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silatix

economy in crisis..

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On my friends site, someone wrote a thread that began with the word "sixy" which led to thousands of middle easterners replying looking for a "sixy time".

 

It must've been high on the gizoogle when you searched on 'economy in crisis' and 'what the fuck!?' or something. But that's the idea for getting cheap hits. We need threads called 'jessica simpson's a fatty fat fat.' More of the old Sermon stuff about Mandy Moore would do it.

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Job losses over the last 13 months compared to other recessions:

 

jobsrecessionspn4.jpg

 

Neither one of those were bad recessions. I looked for about 10 seconds for data on 1982 and 1973, which were worse recessions, but got my brains back and realized it was a distracting task. Still want to know how those looked in comparison.

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Senate passes $838 billion stimulus 61-36.

 

What this is: The idea is that even if the government pays one guy to dig a hole, and another guy to fill that hole back up, it's stimulative, and it's probably better than tax cuts. All that matters is that government spends. Sound awful? Sound like typical liberal spend-craziness? Get over it. The data says you do it. Simple as that. You get a buck-fifty back for every buck you spend on stimulus spending, while you get less than a buck back if you make it tax cuts...which is what the loonies, er I mean the Republicans, wanted.

 

What happens now: It gets resolved with the House version from ten or so days ago.

 

What it didn't include: Aid to states, which according to the economists I trust, would have the fastest and best effect of anything. This was completely stupid on their part. Maybe that'll be included in the merged bill.

 

When it'll have maximum effect: Fourth quarter of 2010. No kidding. The effects aren't felt right away except the famous 'shovel ready' projects and aid to states so that they don't lay off thousands of teachers and street-sweepers. The first year of $400 billion plus ramps up through 2009 into 2010 and starts to tail off next year. You'd imagine the second year takes over and aggregates and extends from there.

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Now if we could only give the banks a swift kick in the balls and get them to start lending again...

 

Every day that I learn more about this mess the more I can't help but to think how much this will all resonate years from now. And I don't mean the financial impact, which is obvious, I mean the lack of every thread of common sense and the social implications of greed, consumer fiscal responsibility, reverse redlining and racial undertones associated with that, etc, etc, etc. The list can go on forever.

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Oops, can anyone tell what's wrong with Pelosi's graph?

 

Hint, it has to do with 2008 having more total employment than 2001, 2001 having more total employment thant 1990... Uhm, note to Nancy, we usually work in percentages.

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From what I'm reading....

 

Economists' grade on the Stimulus Package: Probably a C-minus.

Too small. Tax cuts are useless. Cuts to state aid is very bad. But it could've been worse. It could've been all tax cuts, and we'd never see daylight until 2016.

Economists' grade on today's Geithner plan for fixing the financial system: F

It's the same-old thing. Unwillingness to take the medicine. This is what Japan did wrong, and they lost a decade. If the bank system is insolvent, you have no choice but to nationalize it, restructure it, and sell it back off in four years. Or you do this, which is throw money after it, lose it all, and then have to nationalize them anyway later. So this is the worst of all worlds. Geithner is just too dug into the Wall Street scene. Its' bankruptcy that's needed, structured by a government entity like the RTC in 1991. But shareholders don't want to get wiped out, which would happen to any normal industry, like say pipefitters or chip makers. The financial sector is hugely connected however, full of big-time donors who bankroll the campaigns of pretty much every other politician on earth. They're getting some stalling time to ease themselves out of their ownership, on our dime. It won't work, but they want the chance to try. It'll end badly. The Geithner plan has to die. Every credible voice is howling at how bad this idea is.

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Does anyone else agree that this was all caused by 9-11 ?

 

-Seems more like from shipping jobs, manufacturing jobs in particular, over seas for the last two or three decades and being dependent on foreign oil. Along with the whole Freddie / Fannie mortgage lending scam that all of the banks jumped into and deregulation across the board in all sectors of business.

Edited by tvp

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-Seems more like from shipping jobs, manufacturing jobs in particular, over seas for the last two or three decades and being dependent on foreign oil. Along with the whole Freddie / Fannie mortgage lending scam that all of the banks jumped into and deregulation across the board in all sectors of business.

 

I agree with the deregulation. Moving the manufacturing base to cheaper labor market is not in and of itself a problem, it becomes a problem when most of those jobs are absorbed by the service sector and thus lose our ability to produce. Dependence on foreign oil has little to do with it, it more like dependence on oil itself, it's not a sustainable model. The problem with the current situation lies in derivatives and over-leveraging(high debt to capital ratio.) When a bubble implodes and your debt ratio is so high that you're unable to cover your obligations you become insolvent, and all of the bank are highly leveraged, Bear Stearn and Lehman 30:1, AIG 10:1, and so on. The size of the outstanding derivatives market is estimated at about 190,000 USD per human being living on the planet, in other words 12x larger than the world's GDP. When you have that kind of debt, even small moves adverse to you can wipe you out overnight.

 

9-11 lives in a political sphere and politics cannot dictate free markets. Governments are large enough to coax or entice market players in a general direction but they never had and never will impose their will on them. In fact it has been observed that markets have more power than governments. Case in point is "Black Wednesday," when the British Pound got shorted in 92 and Thatcher was forced to resign because she tried to defend the Pound. The market overwhelmed it and the UK was forced to withdraw its currency from the exchange.

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Long run, jobs are gonna go where they go, and nobody's going to do be able to do a thing about it. Short run, when you have disruptions because of an entire base of your economy being pushed into unemployment, it's a problem. It can undermine political stability. But really this doesn't have anything to do with the financial meltdown. It's not like this hasn't been covered a million times in this thread. People owned houses valued beyond what they were worth. Millions of houses. It was a bubble. It was the biggest bubble ever. Bubbles pop.

 

Why the homes were overvalued has a bit to do with not understanding the risk in the derivatives the mortgages were packaged into. It also has to do with a complete lack of accountability in the private aftermarket for all those securities--buyers bought packages of mortgage-backed securities from sheisters who knew they were selling garbage, shoveling along the toxic waste to the next guy until it ended up in Norway in one famous case. It also has to do with the government being completely beholden to the financial sector (again I use the 70-30 split assigning blame to Republicans and Dems, usually works pretty well)--the government ignored a hundred strong signals that things were going to go to hell. And of course the government has been feverish with deregulation-mania for eight blindingly idiotic years, in fact longer than that, in the completely silly belief that markets will correct themselves, something that 1992's Black Wednesday big billion-dollar winner betting against the Pound Sterling, George Soros, calls 'market fundamentalism.' No better than religious fundamentalism. Divorced from reality.

 

Haven't ranted for alike six pages, felt goooooood!

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You know where 'trickle down economics' actually does 'work'? In this economic crisis.

 

(not necessarily related

)

 

We are collectively leveraged into bankrupcy, with toxic assets in the EU alone still worth 16 trillion euros, wich has to be dealt with.

A bubble in housing, and a large market of POS derivatives are turning banking stocks to shit, wich in turn has causes all these problems with liquidity.

the real economy is suffering now, job loss will be massive, and we can only hope another stimulus package will work.

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Why the homes were overvalued has a bit to do with not understanding the risk in the derivatives the mortgages were packaged into.

 

This is not just about MBS', you have a slew of derivatives out there, CDO'S, CDS', futures contracts, ect. ect., all interconnected and all with the same kind of counter party risk, and all deregulated. If fact, derivatives such as credit default swaps where used as way to hedge against risk. That model is out the window now. Collectively they represent over a quadrillion USD, I'm not sure what a quadrillion dollars looks like but it sure sound bigs. That's just an estimate cause no one can tell for sure what's out there thanks to deregulation. The real estate bubble is a trigger point not the problem itself. If I where to compare the real estate and the derivatives bubbles side by side I'll be comparing an asteroid to a star.

 

Most of the derivatives out there were bought on 5-10% margin, which means there's a lot of outstanding debt floating around. It much larger than the worlds money supply, larger that the worlds GDP. In other words impossible to pay off, even 1/10th of it.

 

If you think this is about a few million houses being devalued, you're not looking at the big picture.

 

 

You know where 'trickle down economics' actually does 'work'? In this economic crisis.

 

(not necessarily related

)

 

We are collectively leveraged into bankrupcy, with toxic assets in the EU alone still worth 16 trillion euros, wich has to be dealt with.

A bubble in housing, and a large market of POS derivatives are turning banking stocks to shit, wich in turn has causes all these problems with liquidity.

the real economy is suffering now, job loss will be massive, and we can only hope another stimulus package will work.

 

 

Liquidity is not the underlying problem. Business don't fail because they lack liquidity, they fail because they become insolvent.

Stimulus is trying to avert a bear run on the dollar, that would be disaster. Hope it works too. If people keep buying dollars we're good, we'll come out of it, but if they stop...

 

All we can do at this point is expect the worse and hope for the best.

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Interesting insights robot0, but could you explain how this current stimulus package is working to keep people buying dollars? Are you talking about foreign companies divesting from US stock sort of thing? It seems like the brunt of the stimulus is in tax cuts, so wouldn't that be some sort of internal measure as opposed to something aimed at our stock market? After all, the last stimulus, aimed at banks and the like failed to do much of anything besides drop us even further into debt. It's pretty confusing to me honestly.

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Liquidity is not the underlying problem. Business don't fail because they lack liquidity, they fail because they become insolvent.

Stimulus is trying to avert a bear run on the dollar, that would be disaster. Hope it works too. If people keep buying dollars we're good, we'll come out of it, but if they stop...

 

All we can do at this point is expect the worse and hope for the best.

 

Well, yes and no. If you can't refinance stuff, or get a loan needed to invest, you might be royally fucked as a business.

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so wouldn't that be some sort of internal measure as opposed to something aimed at our stock market?

 

Derivatives are not part of the stock market. A derivative contracts can be done over the phone without the need of a central clearing organism oversees such deals(aka clearing houses), The New York Stock Exchange is an example of a clearing house. Don't think of this as a stock market thing cause it's not, it's more about stability of and confidence in the system. Look at the US economy as a whole, because it sets the standard and if that standard drops so does its currency.

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Well, yes and no. If you can't refinance stuff, or get a loan needed to invest, you might be royally fucked as a business.

 

I agree it will be a huge detriment, it could even keep you from competing. But if your debt level is exponentially larger than your assets, even small moves adverse to you would ruin you overnight. Will anyone lend to you if your business owes 30 times more than what it's worth? Liquidity is indeed a big problem, but solvency is the root.

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can someone explain why the government cant print its own money and has to have the private federal reserve loan it to us at interest?

 

weren't the founding fathers trying to get away from the same thing in the Bank of England?

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I agree it will be a huge detriment, it could even keep you from competing. But if your debt level is exponentially larger than your assets, even small moves adverse to you would ruin you overnight. Will anyone lend to you if your business owes 30 times more than what it's worth? Liquidity is indeed a big problem, but solvency is the root.

 

I agree. The obsession with growth, and the blind believe therein has seen the western world ignore basic fundamentals of a proper balance-sheet.

 

The only way out of this, is investing in a new infrastructure that has massive returns in tangible assets, be it raw materials or energy. The massive financial holes in the system needs to be off-set with something other than more money.

 

I think dirt-cheap energy might in the long run fuel a new era in economic growth, and an explosion in innovation.

Edited by parallax

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To the 'lax:

 

Investment in infrastructure has its limits: http://en.wikipedia.org/wiki/Exogenous_growth_model

 

You can't get long term growth out of it. But in the short term it's a Keynesian stimulant.

 

Long term growth is an empirically verified thing. Hard to wrap one's head around if you approach it from the perspective of mathematics of Newtonian physics, but when the data show you your models are wrong, you discard the models and look for others. Thus we have Robert Solow in that link. Once before I said something like 'ideas aren't finite,' and it truly is that simple. The value of optimizing the arrangement of things is greater than the things themselves, a bit reminiscent of exogenous network effects. A historical example or two: Given equal arms, 500 soldiers in a Hellenistic phalanx is a much more valuable thing than 500 soldiers in whatever way the Persians arranged them. Fifty ships in a Nelson column is a much more valuable thing than fifty ships in a French line. One gives you the Mediterranean as your lake, the other gets you stuck and blockaded in Toulon and Brest for the duration of the Napoleonic Wars.

 

Regarding printing money to get out of the problem: Countries don't do this anymore. The Romans debased their coins (literally pulling the gold out and replacing it with copper) to the point that during the civil-war-torn third century AD, the value of the main coin ended up 1/30th what it started at the beginning of the century. Basilisk can fill in these numbers off the top of his head I imagine. Anyway the point is, printing money isn't much better than this crude iron-age scheme. It fires inflation. It's a blunt instrument that creates more problems than solutions. We have better tools available, even without the luxury of cutting interest rates (which we can't do because the Fed regime of our old buddy Alan Greenspan lowered them as far as they could go).

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I agree. The obsession with growth, and the blind believe therein has seen the western world ignore basic fundamentals of a proper balance-sheet.

 

The only way out of this, is investing in a new infrastructure that has massive returns in tangible assets, be it raw materials or energy. The massive financial holes in the system needs to be off-set with something other than more money.

 

I think dirt-cheap energy might in the long run fuel a new era in economic growth, and an explosion in innovation.

 

I couldn't agree more. We cannot just consume our way out this one, we need to implement sustainable models.

 

The US has one of the best labor forces in the world, just need to find a way to engage it.

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