Obama says, "Spend our way out of this recession..." (New Stimulus)

[mrsleeve]

^^^^^^^^^^^^^^^^^^^

I know where you can do better than that (I think 11 with a little house on for 55k)

[pbr87]

I'm more inclined towards Von Mises Austrian School than Classicalist, btw.
I know what the definitions of the two are. The two main schools don't mix, I understand that. But what we have now is a Keynesian based system where the government is deeply involved in the economy. A free market is when one in which the government plays no role. So, we don't have a free market now. (Probably a difference in semantics)

No, I suppose we don't have a free market right now, but it is not entirely government-run either.

The same semantics problem with regards to growing wealth. I'm probably wrong about this, but wealth comes from the creation of real products and actual services (eg, I'll mow your lawn for $10).

What, exactly, do you mean by wealth? I thought you meant posession of money. Fractional reserve banking does expand the money supply

The government manipulates the monetary supply for its own reasons, but the fact that people make money selling money is a function of the worldwide market for speculation on monetary value. That isn't the government creating wealth because again, the government hasn't produced anything. All the money being made is going through private entities.

True, I was trying to state a scenario in which the government could pring more money without increasing the rate of inflation or the purchasing power of the dollar.

I also understand the fiat money system to an extent and I understand fractional banking. I understand that fractional banking increases the monetary flow without printing more money and without necessarily driving up inflation in a universal way. It does cause localized inflation; just look at the housing market. But it also makes money available for people to buy real goods and services and to finance new business.

Localized inflation? I'm really more of a macro-economics student than a micro one, so I'm not familiar with that term. And suggesting that fractional reserve banking caused the housing bubble is nonsense. If you want to learn about the causes of the housing bubble, and how it is linked to other intricacies of the global financial crisis, PM me, and I'll gladly send you a research term paper I wrote on the topic last year.

That's all fine and dandy. But taking it to unreasonable levels with requirements placed on them by the government to make extremely risky loans, then you are looking at disaster. That's exactly why irresponsible government actions put us in this position we are in now. It's almost always irresponsible government actions that does it.

The stem of the problem is not government regulation, but rather lack thereof. Sure, you could argue that Carter's and Clinton's CRA legislates served as a stem of the problem, but really this was just a small peice. The primary causes of the housing market included Greenspan's fed. policy, combined with banks that changed from the business of fractional reserve banking to the business of issuing and selling loans as quickly as possible. Combine these with an inaccurate and overburdened ratings system, and you have still only a piece of what initiated the crisis as a whole.

The point is, the government produces nothing. All wealth is generated in the public sector. All government can do is force wealth through certain channels and redistribute wealth. That's all the current spending plans are. It's money they are taking from us to spend now and that's a 0 sum game. No wealth can or will be generated from it.

I think you mean private sector, but I get your point. And while the government can certainly re-distribute wealth, it can also serve as a regulatory engine to prevent potential crises. I don't believe the spending right now is intended to "generate wealth" persay, rather my understanding of it is that it aims to get unemployment and consumption levels off the floor enough that GDP will rise and the markets can begin to grow once again and gather some momentum in order to generate wealth.

Now, if you want to talk a socialist government that "owns" a business like Airbus, you could marginally argue that government creates wealth. But still, that's a horribly inefficient and costly way to do things. Wealth is created when money goes from one hand to another in exchange for a product or service. When a government owns everything, then the money never goes from one hand to another. It's all the same hand.

I thought Airbus was a subsidiary of EADS...but that's off-topic. I do agree that "government-owned" businesses are intuitively a bad idea. However, when the government issued bailout money to several major banks, they (technically speaking) became provisionally government-owned. And now many of them have payed back the bailout money and are once again independent.

[Hallen]

What, exactly, do you mean by wealth? I thought you meant posession of money. Fractional reserve banking does expand the money supply

Well, yes, in the end, it's how much you have in the form of money and assets. Creation of wealth is the ability to add value to something and then sell that for more than what it cost to make.

Localized inflation? I'm really more of a macro-economics student than a micro one, so I'm not familiar with that term. And suggesting that fractional reserve banking caused the housing bubble is nonsense. If you want to learn about the causes of the housing bubble, and how it is linked to other intricacies of the global financial crisis, PM me, and I'll gladly send you a research term paper I wrote on the topic last year.

It's my term trying to describe how government policy can create artificial bubbles that are doomed to explode.

I didn't say fractional reserve caused the housing bubble. But because of very highly leveraged fractional banking with a very high percentage of outstanding loans in housing, it made for a very unstable situation. That situation was caused by a number of factors with government regulations being one of those factors. Another is actually the FDIC and it's banking insurance plans.

The facts are interesting. Over the last 10 years, banking loans to businesses for capital only increased about 20 some odd percent. Loans for mortgages increased almost 5 fold. A huge percentage of bank loans were not going to relatively secure loans to business so they could expand their businesses and hire more people... create wealth in other words, no, those loans went to people who couldn't qualify for a loan before. Those loans went to housing speculators. Those loans are virtually non-productive loans with a chunk of money going to a speculator or home builder, but not directly to creating more business and more jobs.

Most of the housing bubble was caused by irresponsible government mandates, regulations and oversight. The market ended up going exactly the way you would expect with gobs of people making gobs of money. But it wasn't free, was it? That money was diverted from better places for it to go, it wasn't leveraged as much as it could be, and it created a very precarious situation.

The stem of the problem is not government regulation, but rather lack thereof. Sure, you could argue that Carter's and Clinton's CRA legislates served as a stem of the problem, but really this was just a small peice. The primary causes of the housing market included Greenspan's fed. policy, combined with banks that changed from the business of fractional reserve banking to the business of issuing and selling loans as quickly as possible. Combine these with an inaccurate and overburdened ratings system, and you have still only a piece of what initiated the crisis as a whole.

Yes, but why did banks do that? You can't tell me that they all had the same great idea over night and all switched from business loans to mortgage loans. Freddie and Fannie are in the mix, they're as good as government institutions. Barny Frank's legislation is in the mix too. And the other stuff I mentioned. It's all government meddling helped out by greed.
So, the answer is not in more regulation. The answer is in less regulation and that regulation that is left must be sound and logical and not aimed at controlling or manipulating natural market forces. And btw, allowing fractional banking on checking account balances is down right silly.

I think you mean private sector, but I get your point. And while the government can certainly re-distribute wealth, it can also serve as a regulatory engine to prevent potential crises. I don't believe the spending right now is intended to "generate wealth" persay, rather my understanding of it is that it aims to get unemployment and consumption levels off the floor enough that GDP will rise and the markets can begin to grow once again and gather some momentum in order to generate wealth.

All of that can be done by lowering taxes and reducing mandated entitlements for workers that artificially raise the cost of employment. Government doesn't have to try to force money into things to make things happen. They just have to get out of the way.

Consumption levels are the sugar in the candy. It tastes good, but it isn't going to help your hunger. Artificially promoting consumption is only going to be a blip on the radar and all businesses know that. They aren't going to hire a soul based on some short term stimulus spending. Only stability and a rational government plan to reduce destructive regulation and reduce taxes and get spending under control are what will get the economy going again. The other stuff is just smoke up your ass.

I thought Airbus was a subsidiary of EADS...but that's off-topic.

Yes. EADS is 50% owned by France and Spain.

I'll take a look at your paper. Learning is good.

[Bimmerman325i]

Goddamnit not fucking again. He's damn near succeeded in losing my vote.

Unless Palin or some similarly insane Republican gets the nomination, then I'll probably say fuck it and stay home.

[pbr87]

Well, yes, in the end, it's how much you have in the form of money and assets. Creation of wealth is the ability to add value to something and then sell that for more than what it cost to make.

Thank you. Point of confusion cleared up.

It's my term trying to describe how government policy can create artificial bubbles that are doomed to explode.

I didn't say fractional reserve caused the housing bubble. But because of very highly leveraged fractional banking with a very high percentage of outstanding loans in housing, it made for a very unstable situation. That situation was caused by a number of factors with government regulations being one of those factors. Another is actually the FDIC and it's banking insurance plans.

Over-leveraged fractional banking? The definition of fractional banking is that banks in the federal reserve system are not allowed to lend in excess of their reserve requirements. Investment banks, on the other hand, operate by a different rulebook. The banks that tanked at the beginning of this recession were virtually all major investment banks. How is the FDIC at fault? All the FDIC does is insure depositors in the unlikely event of a bank panic or collapse. Do you think it creates some sort of a moral hazard? Given the fact that banks who are FDIC and Federal Reserve members operate on such strict guidelines, I don't.

The facts are interesting. Over the last 10 years, banking loans to businesses for capital only increased about 20 some odd percent. Loans for mortgages increased almost 5 fold. A huge percentage of bank loans were not going to relatively secure loans to business so they could expand their businesses and hire more people... create wealth in other words, no, those loans went to people who couldn't qualify for a loan before. Those loans went to housing speculators. Those loans are virtually non-productive loans with a chunk of money going to a speculator or home builder, but not directly to creating more business and more jobs.

Exactly. Banks got out of the business of giving safe loans and earning off of the interest, and entered into the business of giving as many loans as possible, so that they could sell them downriver to large investment banks, who bundled them into CMOs/CDOs to sell them on the securities market, etc. And yes, many of these loans were non-productive loans that did not encourage business expansion. Most notably, ARM loans, balloon-payment loans and home equity loans.

Most of the housing bubble was caused by irresponsible government mandates, regulations and oversight. The market ended up going exactly the way you would expect with gobs of people making gobs of money. But it wasn't free, was it? That money was diverted from better places for it to go, it wasn't leveraged as much as it could be, and it created a very precarious situation.

I partially agree with this. The housing bubble itself was caused by greed and speculation. This lack of government regulation in this instance allowed this greed to run unchecked. And yes, the market WAS ENTIRELY FREE. There was virtually no government intervention at the time. And that money WAS leveraged as much as possible...some investment banks even admitted to being leveraged as much as 30:1.

Yes, but why did banks do that? You can't tell me that they all had the same great idea over night and all switched from business loans to mortgage loans. Freddie and Fannie are in the mix, they're as good as government institutions. Barny Frank's legislation is in the mix too. And the other stuff I mentioned. It's all government meddling helped out by greed.

No, they didn't all switch to it at once, it was a gradual trend that was complemented by mounting encouragement from larger investment banks.

So, the answer is not in more regulation. The answer is in less regulation and that regulation that is left must be sound and logical and not aimed at controlling or manipulating natural market forces. And btw, allowing fractional banking on checking account balances is down right silly.

How is the answer less regulation? Choose a recession in the past, ANY post 1928 recession (with the exception of perhaps the mid-70s recession), and one of the primary causes will be lack of regulation.
-Great depression: no regulation at all, either in banking markets or stock market...although some will argue that Hoover's tariff policies caused the depression, I believe it was a relatively small piece.
-early 1980s recession: S&L crisis caused by lack of banking regulation.
-early 1990s recession: S&L crisis continued...
-early 2000s recession: dot.com bubble ignited by speculation, especially among day traders, which were completely unregulated. Post 9/11 paranoia didn't help either
-2008+recession: housing bubble (lack of regulation in the mortgage, securities and derivatives markets)

All of that can be done by lowering taxes and reducing mandated entitlements for workers that artificially raise the cost of employment. Government doesn't have to try to force money into things to make things happen. They just have to get out of the way.

Consumption levels are the sugar in the candy. It tastes good, but it isn't going to help your hunger. Artificially promoting consumption is only going to be a blip on the radar and all businesses know that. They aren't going to hire a soul based on some short term stimulus spending. Only stability and a rational government plan to reduce destructive regulation and reduce taxes and get spending under control are what will get the economy going again. The other stuff is just smoke up your ass.

Lowering taxes is always a good idea in a recession, but given the amount of government debt at the moment, substantially lowering taxes isn't really a viable option. And I do agree with you that consumption should not be the only measurement of economic success, but it is unfortunately one of the most important pieces of GDP (GDP = Consumption + Investment(s) + Government spending + (eXports -iMports).), and since GDP is what economists go by, consumer spending seems like a good indicator to me.

Yes. EADS is 50% owned by France and Spain.

I'll take a look at your paper. Learning is good.

I stand corrected. PM me your email address, and I'll send you the paper