all. That was Malor
I never mentioned freedom, that was you and humanfont. I said SAVINGS. get it?
Are you thick?
One can argue against debt-initiated money coupled with nearly zero fractional reserve banking and still accept fiat money. There are other systems that utilize fiat currency but are not inflationary and fraught with moral hazard.
posted by b1ff at 1:03 PM on May 9, 2008
I never posted anything about gold at all. That was Malor
I never mentioned freedom, that was you and humanfont. I said SAVINGS. get it?
Are you thick?
One can argue against debt-initiated money coupled with nearly zero fractional reserve banking and still accept fiat money. There are other systems that utilize fiat currency but are not inflationary and fraught with moral hazard.
posted by b1ff at 1:03 PM on May 9, 2008
Mutant, you also are attributing words to me that I did not write. You even took out the attributions I took care to include. If you want to bash Malor, do it to him not to me. I was speaking to your penchant for bloviation, not giving you a position paper on my personal beliefs.
And thanks for the utterly useless advice meant for bagholders and bucket shop walk-ins. I think I will stick to making my own trades, though.
posted by b1ff at 1:43 PM on May 9, 2008
And thanks for the utterly useless advice meant for bagholders and bucket shop walk-ins. I think I will stick to making my own trades, though.
posted by b1ff at 1:43 PM on May 9, 2008
Ben Bernanke as Paul Volcker?
Ha! Did you manage to keep a straight face while typing that? Anyway, this does not look like a repeate of the Great Inflation. Even if you do think inflation is out of control today (but the Committee expects it to moderate in coming quarters!), the most obvious difference to the man in the street has got to be the interest rates. By the end of 1978 people were already paying more than 10% interest on their mortgages. That is not really likely to happen today for what I think are obvious reasons.
The history of finance tells us such deficits are not a "disaster". Problematic? Perhaps. Consistently a disaster? Nope.
Such deficits as these, I know not what they mean. Try looking to history for times when one country, already a net debtor, had a persistent current account deficit larger than all the other current account deficits in the world put together. I think you will not find much.
But I'm waiting for a few more US cities to go bankrupt before deciding things are really serious.
posted by sfenders at 2:49 PM on May 9, 2008
Ha! Did you manage to keep a straight face while typing that? Anyway, this does not look like a repeate of the Great Inflation. Even if you do think inflation is out of control today (but the Committee expects it to moderate in coming quarters!), the most obvious difference to the man in the street has got to be the interest rates. By the end of 1978 people were already paying more than 10% interest on their mortgages. That is not really likely to happen today for what I think are obvious reasons.
The history of finance tells us such deficits are not a "disaster". Problematic? Perhaps. Consistently a disaster? Nope.
Such deficits as these, I know not what they mean. Try looking to history for times when one country, already a net debtor, had a persistent current account deficit larger than all the other current account deficits in the world put together. I think you will not find much.
But I'm waiting for a few more US cities to go bankrupt before deciding things are really serious.
posted by sfenders at 2:49 PM on May 9, 2008
b1ff -- "Mutant, you also are attributing words to me that I did not write. You even took out the attributions I took care to include."
Well, b1ff, you posted chasing for an update. I provided it. Apologies for removing citations, but anybody following the thread would be able to track context. Unless, of course, "thick" as you phrased it. I clearly wasn't trying to attribute those words to you, only to your post. Sorry for the confusion.
"I was speaking to your penchant for bloviation..."
Please, please, point out an example. Hint: industry jargon or polysyllabic words, including academic citations don't count. Neither does references to books, journal articles, etc. Posting uncited opinion as "fact" really counts more toward pompous behaviour than constructing a solid argument, based on references to the relevant literature. But please - show me an example of my bloviation (as if using a word like that wasn't pompous on its own).
"And thanks for the utterly useless advice meant for bagholders and bucket shop walk-ins."
My apologies to many on MeFi for your candor then. Several of your colleagues reading that comment found it informative and useful. I'm still engaged in emails discussing some of the ideas posted, drilling down into finer points. I had no idea you were a market participant. So either flag it or ignore it if the comment is below your trading skills.
sfenders -- "Ben Bernanke as Paul Volcker?"
Well, it is a possibility, if Fischer and Plosser get their way. There is a reason we're reading of their dissent in the newspapers.
And not all Fed Chairmen run the shop the same; some are far more collegial than others. I'm not sure if Bernanke is more a dictator than consensus builder, but I dont think he is really that inflexible, previous (perhaps illadvised) comments about helicopters aside. As we were discussing upthread, it looks like US Dollar weakness is done, stabilisaion is key now in the near term and some folks are betting on an uptrend.
Compounding matters, both BOE and ECB are holding with a tightening bias; Bernanke knows the more time The Fed spends in their current posture, the sharper the US Dollar weakening.
We were hearing maybe three months ago of lots of hedge funds using large US Dollar positions as a funding currency, moving into Icelandic Krone / Kiwis / etc, so those funds will be dumping big time and fast if strong US dollar comes to fruition as a policy.
I personally think they'll let the dollar either hold steady at current levels or burn off some more, seems like another year or so should do it (i.e., the resulting inflation will erode deficits in real terms down to manageable levels, like the late 70s, the subject of this FPP), but that's my (and only my) gold / inflation bias speaking. And the fact that gold has hit a floor and is now bounding up again.
But overall - more US $ volatility, perhaps even more unwinding of structured positions, and som e of those big trades everyone knows are out there. Interesting times.
"But I'm waiting for a few more US cities to go bankrupt before deciding things are really serious."
Wait a minute - I'm aware of Jefferson County, Alabama sliding into (not quite there yet!) bankruptcy; what other US cities, as your statement implies, has already gone bankrupt?
As far as I've read, they were screwing around with interest rate swaps, not really sure if this is indicative of a systemic problem, it more seems like an Orange County type of screw up. I previously posted about Orange County and Robert Citron. Local folks getting above themselves, and all. Getting sold something they didn't understand.
On the other hand, we're seeing lots of corporate action right now, but no surprise there. Back in 2006 as I'd previously posted, most banks were hiring record numbers of windup and liquidation specialists. The Yield Curve had inverted, a strong probability of recession was indicated and most banks were, in fact, betting on it.
So a few more cities going under, even properly managed ones wouldn't be a surprise.
I haven't seen data on US Municipalities, but banks go bankrupt all the time even in "normal" economic conditions; its important in times like these to separate systemic from specific risks, and identify each appropriately.
posted by Mutant at 5:22 PM on May 9, 2008
Well, b1ff, you posted chasing for an update. I provided it. Apologies for removing citations, but anybody following the thread would be able to track context. Unless, of course, "thick" as you phrased it. I clearly wasn't trying to attribute those words to you, only to your post. Sorry for the confusion.
"I was speaking to your penchant for bloviation..."
Please, please, point out an example. Hint: industry jargon or polysyllabic words, including academic citations don't count. Neither does references to books, journal articles, etc. Posting uncited opinion as "fact" really counts more toward pompous behaviour than constructing a solid argument, based on references to the relevant literature. But please - show me an example of my bloviation (as if using a word like that wasn't pompous on its own).
"And thanks for the utterly useless advice meant for bagholders and bucket shop walk-ins."
My apologies to many on MeFi for your candor then. Several of your colleagues reading that comment found it informative and useful. I'm still engaged in emails discussing some of the ideas posted, drilling down into finer points. I had no idea you were a market participant. So either flag it or ignore it if the comment is below your trading skills.
sfenders -- "Ben Bernanke as Paul Volcker?"
Well, it is a possibility, if Fischer and Plosser get their way. There is a reason we're reading of their dissent in the newspapers.
And not all Fed Chairmen run the shop the same; some are far more collegial than others. I'm not sure if Bernanke is more a dictator than consensus builder, but I dont think he is really that inflexible, previous (perhaps illadvised) comments about helicopters aside. As we were discussing upthread, it looks like US Dollar weakness is done, stabilisaion is key now in the near term and some folks are betting on an uptrend.
Compounding matters, both BOE and ECB are holding with a tightening bias; Bernanke knows the more time The Fed spends in their current posture, the sharper the US Dollar weakening.
We were hearing maybe three months ago of lots of hedge funds using large US Dollar positions as a funding currency, moving into Icelandic Krone / Kiwis / etc, so those funds will be dumping big time and fast if strong US dollar comes to fruition as a policy.
I personally think they'll let the dollar either hold steady at current levels or burn off some more, seems like another year or so should do it (i.e., the resulting inflation will erode deficits in real terms down to manageable levels, like the late 70s, the subject of this FPP), but that's my (and only my) gold / inflation bias speaking. And the fact that gold has hit a floor and is now bounding up again.
But overall - more US $ volatility, perhaps even more unwinding of structured positions, and som e of those big trades everyone knows are out there. Interesting times.
"But I'm waiting for a few more US cities to go bankrupt before deciding things are really serious."
Wait a minute - I'm aware of Jefferson County, Alabama sliding into (not quite there yet!) bankruptcy; what other US cities, as your statement implies, has already gone bankrupt?
As far as I've read, they were screwing around with interest rate swaps, not really sure if this is indicative of a systemic problem, it more seems like an Orange County type of screw up. I previously posted about Orange County and Robert Citron. Local folks getting above themselves, and all. Getting sold something they didn't understand.
On the other hand, we're seeing lots of corporate action right now, but no surprise there. Back in 2006 as I'd previously posted, most banks were hiring record numbers of windup and liquidation specialists. The Yield Curve had inverted, a strong probability of recession was indicated and most banks were, in fact, betting on it.
So a few more cities going under, even properly managed ones wouldn't be a surprise.
I haven't seen data on US Municipalities, but banks go bankrupt all the time even in "normal" economic conditions; its important in times like these to separate systemic from specific risks, and identify each appropriately.
posted by Mutant at 5:22 PM on May 9, 2008
$54 trillion in external world debt. That's monies owed after the books are balanced across the globe.
Someone, somewhere, is going to want that bill to be paid. Who that someone is remains a mystery: I figure it's either Alien, Predator, or the black obelisk.
posted by five fresh fish at 5:45 PM on May 9, 2008
Someone, somewhere, is going to want that bill to be paid. Who that someone is remains a mystery: I figure it's either Alien, Predator, or the black obelisk.
posted by five fresh fish at 5:45 PM on May 9, 2008
what other US cities, as your statement implies, has already gone bankrupt?
Vallejo, California. Bad deal with the unions combined with falling revenue. Doesn't happen often in the US. It was just the first recent bit of bad news that came to mind, probably not the start of a trend but maybe a sign of the times.
US Dollar weakness vs. the Euro is showing some signs of being over for now, so I hear, but vs. Asia and the rest of the world I'm not so sure.
posted by sfenders at 6:25 PM on May 9, 2008
Vallejo, California. Bad deal with the unions combined with falling revenue. Doesn't happen often in the US. It was just the first recent bit of bad news that came to mind, probably not the start of a trend but maybe a sign of the times.
US Dollar weakness vs. the Euro is showing some signs of being over for now, so I hear, but vs. Asia and the rest of the world I'm not so sure.
posted by sfenders at 6:25 PM on May 9, 2008
I never posted anything about gold at all. That was Malor
you and he are making classic gold-bug arguments, which is what i said, and i stand by that - if you don't understand the implications and origins of the arguments you make, that's your problem
I never mentioned freedom
you did
"Freedom does not mean Playstation and TV to keep you distracted. It means having savings, and free time to enjoy life. Freedom is not having both parents working 10 hour days and weekends to keep their job to pay a mortgage on the same house their grandparents bought on one income with money left over for savings."
let me explain how this works - the words you write on this board do not disappear into the ether a few hours after you write them - if you are not able to be honest about what you've written, then you aren't capable of carrying on a coherent discussion anyway, and i have no need to continue
go waste someone else's time with your lying
ps - you've yet to back up that "parents and grandparents" statement by providing figures, specifying a time frame or defining your terms
rhetoric is not argument, emoting is not thinking, and you should probably just let the grownups talk
bye
posted by pyramid termite at 8:35 PM on May 9, 2008
you and he are making classic gold-bug arguments, which is what i said, and i stand by that - if you don't understand the implications and origins of the arguments you make, that's your problem
I never mentioned freedom
you did
"Freedom does not mean Playstation and TV to keep you distracted. It means having savings, and free time to enjoy life. Freedom is not having both parents working 10 hour days and weekends to keep their job to pay a mortgage on the same house their grandparents bought on one income with money left over for savings."
let me explain how this works - the words you write on this board do not disappear into the ether a few hours after you write them - if you are not able to be honest about what you've written, then you aren't capable of carrying on a coherent discussion anyway, and i have no need to continue
go waste someone else's time with your lying
ps - you've yet to back up that "parents and grandparents" statement by providing figures, specifying a time frame or defining your terms
rhetoric is not argument, emoting is not thinking, and you should probably just let the grownups talk
bye
posted by pyramid termite at 8:35 PM on May 9, 2008
Let me explain how this works - the words you write on this board do not disappear into the ether a few hours after you write them - if you are not able to be honest about what you've written, then you aren't capable of carrying on a coherent discussion anyway, and i have no need to continue. go waste someone else's time with your lying.
I'm a liar because you did not read upthread before you chimed in?
b1ff - On average, your grandfather and father both had more money to save than you do. One income used to suffice for a family to live a decent life, now two are required in most places.
humanfont - That's because there was nothing to spend it on. How many times was rationing in place so that when you had money to spend you couldn't buy what you wanted? They had only a couple of channels of television. [...] Not to mention all the everyday personal freedoms we take for granted.
b1ff - Freedom does not mean Playstation and TV to keep you distracted. It means having savings, and free time to enjoy life.
Termite i thought we were talking about freedom, not the ability to save money - although it's very typically american to confuse having money for having freedom ...
No. I was talking about savings.
Jesus, what a tar-baby debacle.
posted by b1ff at 2:13 AM on May 10, 2008
I'm a liar because you did not read upthread before you chimed in?
b1ff - On average, your grandfather and father both had more money to save than you do. One income used to suffice for a family to live a decent life, now two are required in most places.
humanfont - That's because there was nothing to spend it on. How many times was rationing in place so that when you had money to spend you couldn't buy what you wanted? They had only a couple of channels of television. [...] Not to mention all the everyday personal freedoms we take for granted.
b1ff - Freedom does not mean Playstation and TV to keep you distracted. It means having savings, and free time to enjoy life.
Termite i thought we were talking about freedom, not the ability to save money - although it's very typically american to confuse having money for having freedom ...
No. I was talking about savings.
Jesus, what a tar-baby debacle.
posted by b1ff at 2:13 AM on May 10, 2008
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I distinctly remember the 70's, and actually took my first dabbles into the equity markets back then, going long after the Chrysler bailout (easy money!!). Those were radically different times, with bank CDs paying 16% or higher, some credit cards ruled illegal due to state usury laws, and even mortgages approaching 20%.
To many Burns presents a paradox: repeatedly warning of rising inflation [.pdf] in The United States even as The Fed, under his stewardship, pursued an expansionist monetary policy. However recently released tapes now document the extreme pressure Burns came under from The White House to pursue what Richard Nixon called an "easy money" policy (in the paranoid context of battling "A Jewish Cabal" mind you) .
Burns had long been a proponent of what he called "Prosperity without Inflation", arguing that by seeking to maximise employment The Fed would undertake stimulative actions that, while prolonging economic expansions would ultimately result in an upward price drift.
A well balanced book about Arthur Burns is Wyatt Wells' Economist In An Uncertain World:Arthur F. Burns and the Federal Reserve, 1970-1978.
Wells' work illustrates Burns' analytic approach, crediting him with the decision to publicise the beige book as well as solidifying decision making using The Fed's forecasting models. The book also documents Burns' intellectual flexibility, with him embracing tools and techniques he previously had rejected.
No doubt about it: considering the tumultuous politics - both domestic as well as international - of the era, the dynamic economic environment, Burns had an extraordinarily difficult job to do.
posted by Mutant at 4:29 AM on May 8, 2008 [2 favorites]