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there is so much involved in the finances of the world and ramafications of doing things . its more then any of us even have a smidgeon of understanding about .that to even discuss a topic like this with all the knowledge of whats involved is just plain silly
I think the issue is that, based upon what has happened in the past few years, it appears that the people who make the decisions about these things don't have much more of a smidgeon of understanding about these issues than any of us do.
I think it's perfectly legitimate for people to talk about these things and try to learn about them. We all need to think for ourselves more rather than continue to rely on authorities or experts who have blindly led us into a miserable morass.
yep,but we need to learn from the right sources. to be honest most information on forums is people with little knowledge who run on partial facts, mis-information and old wives tales .
We have already had a sort of deflation in prices for many items. If these are imports, that's fine, but otherwise, deflation in the prices of goods and services also means reduced wages, so it's a bad cycle.
I think we need to deflate housing prices. Housing is not really an asset; houses are a financial liability that many people were tricked into thinking were an asset. In reality, housing is a huge expense and it is that huge expense that is burying many families financially. And the reality is that once you own a house, you don't really benefit from increases in its value legitimately. You can only 'benefit' from that short-term if you've been tricked into thinking you can 'unlock' the equity in your house by borrowing against it.
Lower home values will mean huge losses for banks, but I don't think we can avoid this. We've been trying to forestall it, but I don't think it will work over the long term.
There has been some asset deflation, but government policy has been to stifle it to the best of their ability. So long as the government artificially interferes with the free markets ability to set value, we will have economic problems. They have done this in Real Estate, Equities, and Bonds, in order to preserve wealth for the banks at the expense of the people.
even deflating home prices can be a disaster beyond anything you can imagine. heres why:... a homeowner may owe the bank 200k on his loan and if he defaults the bank gets stuck for some dough. but thats not the end of the story .
you heard about cdo's or credit default swaps? well imagine going to a betting parlor and being able to bet 1 million bucks that that home owner will default. thats what a credit default swap is...
investors,banks and institutions the world over have created a derivitive to give investors away to bet on loans being repayed or defaulted on and winning big dollars...
nthere are clear cut winners and losers here and those billions of dollars have to come from somewhere.. if those institutions loose they loose big time.
it can be lehman all over again if we keep deflating much more... there are not only cdo's but cso's out there which are baskets of bets on various financial events happening that bet on baskets of cdo's.... its a monstor that can explode again ....
This is exactly what needs to happen. The fact is that CDO's and Credit default swaps, were irresponsible high stakes gambling in the first place and the people engaged in it need to loose in order for them understand the risks involved. A government bail out of irresponsible behavior only encourages these institutions to continue taking risks knowing the taxpayer will bail them out. It is the equivalent of a gambler in Vegas never having to pay when they lose.
…Bringing asset prices back into line with earnings would help many people including the younger people who are yet to buy their first home, but have been saddled with the debts of previous generations. It would also benefit the financially responsible people who are not over their heads in debt. The people it would not benefit are the people who are grossly in debt, and the people who have financed those debts. But I guess the thought of rewarding responsible behavior and penalizing irresponsible behavior is not PC nowadays.
Nice jimhcom; it’s obvious you put away the charts & calculators. The continued rewarding of financial irresponsibility can’t go on. As of today the Peters’ are surviving & the Pauls’ are deteriorating. The cardinal rule of Capitalism/competition is the frontrunners get rewarded & the underdogs go back to the drawing board & learn how to play the game better.
The consequences of all this debt is becoming a chronic moral hazard! Deflation will correct this by teaching the young people that 21st Century financial irresponsibility will be hazardous to your life. And here’s the best part; the people who truly need help can get it without the condescension from the general public.
I wonder what will happen if my condo deflates to what I paid for it in 1985. That would twist a bunch of knickers.
Well, even if that happened I would hope you would have it close to paid off by now or fairly soon. It isn't really what your home is worth, but what you owe on your home.
The problem we have with inflation is yes our wages will go up some, but not enough to offset the inflation of prices in energy, housing, and other necessary items. Also as our wages increase we become even less of a productive society and more of a consumption society, as we have recently seen. If we want to create jobs and real wealth we need to produce things not just consume all the items from the countries that produce them.
I was considering something a couple of weeks ago. Go look at all these products (shoes, clothes, tvs, etc.) that are not produced in America anymore. Even if we start spending again at a decent rate and buying goods...that may help with some jobs in the retail sector and transportation, but we don't get the jobs or production out of it we should get. The people that really make out are those that actually make the product, and that in most cases isn't America.
Deflation is the solution, but that would lead to government default. Two concepts keynesians fail to understand is opportunity cost and how lower prices stimulate real demand for goods and services. Not to mention, America's manufacturing would come back to life as it got cheaper to produce goods domestically than to import them from across the world.
Either way, I see no solution for America's structural imbalance (other than cutting people out of a system they paid into their entire working lives. SS and medicare) and I don't know if we'll be able to kick it down the road like we did in 2000. Putting an end to the war machine would help too.
Last edited by Philosophizer; 10-04-2010 at 09:27 PM..
Deflation is the solution, but that would lead to government default. Two concepts keynesians fail to understand is opportunity cost and how lower prices stimulate real demand for goods and services. Not to mention, America's manufacturing would come back to life as it got cheaper to produce goods domestically than to import them from across the world.
Either way, I see no solution for America's structural imbalance (other than cutting people out of a system they paid into their entire working lives. SS and medicare) and I don't know if we'll be able to kick it down the road like we did in 2000. Putting an end to the war machine would help too.
We could also alter our trade policies to allow manufacturers in America to compete on a level playing field with low wage countries. It would mean we all have to pay a bit more for the things we buy, but in the long run we revive our economy and strengthen our country across the board. Henry Ford understood this concept when he began to pay his workers $5 a day, which was more than double the average $2 for the day. He understood that people have to make money in order to spend money. It is not a difficult concept, but it will meet with a lot of opposition from the corporations who are making billions off the status quo, at the expense of the American people.
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