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Old 08-16-2009, 05:23 AM
 
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The Government’s share of most developed economies is around 25-40% of GDP. Its role in liberal democracies is limited by the fact that it's fundamentally an intermediary, not dissimilar to a bank. It derives its resources through taxation from certain sectors of the economy and redirects it to other sectors. THIS MEANS THAT ITS ABILITY TO CONTROL AN ECONOMY HAS LIMITS IN THE ABSENCE OF NATIONALIZATION OF ALL PRODUCTIVE ACTIVITY.

this explains our government's recent power grab at the energy sector with cap and trade, auto sector nationalization, health care sector takeover attempt, banking sector bailout, etc....

In the short run, governments can borrow or print money to augment its resources. Like all debt it borrows from tomorrow to pay for today. Quantitative easing (the now respectable name for ‘printing money’) also has limits unless governments are willing to risk hyper-inflation and the social dissolution of the Weimar Republic or Zimbabwe. While governments can influence an economy, they cannot completely reverse inevitable adjustments dictated by market forces.

In a system that has excessive leverage, there are only two adjustment mechanisms. The value of assets supporting the debt and income available to service the borrowing can be increased, usually by inflation. The value of the debt can be reduced through writing it down to the real value of the assets.

Governments and central banks have gambled on inflation despite its social and economic costs. (minyanville)

Last edited by floridasandy; 08-16-2009 at 06:01 AM..
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Old 08-16-2009, 05:38 AM
 
46 posts, read 92,050 times
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So do you think inflation is inevitable? Maybe not hyperinflation but major inflation?
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Old 08-16-2009, 06:19 AM
 
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actually i do not, since i believe that we are headed towards significant deflation overall. there is no purchasing power in the hands of the consumers, nor can they borrow as they used to in order to pay the higher prices much as though they would have liked to do. The newly created money has gone into bailing out banks, and much of it was diverted to continue paying bloated bonuses to bankers. Very little, if any of it has “trickled down” to the ordinary consumers who are squeezed relentlessly on their debts that they contracted in the past.

It follows that price rises are unsustainable, as the consumer is unable to pay them. As a consequence the retail and wholesale merchants are also squeezed. They have to retrench. Pressure from vanishing demand is passed on further to the producers who have to retrench as well. All of them are experiencing an ebb in their operating cash flow. They lay off more people, aggravating the crisis further as cash in the hand of the consumers is diminished even more through increased unemployment. The vicious spiral is on.
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Old 08-16-2009, 07:10 AM
 
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I know, I work in a retail store in a big mall. They layyed off about 1/5 of the employees, and the rest, my self included took a 10% hr cut, and a 10% pay cut. The rents on commercial, especially retail are ridiculous, unsustainable and must also correct like housing prices. I agree with you on the vicious spiral, but whats the end game?
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Old 08-16-2009, 08:40 AM
 
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i am not sure how long the government can pretend that the economy is on the rebound. GM is certainly not doing well, despite government intervention, which was incredibly misdirected! the government cannot force the private sector to lend (at least not yet) and cannot force people to spend when they know that there is a rough time ahead. as well, the people who don't see a bigger problem on the horizon probably aren't spending because their credit is being pulled from the market, not because they are trying to save. rising unemployment will have a further impact on spending habits.
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Old 08-16-2009, 08:52 AM
 
Location: Business ethics is an oxymoron.
2,175 posts, read 2,636,016 times
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Perhaps it's possible that the "endgame" (if you want to call it that) is that our long cherished business model of indefinite and infinite "growth" (growth towards what?) was, in fact unsustainable after all. As many other posters have said in these forums, the economy isn't going to collapse to zero. So we're just going to have to find a way to subsist on plateau'ed numbers instead of rigging the business models towards more-more-more.

As to the Feds getting involved, I'm not 100% convinced that their objective is to have 100% control over the economy-although there are certainly individual members (like Pelosi) who would love to do so.

And no. I don't buy this rebound either. That the bubbleheads on CNBC are partying right now in and of itself should be considered suspect and cause for alarm. I expect the DOW to get back above the arbitrary milepost of 10k any day now. It's come back hard and fast, but I don't think it will go all that much higher nor will it stay there. We still have NOT had a much desperately needed stock market crash. I don't mean the 800 pt p/d swings like we saw last year. That's chump change. I still think we need (and one of the few things I want to see happen more than anything) is a cathartic, one day drop on the order of 4000 pt. Yes. Four THOUSAND point loss in a single day. I still think the DOW will eventually end up in the 4000-4500 ballpark before this is all over.

Or maybe not. After all. Uncle Sugar has repeatedly made good on his promise to Wall Street that the profits will be kept by the few and that the losses will be shared by all.

-Though I suspect that to be more of a political favors kickback game (donors, lobbyists anyone?) as opposed to being part of a greater "conspiracy".

When I see Paulson, Bernanke, and Geitner shackled up at Attica-where all three of them belong-then I'll feel a lot better about the economy.
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Old 08-16-2009, 08:55 AM
 
24 posts, read 50,154 times
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Quote:
Originally Posted by floridasandy View Post
actually i do not, since i believe that we are headed towards significant deflation overall. there is no purchasing power in the hands of the consumers, nor can they borrow as they used to in order to pay the higher prices much as though they would have liked to do. The newly created money has gone into bailing out banks, and much of it was diverted to continue paying bloated bonuses to bankers. Very little, if any of it has “trickled down” to the ordinary consumers who are squeezed relentlessly on their debts that they contracted in the past.
Do you think we are in a billionaire bubble though? Correct if I am wrong, but it appears wealth is even more concentrated than before in the hands of the upper 1 percentile or so. Nothing new, but after you have conquered the known world, what is left for these uber-wealthy to play with?
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Old 08-16-2009, 09:18 AM
 
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yes, the wealth is becoming more concentrated. i do believe that a china bubble is now forming since the uber rich do not want the bubbles to be over and the government is UNWILLING to let the market correct itself.

China showed positive GDP growth while its electricity consumption declined in the beginning of 2009 – creative accounting that makes Enron’s accountants appear as dilettantes. the positive growth is only maintained by china's considerable spending, and they have the reserves to maintain spending for a while. if they are spending on their own infrastructure, they are not concurrently buying treasuries, regardless of what people are being told.

obviously, investment away from the united states towards a china bubble is not good news for the united states.
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Old 08-16-2009, 09:26 AM
 
12,869 posts, read 13,749,440 times
Reputation: 4453
Quote:
Originally Posted by Des-Lab View Post
Perhaps it's possible that the "endgame" (if you want to call it that) is that our long cherished business model of indefinite and infinite "growth" (growth towards what?) was, in fact unsustainable after all. As many other posters have said in these forums, the economy isn't going to collapse to zero. So we're just going to have to find a way to subsist on plateau'ed numbers instead of rigging the business models towards more-more-more.

As to the Feds getting involved, I'm not 100% convinced that their objective is to have 100% control over the economy-although there are certainly individual members (like Pelosi) who would love to do so.

And no. I don't buy this rebound either. That the bubbleheads on CNBC are partying right now in and of itself should be considered suspect and cause for alarm. I expect the DOW to get back above the arbitrary milepost of 10k any day now. It's come back hard and fast, but I don't think it will go all that much higher nor will it stay there. We still have NOT had a much desperately needed stock market crash. I don't mean the 800 pt p/d swings like we saw last year. That's chump change. I still think we need (and one of the few things I want to see happen more than anything) is a cathartic, one day drop on the order of 4000 pt. Yes. Four THOUSAND point loss in a single day. I still think the DOW will eventually end up in the 4000-4500 ballpark before this is all over.

Or maybe not. After all. Uncle Sugar has repeatedly made good on his promise to Wall Street that the profits will be kept by the few and that the losses will be shared by all.

-Though I suspect that to be more of a political favors kickback game (donors, lobbyists anyone?) as opposed to being part of a greater "conspiracy".

When I see Paulson, Bernanke, and Geitner shackled up at Attica-where all three of them belong-then I'll feel a lot better about the economy.
the federal reserve is useless to our economy. It deliberately adopted a policy that it would not seek to identify bubbles and then to act in ways that would let the air out slowly. Instead, Fed Chairman Alan Greenspan allowed bubbles to inflate and then stepped in to repair any damage afterward. This constituted a substantial subsidy to excessive risk-taking.

The policy became clear in 1998, the year in which the unwinding of the Asian currency crisis together with Russia's defaulting on its debt created huge volatility in the credit markets. At the time, Long Term Capital Management, a hedge fund, was on the verge of collapse, and an aggressive intervention was staged to save it. The New York Fed provided its offices and encouragement to bring financial firms together to contain it.

The salvation of Long Term Capital Management suggested a new reality for the marketplace: Aggressive risk-taking in pursuit of huge profits was manageable even if bubbles were created, just so long as the Fed was around to raise the "systemic risk flag"in the event of serious trouble. There would always be a rescue; the trick was to get out before everything began to collapse. It was this fact that led Charles Prince, then the head of Citicorp, to give the game away in July 2007 about the reckless and imprudent nature of his bank's conduct. "When the music is playing,"Prince said, "you've got to get up and dance."

The housing bubble was thus a fully rational response to a set of distortions in the free market--distortions created primarily by the public sector. The heads of large financial institutions, as Prince's remark suggested, recognized the risk-taking subsidy inherent in public policy, but felt they had no choice but to play along or fall behind the other institutions that were also responding rationally to the incentives created by government intervention.

The housing collapse and its painful aftermath, including that $15 TRILLION WEALTH LOSS for U.S. households (so far), do not, therefore, represent a market failure. Rather, they represent the dangerous confluence of three policy errors: government policy aimed at providing access to home ownership for American households irrespective of their ability to afford it; the Fed's claim that it could not identify bubbles as they were inflating but could fix the problem afterward; and a policy of granting monopoly power to rating agencies like Standard & Poor's, Moody's, and Fitch's to determine the eligibility of derivative securities for what are supposed to be low-risk portfolios, such as PENSION FUNDS. (makin)

and so it continues......
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Old 08-16-2009, 09:30 AM
 
Location: southern california
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if they wanted to nationalize they would not do bailouts. the government is not taking over corporate america, its the reverse.
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