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Maybe thats the real problem. The FED is taking on the burden of creating jobs by giving away money, so people can get loans easier. But what are these people going to do with the loans? What businesses can they start? A bodega, a movie theatre, or is buying a home and flipping it all there is to do now? Can I borrow enough money to start my own bank? Why not just loan directly to people and cut out the banks then?
Buying bonds is not "giving away money". People can do all the same things with borrowed money they always have. Right now underwriting standards are hardly "loose". In fact, people are neither borrowing, nor spending at previous levels.
That is a stupid policy. You lost jobs due to the fact that your global work-force is grotesquely over-paid and cannot compete against global workers in other countries, in particular against 2nd and 3rd World States.
There are no policies that would ever counter that, except waiting about 30-40 years for the rest of the world to catch up.
So your theory of the 2008 financial collapse was that suddenly all businesses realized that "our workforce is overpaid" and then started to lay-off nearly a million workers a month? Sorry, that's a preposterous theory of the start of the Great Recession.
Also, the idea that workers who are making a living wage are "over-paid" compared to Asian workers making slave labor wages, is not only also preposterous but offensive.
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Originally Posted by Mircea
Another incredibly stupid policy.
If your economy revolves around home sales, then effectively you have no economy. You can't even name another stable economy that relies solely on home sales.
For those who don't get it, artificially low interest rates cause Interest Inflation, meaning that the value of those things tied to interest rates become artificially inflated, ultimately collapsing.
Artificially depressing interest rates for mortgages to spur home sales so that people can use the artificial equity created by artificially high housing prices to drive the economy is a disaster. It failed once, it will fail again, and again and again.
Mircea
In most countries housing is a major economic driver because homes are the largest value items consumers will buy.
I also need to repeat that in a liquidity trap low interest rates to not spur inflation. While you marginalize Keynesian economics, Keynesian economics has been 100% correct during the crisis. While the Austrian economists have been prophetizing that increasing the money supply was going to cause hyperinflation, devaluation and high interest rates, none of those projections were correct. In other words, the Austrian model failed to be right, thus all should re-evaluate what they believe.
Buying bonds is not "giving away money". People can do all the same things with borrowed money they always have. Right now underwriting standards are hardly "loose". In fact, people are neither borrowing, nor spending at previous levels.
It is "giving away money" if the whole purpose behind it is to give money away to people. If people are neither borrowing or spending then why even bother making more money. People should only buy something if necessary, or that something pleases them. They should not spend simply because they have more money to spend, or because they enjoy spending all that money they did nothing to earn.
It is "giving away money" if the whole purpose behind it is to give money away to people. If people are neither borrowing or spending then why even bother making more money. People should only buy something if necessary, or that something pleases them. They should not spend simply because they have more money to spend, or because they enjoy spending all that money they did nothing to earn.
No, they are buying bonds, which are to be (re)sold later. If they did not receive anything in return, then they would be "giving away money". If you buy bonds, are you "giving away money"? If you borrow money are they "giving it away" to you? Or are you proving you are a qualified borrower and providing collateral? Do you have an obligation to pay it back?
The whole purpose is to de-leverage the banks, so they lend to qualified borrowers. Whether the borrower invests or spends is an entirely different matter. Tell me how I can get this "free" money without earning it or paying it back? I want me some!
It is "giving away money" if the whole purpose behind it is to give money away to people. If people are neither borrowing or spending then why even bother making more money. People should only buy something if necessary, or that something pleases them. They should not spend simply because they have more money to spend, or because they enjoy spending all that money they did nothing to earn.
So, everyone should spend based upon your sense of 'necessary?'
But from a macro standpoint, we are drifting away from the topic. The fact is, the Fed has no decided to print forever and it said so. It has unemployment targets it wants to achieve before tightening.
It didn't do much to stimulate th economy, so the Fed decided to scale back. Until Wall Street decided it wanted to keep it going. Wasn't it the Wall Street crooks who caused the economy to collapse? Want to stop the Fed from printing more? Bring the crooks to trial and throw them in jail.
It didn't do much to stimulate th economy, so the Fed decided to scale back. Until Wall Street decided it wanted to keep it going. Wasn't it the Wall Street crooks who caused the economy to collapse? Want to stop the Fed from printing more? Bring the crooks to trial and throw them in jail.
The officials in charge routinely refuse to prosecute those crooks. A citizen cannot force law and order, only terminate the crooks and hope to not get caught.
In most countries housing is a major economic driver because homes are the largest value items consumers will buy.
I also need to repeat that in a liquidity trap low interest rates to not spur inflation. While you marginalize Keynesian economics, Keynesian economics has been 100% correct during the crisis. While the Austrian economists have been prophetizing that increasing the money supply was going to cause hyperinflation, devaluation and high interest rates, none of those projections were correct. In other words, the Austrian model failed to be right, thus all should re-evaluate what they believe.
Housing is one economic driver, and is one that is about at a peak in this country right now. Focusing on housing alone is not a great way to look at an economy. Housing has already rebounded, investment is at a relative peak, so consumption is what we need to look at in terms of economic growth at the current time.
Also, how as Keynesian economics been anywhere near correct during the crisis? If anything, QE has proven keynesian policies to be completely ineffective. Additionally, are you unaware of the recent trends in interest rates? We have two options as a country. The first is we actually enact a plan to taper the fed's balance sheet. That is the scenario in which we see parabolic rises in interest rates. The second option is 'QE infinity', in which we become 1990's Japan.
The fact that we have reached a point where those are the two options shows us that keynesian policies are extremely destructive.
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Also, how as Keynesian economics been anywhere near correct during the crisis? If anything, QE has proven keynesian policies to be completely ineffective. Additionally, are you unaware of the recent trends in interest rates? We have two options as a country. The first is we actually enact a plan to taper the fed's balance sheet. That is the scenario in which we see parabolic rises in interest rates. The second option is 'QE infinity', in which we become 1990's Japan.
The fact that we have reached a point where those are the two options shows us that keynesian policies are extremely destructive.
The recent trend in interest rates, which was an increase, brought rates to the second lowest point in my 57 year lifetime. I just got a mortgage for 3-5/8%. My mortgage on my previous home 20 years ago was 7-5/8%.
The prediction that huge increases in the monetary base will cause large increases in the price level, and that big government deficits will cause big increases in interest rates, are are founded on the Austrian belief that recessions are supply-side problems, not the result of inadequate demand. Conversely, the prediction that neither of these things will happen if the economy is in a liquidity trap is a fundamental prediction of Keynesian models.
So, after five years of massive increases in the monetary base there is a low interest and low inflation environment -- the opposite of the Austrian model that vindicates Keynes, who said that in a liquidity trap large increases in deficits and the money base would cause inflation or high rates.
We are in a crisis that calls for Keynesian policies; but some conservatives in America have always opposed Keynesian thought because they believe it legitimizes an active role for government. Conceding that the government can and should create jobs would devalue the importance of being nice to businessmen, and suggest that in general the government can do good things. So the obvious diagnosis and response are unacceptable.
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