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Originally posted by Shakka But you fail to acknowledge that true Keynesian economics assumes that you have built up a cushion of surpluses from the fat years with which to supplement the weakness during the lean years. That then begs the question of whether we are setting ourselves up for a classic Keynesian liquidity trap.

The previous administration failed to build up a surplus during the fat years. Deficit or not, I don't think the Obama administration really had a choice. They are damned if they did, damned if they didn't, use government expenditure to stimulate the economy. I wouldn't be too worried about a liquidity trap, judging by the performance of the stock market, which by the way I think may be over valued.

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Why is it that you judge so much of the world based on what the stock market does? What does a Keynesian liquidity trap have to do with the stock market?

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Originally posted by Shakka Why is it that you judge so much of the world based on what the stock market does? What does a Keynesian liquidity trap have to do with the stock market?

I've already explained why I think the stock market is the best measure of real-time economic performance. If we were in a liquidity trap, in my opinion, the market would not be in the 8000's, or even high 7000's. You have your own way of analyzing the market, and I have mine. It's all subjective. You of anyone here should know economics is in many ways an art form.

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Originally posted by Krypton I've already explained why I think the stock market is the best measure of real-time economic performance. If we were in a liquidity trap, in my opinion, the market would not be in the 8000's, or even high 7000's. You have your own way of analyzing the market, and I have mine. It's all subjective. You of anyone here should know economics is in many ways an art form.

I know this, but a Keynesian liquidity trap is 1) not necessarily a short-term event and 2) economic performance and stock market performance, while related to each other, are not inextricably linked and do not necessarily move in tandem. Stock markets are, imho, more influenced by liquidity pressures vs. economic performance over shorter periods of time (as I've pointed out in this thread).

In this instance, the liquidity trap would be what happens when all of this government stimulus piled on top of so much existing debt results in a debt burden that simply cannot be serviced. The liquidity being poured in right now is exceedingly positive for stocks, but the potential long-term ramifications could be severely negative.

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Originally posted by Shakka In this instance, the liquidity trap would be what happens when all of this government stimulus piled on top of so much existing debt results in a debt burden that simply cannot be serviced. The liquidity being poured in right now is exceedingly positive for stocks, but the potential long-term ramifications could be severely negative.

Not necessarily. What if the stock market does well for a long time? What if employment starts going back up? Consumer driven expenses in the market will start rising, and slowly but surely we can chip away at that deficit. Just because we're in the gutter right now doesn't mean we can't pull out of it.

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Originally posted by ziptnf Not necessarily. What if the stock market does well for a long time? What if employment starts going back up? Consumer driven expenses in the market will start rising, and slowly but surely we can chip away at that deficit. Just because we're in the gutter right now doesn't mean we can't pull out of it.

If and when that happens, I would gladly get more positive on our long-term outlook. However, that is just one of many factors that keeps me on guard in the shorter-term that we are in a cyclical bull rally within a longer secular bear market that started in 2000.

I've mentioned in other threads that unemployment would be worse if not for many companies just cutting back people's hours instead of laying them off altogether. Therefore, employment may not come "screaming back" if things start to perk up because companies might just up their part-time employees back to full-time workers. All of this cost cutting to make earnings is great for the near-term, but you can only cut costs so much. Consumers are still broadly tightening their belts (you'd hope so given what has just happened to them), and this is a long-term positive event, but if consumer spending doesn't come back soon, what then? What will drive corporate earnings if after all of the cost cutting revenues are still weak? Don't get me wrong, I hope for a positive outcome, I just continue to see reasons to be cautious--especially in light of the next wave of coming option ARM resets ahead and the commercial real estate fallout that many are predicting.

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Originally posted by Shakka I know this, but a Keynesian liquidity trap is 1) not necessarily a short-term event and 2) economic performance and stock market performance, while related to each other, are not inextricably linked and do not necessarily move in tandem. Stock markets are, imho, more influenced by liquidity pressures vs. economic performance over shorter periods of time (as I've pointed out in this thread). In this instance, the liquidity trap would be what happens when all of this government stimulus piled on top of so much existing debt results in a debt burden that simply cannot be serviced. The liquidity being poured in right now is exceedingly positive for stocks, but the potential long-term ramifications could be severely negative.

This is Krypton..

You could be right. I think the market is somewhat over valued at 9000. How is consumer spending going to increase when there is 10% unemployment. How this liquidity will play out in the long term, I can only say, we should expect higher inflation, coupled with this high unemployment, sounds kind of like stagflation. My partisan self would blame Bush and the Republican Party most of all for running the country's finances into the ground...

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Posted by Omega_Blue that's it, fuck it i'm quitting ta forever. fuck if i'm gonna get trolled by fucking yukii. dammit!