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There really is a textbook way to fix our current mess. Short-term stimulus works to help an economy recover from a recession. Some kinds of stimulus pay off more quickly than others. Once the economic heart is pumping again, we need to get our deficits under control. The way to do that is a balance of spending cuts, increased tax revenues and entitlement reforms. There is room to argue about the proportions and the timing, and small differences can produce large consequences, but the basic formula is not only common sense, it is mainstream economic science, tested many times in the real world.
Stimulus of WHAT, is the question.
We have a "bifurcated market." Only one side of it, the financiers, are in a liquidity trap. The household sector has no liquidity to trap. It is flawed to assume that injections of money into the banking system will somehow magically enter the U.S. household during a period of household debt saturation.
Here is a different view:
Quote:
In October 2010, Nobel laureate Joseph Stiglitz explained how the U.S. Federal Reserve was implementing another monetary policy—creating currency—to combat the liquidity trap.[4] Stiglitz noted that the Federal Reserve intended, by creating $600 billion and inserting this directly into banks, to spur banks to finance more domestic loans and refinance mortgages. However, Stiglitz pointed out that banks were instead spending the money in more profitable areas by investing internationally in commodities and the emerging markets.
Last edited by Cletus Awreetus-Awrightus; 11-28-2011 at 09:04 AM..
Judging by that graph, it is obvious that households are at debt saturation. That is why outstanding household debt is declining.
Outstanding debt is declining because we are:
1) there are large numbers of people who have lost their jobs and demand is down
2) The housing bubble burst and consumers no longer are revamping homes as much on credit
3)Credit isn't as easy as it used to be
Quote:
Originally Posted by Cletus Awreetus-Awrightus
Stimulus of WHAT, is the question.
We have a "bifurcated market." Only one side of it, the financiers, are in a liquidity trap. The household sector has no liquidity to trap. It is flawed to assume that injections of money into the banking system will somehow magically enter the U.S. household during a period of household debt saturation.
Keller isn't speaking of injecting money into the banking system. He's talking about fiscal stimulus, not monetary stimulus.
Of course it's flawed to assume that injections of money into the banking system will somehow magically enter the U.S. household. A liquidity trap refers to the inability of monetary policy to stimulate the economy. No matter how low yields fall, there are no takers because the economy lacks demand for borrowing.
Bellow 2007 levels. That is money no longer circulating domestically.
Quote:
The question was about why we're not seeing inflation and the answer is that in a liquidity trap there is not very much pressure to raise prices -- even though the money supply has increased dramatically.
What do you think I have been talking about with dollar carry trade all this time? I said huge amounts of money is being created to spend off shore, not to mention the stock market rollover to dollar leverage. Most is not being created here as I keep saying over, and over, and over again.
The answer is carry trade. I explained it already. We are in stagflation. Anything nailed down in the US is deflating, including real estate and wages. Dollar carry trade is spewing dollars in the international markets. That is why dry beans have doubled in price and we have empty houses. The US is at debt saturation, period.
Its why I have had it with the so called fiscal hawks who don't see all the chickens are going out the back door and the fox is the investment banks in currency speculation.
1) there are large numbers of people who have lost their jobs and demand is down
2) The housing bubble burst and consumers no longer are revamping homes as much on credit
3)Credit isn't as easy as it used to be
Exactly, each of these things indicate a saturation of debt at the household level.
People have lost their jobs, but not their debt, which increases the household-debt-to-income ratio, aka debt saturation.
The housing bubble burst so people have no home equity growth with which to reduce their debt ratios, causing further debt saturation.
#3 is the same thing as #1 and #2, or rather, the cause of them.
1) there are large numbers of people who have lost their jobs and demand is down
2) The housing bubble burst and consumers no longer are revamping homes as much on credit
3)Credit isn't as easy as it used to be
And that is money. We demonitzed sub prime debt, bang there goes trillions in available domestic credit.
Quote:
Keller isn't speaking of injecting money into the banking system. He's talking about fiscal stimulus, not monetary stimulus.
Of course it's flawed to assume that injections of money into the banking system will somehow magically enter the U.S. household. A liquidity trap refers to the inability of monetary policy to stimulate the economy. No matter how low yields fall, there are no takers because the economy lacks demand for borrowing.
The money is going here and Brazil is trying to stop it.
following up on my last post, I want to use this post to write about the long side of the carry trade- specifically the Australian Dollar. The Bank of International Settlements (BIS) observed in a recent report that, “The role of short-term interest rate differentials in both the deprecations and their reversal has grown over time.†When you consider that the benchmark interest rate in Australia is now 4% and that interest rates in every other industrialized country (including Japan) are close to 0%, it’s not hard to connect the dots.
Apparently it is hard for some to connect the dots. Dollar devaluation at your service.
* mortgage debt to GDP ratio
* high land prices
* foreign debt and shrinking share of world economy increasing dollar leverage * dollar carry trade
* zero interest rate policy
That implies the growth in M1 in the wrong places.
Exactly, each of these things indicate a saturation of debt at the household level.
People have lost their jobs, but not their debt, which increases the household-debt-to-income ratio, aka debt saturation.
The housing bubble burst so people have no home equity growth with which to reduce their debt ratios, causing further debt saturation.
#3 is the same thing as #1 and #2, or rather, the cause of them.
I can't disagree with this much. The bursting of the housing bubble and the overhang of household debt have left consumer spending depressed and many businesses with more capacity than they need and no reason to add more.
That's exactly why the government, that can borrow at below the inflation rate, should be borrowing and spending to make up for lost consumer demand.
I can't disagree with this much. The bursting of the housing bubble and the overhang of household debt have left consumer spending depressed and many businesses with more capacity than they need and no reason to add more.
That's exactly why the government, that can borrow at below the inflation rate, should be borrowing and spending to make up for lost consumer demand.
It also means Goldman Sachs can borrow dollars at a zero inflation rate. They now have a virtually zero cost reserve currency. Do you suppose they will encourage good economic advice on their short sale of the US? No they will fund the kind of politics to tank us for good.
I can't disagree with this much. The bursting of the housing bubble and the overhang of household debt have left consumer spending depressed and many businesses with more capacity than they need and no reason to add more.
That's exactly why the government, that can borrow at below the inflation rate, should be borrowing and spending to make up for lost consumer demand.
See, I still have a "anti-government" streak in me that says the government is much too incompetent to manage the money supply / stimulus.
My belief is that we need to return to full reserve banking, and implement permanent quantitative easing directly into the household sector. I believe that households are the 'rightful owners' of U.S. credit from the "presses", not government or banks. Government is too incompetent, and banks do not have the public interest in mind.
See, I still have a "anti-government" streak in me that says the government is much too incompetent to manage the money supply / stimulus.
My belief is that we need to return to full reserve banking, and implement permanent quantitative easing directly into the household sector. I believe that households are the 'rightful owners' of U.S. credit from the "presses", not government or banks. Government is too incompetent, and banks do not have the public interest in mind.
Mama did right.
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