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Originally posted by jerZ07002 the relevant question is whether we were spending too much in the first place. it is not in the long term interest of the country for the government to sustain spending that is in excess of the capacity of the population (since the government debt is really the debt of the people who pay taxes). it appears that the debt burden of the average consumer was so high that the spending habits were too much in the first place.

DING DING DING! Exactly..and this is what the Keynesians fail to realize. They think spending/consumption must always be on an upward trajectory and their policies that encourage this are what create asset bubbles in the first place. They blow up a bubble until it pops and starts to deflate, then rather than considering whether it should have been so big to begin with, they proceed to blow harder than ever and attempt to make it bigger than ever.

Last edited by Capitalizt on Mar-02-2009 at 04:47

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Originally posted by Capitalizt DING DING DING! Exactly..and this is what the Keynesians fail to realize. They think spending/consumption must always be on an upward trajectory and their policies that encourage this are what create asset bubbles in the first place. They blow up a bubble until it pops and starts to deflate, then rather than considering whether it should have been so big to begin with, they proceed to blow harder than ever and attempt to make it bigger than ever.

the worst definition of keynesian economics on the entire internet.

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Originally posted by Capitalizt DING DING DING! Exactly..and this is what the Keynesians fail to realize. They think spending/consumption must always be on an upward trajectory and their policies that encourage this are what create asset bubbles in the first place. They blow up a bubble until it pops and starts to deflate, then rather than considering whether it should have been so big to begin with, they proceed to blow harder than ever and attempt to make it bigger than ever.

You are deceiving yourself if you actually believe asset bubbles can be avoided by following some radical libertarian ideology. Asset bubbles have been occurring for centuries under Austrian economics, Keynesian economics...it doesn't matter. There will always be asset bubbles in any economy. Even communist ones.

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Originally posted by jerZ07002 the point is that when consumers decide to stop spending, government does the spending indirectly for the consumers. so, in reality, the consumers are still spending, just not based on individual decisions. when the consumers (viewed as an aggregate) reduce spending, the government should adjust its spending to fill the void since its actions represent the indirect actions of the consumers. the relevant question is whether we were spending too much in the first place. it is not in the long term interest of the country for the government to sustain spending that is in excess of the capacity of the population (since the government debt is really the debt of the people who pay taxes). it appears that the debt burden of the average consumer was so high that the spending habits were too much in the first place. while i agree on a spending package, it must be narrowly directed for future growth given the massive amount of debt needed to fund the projects. I can't agree that this package is the best or even a good package. the only thing the package should have focused on were energy, education, infrastructure improvement, and scientific advances. tax cuts and all that other bullshit should have been left out.

It's extremely hard to deduce a limit to what the government should spend. The fact if the matter is...if banks and consumers aren't going to spend, the government takes their place, to stimulate the economy by increasing confidence and provide an example that if the government is spending, everyone should spend too. Money saved is money wasted in my opinion. Money should always be at work. Best invested than outright spent, but working nonetheless. Liquidity is the life blood of the economy. The government, at this point, is playing the role of a blood transfusion to a patient whose lost half of blood volume.

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Originally posted by Krypton It's extremely hard to deduce a limit to what the government should spend. The fact if the matter is...if banks and consumers aren't going to spend, the government takes their place, to stimulate the economy by increasing confidence and provide an example that if the government is spending, everyone should spend too. Money saved is money wasted in my opinion. Money should always be at work. Best invested than outright spent, but working nonetheless. Liquidity is the life blood of the economy. The government, at this point, is playing the role of a blood transfusion to a patient whose lost half of blood volume.

money saved is not money wasted. unless you keep your money in a bag in your bedroom, the money you save is put to use by someone else (e.g., loans made by the bank in which you deposit your money.)

in fact, putting money in a bank account is a better use of money than purchasing issued stock of a corporation. The reason being your investment in the stock won't directly product any real economic activity. the most your investment does to produce economic activity is increase the value of stock, which could help the liquidity of a corporation (using stock as an acquisition vehicle, pledging stock for bank loans, etc...).

in any event, noone should spend beyond their means, including governments. you are correct that it is difficult to determine the point at which spending is too much, however, when the annual deficit is over 10% of GDP that is likely too much. If every year an individual increased its debt by 10% in the not-so-distant future creditors would stop lending to that individual.

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Originally posted by Capitalizt DING DING DING! Exactly..and this is what the Keynesians fail to realize. They think spending/consumption must always be on an upward trajectory and their policies that encourage this are what create asset bubbles in the first place. They blow up a bubble until it pops and starts to deflate, then rather than considering whether it should have been so big to begin with, they proceed to blow harder than ever and attempt to make it bigger than ever.

while i agree that government policies help produce asset bubbles, what caused the tech stock asset bubble of the late 90s and early 2000s? That certainly wasn't because the government policy favored the purchase of these stocks or that the government actually purchased these stocks.

you also discount the role played in this by banks and individuals. the banks were allowing people to cash in the potential 'equity' built into the value of their homes. In my opinon most of the overvaluation of housing during the past 5-10 years occurred for the following reason:

(i) the ability of purchasers to take out loans with large principal balances because of low initial teaser interest rates (the principal balance being the value of the home - at the end of the day the purchaser doesn't care as much about the principal as the total payments. Nevertheless, the principal balance is the number used to determine the FMV of the home.);

(ii) the reliance on mortage brokers and real estate agents to value homes. valuing homes on the valuation of a real estate agent who likely has no financial background is ridiculous - homes should be valued based on a multiple of potential annual rent, and not the potential price a real estate agent could extract from another purchaser. Unfortunately, most people are not well versed in finance. It's a rather easy calculation to perform, however, the assumptions are difficult to nail down (nothing makes me laugh more than the shows about house flipping, etc... in which the house flipper glibbly proclaims that tile floors would add 20K to the value of the house even though it was only a 5K expenditure - in what world do they live?) ; and

(iii) the presence of a huge number of RE speculators each of whom increased the competitive bidding on a particular house (this is bad because the homes weren't being valued on by end-users, rather, the value was being distorted by the inclusion of a large group that never intended to remain on the property).

Last edited by jerZ07002 on Mar-02-2009 at 05:51

capitalizt will try to tell you that the the federal reserve's decisions on interest rates were the single biggest contributing factor to, well, pretty much everything except cancer.

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Originally posted by pkcRAISTLIN capitalizt will try to tell you that the the federal reserve's decisions on interest rates were the single biggest contributing factor to, well, pretty much everything except cancer.

They were.

The fed cut rates dramatically in the 90's..boom, nasdaq bubble.
They raise rates.. Bubble bursts..

The fed cut rates dramatically in the early 2000's..boom, housing
bubble.
They raise rates.. Bubble bursts..

The fed cut rates dramatically in late 2000's..
Next bubble soon to follow.. What will it be? Treasuries?..commodities?...We don't know yet.

Our entire economy is going to be reflated yet again on debt and cheap credit.. More artificial prosperity will take hold and many more malinvestments will be made ..but it won't last as long this time. It's been a good game for the fed. The party has lasted 80 years.. But people are slowly waking to the fact that America is bankrupt, and once foreign faith in the paper dollar evaporates, the game is up. It's only a matter of time.

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Originally posted by Capitalizt They were. The fed cut rates dramatically in the 90's..boom, nasdaq bubble. They raise rates.. Bubble bursts.. The fed cut rates dramatically in the early 2000's..boom, housing bubble. They raise rates.. Bubble bursts.. The fed cut rates dramatically in late 2000's.. Next bubble soon to follow.. What will it be? Treasuries?..commodities?...We don't know yet. Our entire economy is going to be reflated yet again on debt and cheap credit.. More artificial prosperity will take hold and many more malinvestments will be made ..but it won't last as long this time. It's been a good game for the fed. The party has lasted 80 years.. But people are slowly waking to the fact that America is bankrupt, and once foreign faith in the paper dollar evaporates, the game is up. It's only a matter of time.

So you blame the rampant fraud of mortgage originators and stupidity of investors on the Federal Reserves interest rates? Must be easy when we can blame it all on the Fed.

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The Fed is not solely responsible--that much is obvious. However, if you can't see that they were complicit (intentionally or not), you are delusional. Here's a great Greenspan quote I read today, courtesy of Marc Faber.

"Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. These improvements have led to rapid growth in subprime mortgage lending...fostering constructive innovation that is both responsive to market demand and beneficial to consumers."

-Greenspan. April 28, 2005

all the while speaking up the benefits of interest only loans, adjustable rate mortgages, etc.

You forget that the Fed has a lot of oversight and enabled many of those fraudsters by overlooking the bad behavior that was going on.

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Opportunity of a lifetime ... lost Originally published March 01, 2009 President Barack Obama signed the stimulus bill into law on Feb. 17. At that moment, he stood up and uttered, "It's done." In reality, he should have stood up and repeated what he had said seconds earlier: "We're done." He lost the opportunity of a lifetime. He passed the high-water mark of his presidency in less than four weeks. How fitting it was that he signed the bill into law in a museum. The national treasure of the free-market economy of our forefathers was neatly put to bed as a relic of times gone by. If he had just vetoed the bill and proclaimed to America that a new day has arrived. If he had told us to tell our elected leaders that the days of pork, special interests, and reckless spending were over, we would have rallied to his cause. He would have become our president! His day as a future Lincoln, Washington and Reagan would have been set. A new dawn would have emerged. Instead, he chose the popular path, the path of least resistance. He squandered the opportunity of a lifetime. He has defined his presidency, solidified his opposition and guaranteed four more years of business as usual. The nation needed a leader on Feb. 17. Instead, we were greeted by the head of the Democratic Party, who happens to be president. Unfortunately, I am not sure if he understands what he did on that fateful day. By signing the stimulus bill into law, he reaffirmed financial irresponsibility as an American dream. He told the entire world that we no longer value hard work, fiscal responsibility and the right of self-determination. He institutionalized a national victim mentality. The true victims in this debacle are the good, decent workers and managers who saved their entire lives and have seen their retirement plans destroyed overnight. They have seen greed rewarded with multimillion-dollar payouts to CEOs who failed. These victims have seen multi-billion-dollar payments to GM and Chrysler to shore up pension plans of the UAW while their own pensions were destroyed. Yet, these decent folks did nothing wrong! In reality, though, we did do something wrong. We did not understand that our responsibilities as citizens did not stop when we elected a new president. Only when we decide we want our nation back will we regain our position of leadership in the world. Then, and only then, will our markets stabilize and grow. Only by our getting involved and demanding our government to represent what we as a people stand for will the American dream be assured for the future generations. President Obama's campaign theme of "Yes, we can" and the message of hope are quickly fading into the sunset. To have to restore a legacy at this early stage of his presidency is a travesty, but restore it he must. In order to move forward we need a multipartisan approach to our problems. Government solutions and bipartisanship rhetoric imply that government alone can solve these issues. Now is the time for all American citizens, labor and management to unite with our elected officials to solve these economic problems and crisis of leadership. Now is the time for our elected leaders to stop wasteful spending, restore fiscal discipline, and demand accountability. If our leaders will not lead, we must lead for them. The choice is yours. Will you choose the path of least resistance or will you choose to do the right thing? Let your voice be heard. Frank Ryan, CPA, specializes in corporate restructuring and lectures on ethics and corporate governance. He is on the boards of numerous nonprofit and publicly traded companies. E-mail him at [email protected].

http://www.fredericknewspost.com/se...m?StoryID=87062

What shakka said 2 posts up.

Of course the fed isn't 100% responsible.. but it's like the analogy I used a few months back. If a kindergarten teacher drops a bag of candy on the table in front of her students and leaves the room, she can't be held 100% responsible for the kids getting sugar highs and tearing shit up in her absence..but she certainly shoulders a large part of the blame for the mess created.

As you know Krypt, all market systems depend on price levels to determine profit and loss..supply and demand. When you have an institution of central planning that controls the price of something as vital as MONEY, it's foolish to assume it doesn't play a huge role in the boom/bust cycle.