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Old 03-07-2015, 04:22 PM
 
5,094 posts, read 3,352,077 times
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Quote:
Originally Posted by ContrarianEcon View Post
How to get from here to there is the trick.
Requires backbone. Politicians today don't have any, nor does the FED.
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Old 03-07-2015, 05:29 PM
 
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Quote:
Originally Posted by shaker281 View Post
It is different from 2008 in that the money is not being lent to anyone with a pulse and secured by collateral that is unrealistically inflated.
But it's the same in that there is a lot of cheap money out there inflating prices, which isn't healthy.

People often blame borrowers for borrowing too much, but banks lent it to them.

People then blame banks for making unsuitable loans, but they got the money to loan out from elsewhere.

While both the above hold blame, they were taking advantage of that which was available to them. Many of us do that. I'll freely admit to borrowing as much as I can for real estate at 3%.

The root of the problem was/is the FED (keep in mind I'm not anti-FED. We still need the FED). At one point in the early 2000s banks could borrow money for two years for free (combination of low interest rates and inflation). Free money is never a good thing, ever.

We had derivatives take the forefront. Banks didn't care where they loaned money because they could get it for free then sell the debt off. Derivatives were/are pretty much unregulated, and quickly returned to pre-2008 levels after the dust settled a little.

Sometime in the early 2000s the FED was granted the ability to curb irresponsible lending. They essentially had veto powers over mortgage loans. If they saw a bank doing something irresponsible they could legally tell the bank to stop. They didn't.

Quote:
Originally Posted by shaker281 View Post
The structural problems have been addressed somewhat, banks and financial institutions are much more liquid. Re: stress tests and deleveraging, etc.
Yes and no. While leverage levels are still down, it's only a matter of time. We won't be safe till we move away from the too big to fail mantra. This started back in the mid-90s when Greenspan bailed out a failing hedge fund that had greatly over leveraged itself and was deemed too big to fail. Enter moral hazard.

While profit is still privatized, when Greenspan bailed out that Hedge Fund he effectively socialized risk, and that sprung up again in 2008. While the bailout was a necessity, it sets a terrible precedence. IMO, the firms that had to be bailed out by the government should have been broken up, not combined. They had failed as businesses.

Quote:
Originally Posted by shaker281 View Post
Which measure of inflation is looking problematic? Many are reported regularly. Headline? Core?
It depends which measure you use. The measure common under Volcker and Greenspan differed. Greenspan claimed to have kept inflation at bay, yet he tended to ignore housing and energy prices (and I believe food) in inflation rates.

Quote:
Originally Posted by shaker281 View Post
Agree on the wages, but would attribute that to inevitable globalization. Gonna be solved with the coming labor shortages somewhat. That could lead to inflation at that point though.
Eh. It's not just globalization. Minimum wage has failed to keep up with inflation, and that serves as the bottom measurement barometer for wages. It's been awhile since I looked it up, but I believe in order to have kept up with inflation the federal minimum wage should be $10.10 today. Inflation is something I think a lot of people don't realize how much of an effect it can have over the decades.

Quote:
Originally Posted by shaker281 View Post
A large chunk has gone undistributed. We shall see how much asset prices have been affected as interest rates rise.

Timing is everything. Greenspan did not act in a timely, aggressive manner. Bernanke , as a student of Greenspan, learned from this mistake. Six years have played out exactly as he intended. The next 2 - 4 will seal the deal. Either he will be proclaimed a failure or hailed as a hero. I vote for the latter!
Greenspan is one of the biggest failures the FED has ever produced (only ones really beating him on the pre-great depression fella). Despite disagreeing with his politics, I won't go as far as to call him an outright idiot. Early in his career he did a decent job (despite being antigovernment meddling with the markets, he was the FED chair that did the most manipulating of the market).

He was the first that was successful to use monetary policy to avoid/minimize a recession. In 1998/1999 he made a speech on the rising prices of assets in America. However, this speech was not well taken by the people or Washington, and he quickly changed his tune pumping the markets. He changed to fighting any weaknesses that showed up in the economy (effectively allowing bubbles to grow larger). He didn't like not being popular after his initial success, which resulted in a lot of bad decisions that drove us down the path to 2008.
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Old 03-07-2015, 06:25 PM
 
Location: Ruidoso, NM
5,170 posts, read 4,752,500 times
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Quote:
Originally Posted by LordSquidworth View Post
Requires backbone. Politicians today don't have any, nor does the FED.
Backbone? If it involves looking out for the US public, I agree that there is little backbone in government, or the Fed.
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Old 03-07-2015, 06:36 PM
 
Location: Ruidoso, NM
5,170 posts, read 4,752,500 times
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Quote:
Originally Posted by LordSquidworth View Post
The root of the problem was/is the FED (keep in mind I'm not anti-FED. We still need the FED). At one point in the early 2000s banks could borrow money for two years for free (combination of low interest rates and inflation). Free money is never a good thing, ever.
I would say the Fed was the primary tool for expanding that bubble. It was done intentionally. They needed to have the war on terror proceed without the distraction of a failed economy. The economy was doomed to fail before long because of unsustainable policies stretching back to at least the mid 70s. That last bubble kept it chugging along for a few more years.

Quote:
Greenspan is one of the biggest failures the FED has ever produced (only ones really beating him on the pre-great depression fella). Despite disagreeing with his politics, I won't go as far as to call him an outright idiot. Early in his career he did a decent job (despite being antigovernment meddling with the markets, he was the FED chair that did the most manipulating of the market).
Far from it. He is smart as hell and has even smarter guys advising him, and modeling the economy in detail. All the bankers do. They know exactly what they are doing and how things will play out.
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Old 03-07-2015, 09:36 PM
Status: "Christine Blasi Ford, Novelist and fiction author" (set 1 day ago)
 
Location: New York Area
13,492 posts, read 5,260,397 times
Reputation: 10798
Quote:
Originally Posted by Opin_Yunated View Post
Deflation vs. inflation is not even debatable. Deflation is the eventual end of the economy.
It depends on what is deflating. If oil drops to and stays at, say, $30 or $40 it will cut overall price levels but it will benefit the economy. The U.S. overall was in a deflation from the end of the Civil War until the 1897 Gold Rush and yet there was lots of growth with a few "panics" along the way.
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Old 03-07-2015, 10:39 PM
 
4,174 posts, read 2,793,607 times
Reputation: 2629
Quote:
Originally Posted by LordSquidworth View Post
But it's the same in that there is a lot of cheap money out there inflating prices, which isn't healthy.

People often blame borrowers for borrowing too much, but banks lent it to them.

People then blame banks for making unsuitable loans, but they got the money to loan out from elsewhere.

While both the above hold blame, they were taking advantage of that which was available to them. Many of us do that. I'll freely admit to borrowing as much as I can for real estate at 3%.

The root of the problem was/is the FED (keep in mind I'm not anti-FED. We still need the FED). At one point in the early 2000s banks could borrow money for two years for free (combination of low interest rates and inflation). Free money is never a good thing, ever.

We had derivatives take the forefront. Banks didn't care where they loaned money because they could get it for free then sell the debt off. Derivatives were/are pretty much unregulated, and quickly returned to pre-2008 levels after the dust settled a little.

Sometime in the early 2000s the FED was granted the ability to curb irresponsible lending. They essentially had veto powers over mortgage loans. If they saw a bank doing something irresponsible they could legally tell the bank to stop. They didn't.



Yes and no. While leverage levels are still down, it's only a matter of time. We won't be safe till we move away from the too big to fail mantra. This started back in the mid-90s when Greenspan bailed out a failing hedge fund that had greatly over leveraged itself and was deemed too big to fail. Enter moral hazard.

While profit is still privatized, when Greenspan bailed out that Hedge Fund he effectively socialized risk, and that sprung up again in 2008. While the bailout was a necessity, it sets a terrible precedence. IMO, the firms that had to be bailed out by the government should have been broken up, not combined. They had failed as businesses.



It depends which measure you use. The measure common under Volcker and Greenspan differed. Greenspan claimed to have kept inflation at bay, yet he tended to ignore housing and energy prices (and I believe food) in inflation rates.



Eh. It's not just globalization. Minimum wage has failed to keep up with inflation, and that serves as the bottom measurement barometer for wages. It's been awhile since I looked it up, but I believe in order to have kept up with inflation the federal minimum wage should be $10.10 today. Inflation is something I think a lot of people don't realize how much of an effect it can have over the decades.



Greenspan is one of the biggest failures the FED has ever produced (only ones really beating him on the pre-great depression fella). Despite disagreeing with his politics, I won't go as far as to call him an outright idiot. Early in his career he did a decent job (despite being antigovernment meddling with the markets, he was the FED chair that did the most manipulating of the market).

He was the first that was successful to use monetary policy to avoid/minimize a recession. In 1998/1999 he made a speech on the rising prices of assets in America. However, this speech was not well taken by the people or Washington, and he quickly changed his tune pumping the markets. He changed to fighting any weaknesses that showed up in the economy (effectively allowing bubbles to grow larger). He didn't like not being popular after his initial success, which resulted in a lot of bad decisions that drove us down the path to 2008.
Thing is, it takes two to tango. Lenders, borrowers and the entire band (appraisers, RE agents, ratings agencies) were in on it. Housing is only inflated in specific places at present (Manhattan, LA, etc) otherwise prices are relatively stable, energy is not inflated, general inflation is muted. Food is the only thing going up and everything else is offsetting that. Maybe when we stop subsidizing ethanol, food prices will come down a bit.

The idea that the FED ignores food/energy/housing is just simply wrong. They look at dozens of inflation indexes and always have. People simply complain about core inflation being minus food and energy, because they are uninformed. Current energy prices would seriously skew the numbers downward, precisely why both core and headline are valuable.

"While headline inflation tends to get the most attention in the media, core inflation is often considered the more valuable metric to follow. Core inflation removes the CPI components that can exhibit large amounts of volatility month to month, which can cause unwanted distortion to the headline figure. Both headline and core results are followed closely by investors, and are also used by economists and central banking figures to set economic growth forecasts and monetary policy."

The FED has no power to "veto" mortgage loans. None. You will have to prove that with supporting facts. They were however given authority over "predatory lending", but that is hardly the same thing.

Globalization is the exact reason for lack of wage growth. As corporations move jobs overseas and emerging markets produce cheap goods at prices the US cannot compete with, US companies are attempting to remain competitive and that means cutting the cost of labor. Along with wages not improving at a pace equivalent to inflation, benefits are cut and even eliminated, all in the name of remaining competitive. That trend is beginning to reverse as unemployment comes down, US population declines and employers begin to compete for workers again. It takes time.

Greenspan is basically a laissez-faire economist, a bit of a libertarian and even a friend of Ayn Rand. He even admitted his failure to act in a timely and effective manner. Nothing new there. So the claim he "meddled too much" is rather contrary to that reality. Something else you should support with facts.

A good read on the Greenspan legacy: Alan Greenspan's 'The Map and the Territory' Reviewed by Robert Solow | The New Republic

From the article - "Greenspan’s reputation has suffered from two big mistakes. The first was his failure to see the importance of the housing bubble and the dangerous vulnerability of the financial mechanism that supported it. Had he done so and punctured the bubble promptly, the economy would have been spared the prolonged weakness that it is still suffering. The second was his deep-seated conviction that the unregulated financial system was self-stabilizing, that the self-interest of all those clever and experienced participants with a lot of their wealth at stake would keep the accumulation of risk within tolerable bounds. So he promoted deregulation and financial consolidation (as did others, of course) and, when this simple faith proved wrong, allowed disaster to strike. I think that the first mistake may be partially excusable, but the second mistake was a catastrophe, and it was not an accident."

So, you can see that the exact opposite of "meddling" was the reality!
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Old 03-07-2015, 11:11 PM
 
Location: Ruidoso, NM
5,170 posts, read 4,752,500 times
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Quote:
Originally Posted by shaker281 View Post
Globalization is the exact reason for lack of wage growth. As corporations move jobs overseas and emerging markets produce cheap goods at prices the US cannot compete with, US companies are attempting to remain competitive and that means cutting the cost of labor. Along with wages not improving at a pace equivalent to inflation, benefits are cut and even eliminated, all in the name of remaining competitive.
Yes, but there is more to it. Freeing trade is great, but they needed to allow the value of the US$ to drop to keep trade balanced. This would have made everyone richer. It however would not have been nearly as lucrative for the mega rich. Outsourcing and global investing would not have been a no-brainer, and the pace of globalization would have been slower.

Why has our government supported policies that are detrimental to the great majority of citizens? I'm amazed at how well the propaganda has kept us confused and divided about this. I have no confidence that a positive change will be possible unless the ones who perpetrated this in the first place wish it.
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Old 03-08-2015, 03:37 AM
 
1,978 posts, read 1,246,318 times
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given the latest job report, all indicators are fed will raise interest rate during the middle of the year. Should be interesting to see how the stock market and real estate market react.
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Old 03-08-2015, 03:55 AM
 
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Quote:
Originally Posted by NYer23 View Post
given the latest job report, all indicators are fed will raise interest rate during the middle of the year. Should be interesting to see how the stock market and real estate market react.
I suspect that initially equities, bonds and real estate will take a dip, nothing extreme though. Then the fact that the economy is doing better and employment is improved will sink in, and it will be a non-issue. A pullback might be just the thing this economy needs to avoid getting irrationally exuberant.

Employment and GDP numbers are good and this bull market may last a lot longer than the naysayers are predicting.
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Old 03-08-2015, 04:01 AM
 
1,978 posts, read 1,246,318 times
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Quote:
Originally Posted by shaker281 View Post
I suspect that initially equities, bonds and real estate will take a dip, nothing extreme though. Then the fact that the economy is doing better and employment is improved will sink in, and it will be a non-issue. A pullback might be just the thing this economy needs to avoid getting irrationally exuberant.

Employment and GDP numbers are good and this bull market may last a lot longer than the naysayers are predicting.
Concerns that might stop the fed from increase rates would be:
1. Wages have not significantly increased yet
2. Questionable job quality on new hires (low paying jobs).
3. Strong dollar will hurt our export and Europe has a negative saving right now due to central bank charging bank holding EUR (want them to lend).

I too look forward to being able to earning decent return on my deposit from the bank, but at the same time I am concern with the increase cost of lending (given how cheap it currently is).
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