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On October 10 2008 06:55 jgad wrote:
you get about 77% debt per GDP. Checking numbers helps.
I'm pretty sure, I looked but couldn't quickly find it so I'm just going from memory, but 60% debt to GDP is regarded as economically unsustainable. That said many countries have been able to sustain a higher level of debt for fairly long periods but this just highlights that allowing a significant blow out in public sector debt may not be an option.
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I have some time on my hands and feel like talking economics so I will reply to this post, this is not particularly relevant to the financial crisis but is more a description / debate regarding competing contemporary economic paradigms and ideas.
On October 08 2008 08:03 theonemephisto wrote:
None of the policies that I advocate have been put into practice.
If the policies you advocate are market deregulation, free trade, and a small Government philosophy all these policies have been implemented almost in full by the Bush administration, along with several other nations in the past and to an extent the developed world generally today. As far as i can tell this is effectively what you advocate and these policies have not achieved much success but have experienced significant failures.
The people who are saying that this crisis is a result of laissez faire and a failure of markets are retards, this crisis is a result of absolutely stupid monetary policy and government mandates/interference. Stupid monetary policy have had a a hand to play in this but this crisis was caused by a concerted contractionary impact of laissez faire policies which have forces monetary policy to attempt to fix this failure. De-unionisation and free trade has put downward pressure on the wages of workers, thus reducing the level of demand in the economy, this lower real demand has been substituted by debt spending (through monetary policy action) which has contributed to the debt bubble, meanwhile the underlying problem has grown worse. Debt spending creates the illusion of subsistence. A small government philosophy has cut spending on welfare, education etc and has sucked money out of the real economy without replacement. This will inevitably lead to recession which intern will impact the stock market. Because the stock market has been taking incredible risks it was hit hard by this economic downturn.
Laissez-faire has never existed It has existed in the past, during the industrial revolution Laissez-faire was a reality, and it was through the blood (literally) of workers fighting for their rights that this system was overturned. It contributed to the most appalling working conditions imaginable (which are even worse than those in China and other sweatshop nations today). The majority of the population enjoyed a terrible standard of living.
The US education system is a government imposed monopoly.
This is false, the amount of private schools all over the place is a testament to this. The only time a public education system will genuinely be an imposed monopoly is if it provides quality education at no cost, people thus have no reason to spend money on a private institution and they cannot compete. I would hardly call this 'imposed'. The fact is that if a public education monopoly does become a reality is would most likely be a great thing for the nation and the economy.
Monopolies are inefficient (by your own admission). Therefore, the government-run education systems must be inefficient, because they are just monopolies with little to no incentives to increase quality or decrease costs.
Monopolies are inefficient yes but measures can be taken to minimise that inefficiency. The type of efficiency gained by forcing individuals to go into an education system in which they have no buyer power is actually socially counter productive. Private firms increase profits (efficiency) by decreasing the quality of service under the circumstances which would exist in practice i.e limited or no buyer power. By making sweeping judgments saying the private sector is always more efficient is an oversimplification which leads to negative outcomes. This is also symbolic of how such woeful paradigms are created. You start with a preconception which is reasonable, and say therefore this, where that 'this' is irrational and immoral. Unjustified preconceptions have had and continue to have tragic consequences.
The public sector will have a greater incentive to increase quality, because they have the Government and society telling them to do so, and you then hire competent people to make this a reality. It is the lack of buyer power at the lower ends of the wage scale (which is what this debate is all about as the rich already go to quality private schools) that created incentives to actually reduce quality.
A voucher system with for-profit schools would be absolutely the best following microeconomic principles. People will be able to choose from different schools competing for students. Therefore, people will flock to the absolute best schools in the area, and if there aren't any good schools in the area, someone will see a chance to make a lot of money and will come found one.
Well I have already described how buyer power is a game changer here, when profit maximization is achieved by decreasing quality then its a bad thing, there is not a lot of money to be made by increasing service quality. People flock to the best schools overcrowding them and degrading their efficiency whilst the other schools die out, decreasing the amount of real choice and allowing overall quality to decrease. By putting it all in the private sector you generate a monopoly only you change it from public sector to the private and thus you loose all power to actually create good outcomes in a monopolistic market situation.
Either way, how about we do this. Set up a voucher system alongside the current government schools. Give vouchers to students who request to go to private schools that are worth the same amount the government pays per student. Let people decide whether they want to go to private or public schools, and either way the government will be footing the bill (and the same bill). Let private schools keep any and all profits they make off the vouchers.
If you can create genuine free market situation then this could work. I would wager everyone would ditch the private schools and still go government because it will have higher quality services provided its funded well enough.If people have the option to not go private that will force the private to provide high quality services. However this is not a feasible outcome in reality. You cannot effectively create the number of options required for a free market scenario in any circumstance other than in metropolis's. This is the only time the market is structured in such a way it can provide good outcomes.
At the end of the day the government is footing the bill for vouchers or for public schools, the difference is that by providing vouchers government money is carted off as private profits.
This is yet another example of transferring public wealth into the hands of the few, it is socially and economically destructive and although some people can provide economic mumbo jumbo to justify their claims we should not be so naive as to continually benefit these individuals at a cost to society and with economic outcomes so dire it may be simply catastrophic.
Your argument about deteriorating funding is an absolute joke, funding per student in the US is astronomical, has been growing at an astonishing rate, and is much higher than pretty much all other countries.
That explains why the United States ranks appallingly against other nations all of whome have the public sector as the basis for their educational system. This explains the dilapidated state of schools across the country because there is not enough funding to provide for routine maintenance. Fudged statistics often deny what is a clear reality, I would encourage people to look beyond the figures. But that said I doubt the figures you mention actually are real anyway but they are probably the consequence of the rich receiving cash by the truck load whilst everyone else gets jack, average statistics still make the level of funding appear good when clearly it is not allowing self interested people to pursue their agenda.
Creating inflation during times of depression is only okay if you cut back during times of plenty, which we didn't (Negative inflation-adjusted interest rates during the 2000's anyone?). You can't inflate during times of prosperity, and then inflate more during down-turns.
This is basically describing the economic paradigm which has generated such incredibly bad economic outcomes. This concept that spending money = inflation is an over simplification. Spending money can be inflationary, it can even be deflationary. It depends on the capacity of the supply side to provide what your buying. The key is to improve your supply side and this cannot be done effectively by any means other than those which are regarded as 'inflationary' by your reasoning. Inflation during down times is the only option. Spending wisely during the boom times is the key to ensuring that a significant downturn does not occur again in the future whilst ensuring long term prosperity in a sustainable manner. If you cut back during the boom times you may generate another down turn stronger than the business cycle would acting in isolation. This is especially true is the boom time is longer allowing that degredation through underfunding to become even more significant. Artificially increasing the boom through debt again has made this impact even worse.
Markets would create choice. If the only choices in the are were schools A and B, entrepreneur C would go "Hey look, I can make a massive profit by creating decent school C." In fact, the worse the schools in the area, the easier it is to attract students at low cost and make huge profits, the more schools will come in to compete.
Under the system you advocate the amount of money entering the system remains the same regardless of higher quality. There is no incentive and the market share is not sufficient particularly given start up costs for Mr. C to actually carry out this plan. The market structure of education is such that a free market solution which provides sufficient outcomes is unfeasible.
Government monopolies destroy choice. The only choice in a government-run school system is to go to the school in the area, regardless of whether it's good, decent, horrible, or worse.
Under free market the number of choices remain the same, the Public however through things like a vote can effect the quality of the services they enjoy without the need for market pressure which simply will not exist under this structure.
Ever hear of government failure?
Government failure exists and just like market failure it is rectified through competent policy action, the possibility of its existence is not justification for the abandonment of the public sector rather it is a message to the public sector should be wise in their actions.
Keynes was an idiot who put economic thinking back decades.
Keynes brought economic thought into the modern realm and his policies achieved miraculous economic outcomes across dozens of countries including the United States over the period 1940 to around 1960. His great failure was that the tools he advocated i.e fiscal policy, was so ridiculously effective that people got drunk off it and took it too excess. Also they ignored inflation which is unwise. People realised that they could artificially decrease the unemployment rate considerably and did so to such an extent it exceeded the supply side of the economy's ability to provide all this new stuff people were demaind which lead to round after round of perpetual inflation building. The moral of the Keynes story is that his policies are incredibly effective but do not ignore inflation and do not go to excess. Keynesian economics is in my opinion the key to good quality of life for all.
It was Friedman who put economic thinking not back decades but an entire century. Forget all that you have learnt from economics over the last hundred years, completely disregard Keynsianism and the Public sector instead only manage the short run using interest rates and let the market do everything else. This is Friedman economics in a nutshell. An overly simplistic system which has allowed long run problems generate over time whilst band aiding the symptoms so the problems can grow steadily worse. It has directly contributed to the failure of policy today. Infact it is here that in my opinion all the blame should be heaped.
And interestingly enough, Friedman predicted stagflation. I think this is most interesting because it is Friedman's system of economic management which is conically unable to actually deal with stagflation effectively. Interest rates, Friedman's only tool, not only do nothing to fix the problem but by constraining investment they physically undermine the capacity of firms to adapt and thus the problem will only grows worse. This is the case in the Australian economy over the last 5 or so years, but not so much today.
Right, Americans have the lowest standard of living in the western world. I'd like to see some data on that. Not only do we have more disposable income that almost any country, but we also don't have to wait in 3-month lines to get into hospitals. Gotta love that 12% German unemployment (is that it currently? I know it's up past 10). And you gotta love how American income per household is still one of the highest in the world.
American income per house hold is only the highest if you use measures which completely ignore income inequality. GDP per capita looks great but when the majority of your wealth is in the hands of 1% of the population such a statistic only allows those who have damaged the economic system and society to say 'look how good we are, we have the highest standard of living' whilst they recklessly reduce that standard of living even further. Although I think my statement is basically just saying the obvious the human development index is a more accurate measure of standard of living. On this measure the United States now stands 12th, this is not the lowest in the developed world and I concede my statement is reactionary I stand by it. Because this relatively high measure is inflated beyond the true standard of living due to 1) high GDP per capita which is a woefully misleading statistic, and a long life expectancy. The United States human development index is in steady decline relative to every country in the OECD. This decline which is only relatively recent is the product of free market policies implemented to excess whilst almost everything that is good to say about the standard of living is the legacy of a big government past. Germany's unemployment may be high, but their high quality of life and economic success are undeniable.
I think you're missing out of something called competition for labor. If every company is paying $1 wages, it's in every individual company's interest to charge $2 in order to get the best available talent. This continues up to productivity as long as there isn't an external factor affecting supply (like rampant immigration). Labor is fundamentally a product, and is driven by the same supply and demand forces that any other product is. And just as any product's price will approach marginal cost (or as close as information dispersion and ease of transition will let it), wages will approach marginal productivity.
This is true however the point I make is that a total free market system under current conditions will reach equilibrium at a point where workers have terrible standards of living. It is only through intervention to manipulate the market that good outcomes can be achieved, and a loss to efficiency is a small price to pay. Labor competition from Asia ensures downward wages pressure in a liberalised global market. A minimum wage is an effective solution for example, combined with welfare to ensure good life for all without decreasing efficiency so much as to become unsustainable. Any job which cannot pay their workers enough to compete with the minimum wage or with welfare is not good enough for our society and economy is the message I preach. By saying to people that you must work an 80 hour week getting paid hardly anything simply to survive is not good enough and to suggest that they are getting paid their worth is unacceptable.
I never said that we need to boost the supply said (or I might've, but I don't believe it). We need to let the market find the stable equilibria. The government doesn't need to do anything, because almost anything the government does will distort the equilibria and bring on future price corrections.
If you disregard the supply side it is a testament to your incompetence and inability to understand even the basic impact of the concepts you discuss. The free market argument fundamentally involves improving the efficiency of the supply side of the economy.
Government intervention distorts equilibria the key is distorting it in a fashion which benefits society and the economy at the same time and this is perfectly possible. To allow the market to find its own equilibrium can be costly in the extreme and can actually generate long run declines in the levels of demand which in turn can lead to a depression like scenarios as the market corrects downward to its equilibrium level, a level were workers are treated no better than slaves and the levels of demand far lower as the majority of demand is created by the workers.
And if you've ever actually read lots of Friedman's work, it's very readable and understandable. Sure he has a bunch of work directed at the professional economist and backed up by mathematical models, but he also has a bunch of work directed at the layman, relatively easy readings filled with logic and reason.
I don't want to sound sensational but Hitlers work is filled with logic and reason, logic can be used to prove whatever you want the fact is that Friedmans logic ignores important economic impacts, it tends to ignore the long run under the assumption that the market will solve anything. I heartily disagree with Friedmanite economics and believe that we are seeing the failure of those policies right now. Friendman could easily become a dirty word over the next couple of years. Friedman is obsessed with this notion of the science of economics, his model says this thus it is true, and they ignore the multitude of evidence which would indicate they are false. This has lead to a failure of policies of epic proportions.
And yes, I agree that it is the result of a "long and depression tale of economic vandalism". That vandalism has been the increasingly large role of government in the economy and it's desire to "do good" without looking at the consequences or worrying about the money it's spending.
That vanadlism is the private sector ruthlessly undermining what gains were made by the public sector for their own profits at the expense of long term sustainability and at a cost to society.The public sector has screwed up some sure, but the notion that the public sector has grown over the last 30 or so years is a total fallacy, in fact the opposite is true and that has contributed to incredible increases in income inequality, spiraling debt and economic decay.
Let's look at the two probably biggest economic collapses in the last 50 years. The Soviet Union and Communist China. Because these were so free-market and directed by Friedman, obviously state intervention and control are the only answers.
Well I don't see any evidence that the economy of Communist China has collapsed rather they are a success story of a hybrid government and private sector system. The Soviet Union however is a more interesting story. Now the Soviet Union did not collapse because of poor economic policies, we can see some serious deficiencies in their economic model from their experience, most importantly in agriculture which is a sector particularly hit in terms of efficiency due to state intervention.
At the start of the cold war the United States said we will start the cold war and we will win because the Russians will go broke first. They were proven correct. The Soviet Union collapsed because they were forced to maintain a total war economy for a century and they broke under the strain. The United States now follows this same path. Economic policies are more of a distraction manipulated for individual benefit.
There are far more examples of free market policies leading to serious economic failures than the public sector.
The consequences are from disastrous management by the federal reserve, bad government mandates on home ownership, and a good bit of overzealous government intervention and regulation. This bubble would've never happened if the government hadn't caused it to happen.
This bubble would never have happened if the government did now allow it to happen by allowing the free market to go excess i.e it is non-intervention to blame not the other way around. The Federal Reserve has screwed up some (but it was forced into this position by the lack of real government level economic policies), I argue this myself, but where has the Bush administration intervened? The fact is that this lack of intervention involves reducing funding across the board on services and this intern has had a massive impact on reducing demand and leading toward recession. At the same time deunionisation and free market policies has put downward pressure on wages pushing toward recession even more.
The fact that the Bush administration has increased spending massively and the deficit has blown out should not confuse people that in actuality the Bush has followed a small government ideology strongly in terms of pure economic policy and in terms of impacts.
What I get from you is that you're a pretty hardcore Keynesian that also believes that the government is perfect. Except that you're a classical Keynesian, which has been discredited time after time, and you haven't read up much on public choice theory.
I am a Keynesian however I am not a classical rather I am reformist. The lessons of the 1970's has proven that there are deficiencies in the Keynesian doctrine of old specifically ignoring inflation is unwise, this is easily solved. Neglect of monetary policy is wrong also. Monetary policy is a terrible instrument it is only useful under specific circumstances and always involves significant collateral damage, but it is appropriate under certain circumstances and should not be ignored. The most important lesson of all is for god sake do not push wages up faster then the ability of supply to meet their new demand, this generates huge inflation. That's basically the end of the story. The total rejection of a largely competent model of management and its replacement by a model which disregards debt as a problem, leading to massive increases in private sector debt through perpetual application of monetary policy and a model which ignores the long run entirely under the mistaken belief the free market will solve everything is a global tragedy of epic proportions the true extent of which is increasingly becoming clear.
Either way, I won't be responding to you again, as it simply isn't worth my time or effort anymore. You're economic education is... lacking to say the least. And either way, this discussion has gotten way off-topic.
I was not going to respond to you because clearly although you are able to operate underneath this paradigm, the paradigm you advocate is critically short sighted and excessively simplistic. It is unclear whether you have the capacity to 'think outside the square' but I personally have serious doubts. I do not believe I can convince those so indoctrinated with distorted logic that it makes people deny that which is right before their eyes.
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Huge freaking post!!!
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On October 11 2008 11:57 [X]Ken_D wrote:
LOL
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re : Choros' monster post
You go on about Friedman being the problem in your post, but seem to confuse late-life Friedman with the free-market policies he expounded in his younger days. What Friedman said and what he did are very different things. Keynesianism had things which governments found useful, free-markets had elements which governments found useful. The problems, however, were caused by cherry-picking from these two ideologies and trying to mash them together.
The ideas of competition being positive forces in the economy, for example, sounded like a good thing to shoot for - in expectation of achieving the natural conclusions of free-market economics. The problem is that those conclusions fundamentally depend on so much more than just competition. There is an entire framework of free-market economics and if you start taking away elements upon which the theory depends, then the results will not be those predicted. Likewise, the intense academic challenge of attempting to manage an entire economy seemed daunting, if not outright impossible. Kennedey-era politicians learned first-hand how utterly impossible it was to attempt to control wages and prices through direct industry intervention. Friedman's ideas gave them hope to revive the Keynesian ideal while letting the so-called invisible hand do the hard work for them. But it all failed because it fundamentally rested on an un-sound amalgam of two mutually incompatible theories. You either get totalitarianism and functional Keynes, or you get a manifestly impotent government and a liquid, functional private market. You can't have your cake and eat it too, so to speak.
Keynes fundamentally rests on so-called violent transactions - a permissiveness which makes exceptions to the idea that every individual's belongings and labour should be protected from expropriation by a third party. When you start making rules that say "stealing is wrong, except..." then you leave the door open to exploitation of that "...except" part. No longer are there clear lines between what is right and what is wrong - what is allowed and what is not, but now special groups of people are, in a sense, above the law. They have the right, and even a mandate, to forcibly move real wealth from one party to another. This is what Keynes is all about and there is nothing that can change that. When you try to combine rules like this into a free market, you end up with some players having a fundamental advantage over others. In this case, it was policies rooted in Keynes' theories which gave certain parties very substantial insulation from risk. In a free-market, there is no insulation - every party is responsible for the consequences of their own actions and investments (or malinvestments, as the case may be). Keynes depends on central control to work. Free markets depend on a lack of central control to work. They cannot both operate at once.
This is why people are pushing for more regulation - Keynes needs infinite regulation. In every circumstance and with every change in the ingredients of society, one needs be eternally prescient and must continually make explicit rules about what specific things may and may not be done with
elements of the economy. Failure to predict the eventualities of all shifts in the economy result in catastrophe, for the planners upon whom Keynesianism depends have failed - and the consequences are felt by all. It's a perpetual game of trying to be omniscient without fail, and it cannot succeed. So, perhaps you can blame Friedman, but you can't blame free market economics. So long as we insist upon having a centrally controlled currency base and interest rates, there are no free markets - there are only cartoons of free markets. And it is this exact deviation from the free-market ideal which has provided the lubrication for the current crisis. No cheap money? No bad investments - period. Economic problems do not go away, but they become localised, and manageable. To re-word an oft cited phrase of popular propaganda, on the other hand; global solutions produce global problems.
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I complain about Friedman for the sake of blame alone. Although I disagree with him in a few important way. I actually don't know of any difference between late life and early life Friedman but the point here is that it is free market policies which I blame really believe are at fault.
You comment about Government and this is a factor I feel is very important.
In Australia at least it may have been different in other nations but Government here advocated damaging policies underfunding services despite having sufficient funds avaliable to supply sufficiently, along with mass privatisation etc your general free market ideologues who have caused such damage in the United States along with others had there way with the Australian economy causing various problems. They used their presumed economic supremacy in combination with pseudo economics such that real debate does not extent to the top of the ladder all in the name of 'economic concervatism'. Politicians then gave all the power over to reserve banks not because this is appropriate but because they do not really understand economics, and they certainly do not want to manage the economy, or take up responsibility. And their short sighted economics implies that the reserve bank alone is sufficient. This has is a systemic failure of the western system This has also led to the stagnation of effective economic reform on some important structural levels I'm talking about the role of the reserve bank, the way governments spend money and earn it etc. (and I know that free market people do want to reform this part of the economy but this is through ideology not through an open search for better outcomes) the fundamental way economies are managed.
Politicians are generally lawyers not economists. This has created a situation where its like an unspoken law, for god sake don't talk about real economics. None feel comfortable, they like to think normal people cant understand it anyway which I disagree with, they will not engage on an Issue there not comfortable with.
You suggest that both policies cannot operate at once. However I argue that the opposite is true if you have a total Keynesian or total control policies all the negative impacts and inefficiencies it generates combine to fundamentally undermine your economic system. At the same time total free market trends toward income inequality and a degradation of the system at its very foundations the poor and middle class, this undermines your economy such to render it unsustainable at any reasonable level. The solution is not only a combination of both these policies actively attempting to cherry pick what is good and what is not, to ask where government should invest and where it should not where to regulate and deregulated, but to do so in a concerted and wise fashion which fundamentally acknowledges that economics never ceases to throw new problems at you. Some are similar to the past and can be dealt with in a similar way. Some have never been seen before and require new solutions.
Statistics like inflation among others are symptoms the key is to look for the cause. This is the understanding we do not have, this is the understanding which has been taken from us as a consequence of a political system which institutionalise incompetence, something all of us in the west could agree on.
Keynesian solved the problems of his day, Friedman in turn solved the problem's of his. We have failed to realise the need for continued adaption.
I commented that I am a reformist Keynsian well this is not the best accurate description. I am really a developmental economists. These policies which effectively say that we must use the goverment to strengthen institutions and the private sector when appropriate to strengthen the economy over all are the key to development. In development economics you are taught the 'need to go beyond simple economics'. I would effectively take this doctrine back to the developed world.
Having a large public sector which has multiple enterprises who generate profits as a normal company would can theoretically (and in practice in places like Singapore and to an extent China) generate enough revenues for Government that you have welfare state expenditure levels along with lox taxes to boot. That is what I call having your cake and eating it too. And this is a terrible element of economists I may regard as Friedmanite going around mass pritatising all our assets even though the public say no.
Economic problems do not go away they become manageable yes, we should be striving for a day all our problems are managed but we should never claim victory and walk off the battlefield the way so many politicians did during the 1990's and early 2000's.
We ignored inflation and it screwed us in the 60-70's we did not take the real message that we should do our up most to ignore nothing. They have been voices pointing out the problems we have developed, in time to fix them quite simply but their calls fell on def ears. This is something which is easy to solve just by having 'popular economics' incorporate it into the very fabric of their economic paradigm and this is something which is not so easy necessarily come to think of it.
I think of good economic managers sorta like the guy in the birds nest on ships, always searching for problems on the horizon.
The nature of the real problem denies international boundaries as it is that with is endemic throughout the west. That said it is not universal, there are many well run economies in places that are not what you would expect, Venezuela runs there economy much better than the United States in my opinion. The return of understanding and even wisdom itsself will give us the solutions to our problems, those solutions are already out there its just a matter of listening.
The task now however is not to find the solution but to take clear deceive steps in the right direction, this is in contrast to politicians here who say we have to get things right before we act. Problems are at times localised (in cause and/or solution) but other times are expansive beyond comprehension in scope. Oil is a serious problem which effects us all and only a systemic solution can save the global economy and most economies generally. Australia is one of the lucky few who can be self sufficient if the worst does arise on this count but that is a whole other story.
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Canada5062 Posts
"Keynes was an idiot who put economic thinking back decades."
This is a statement apparently made by some clown here named theonemephisto, presumably while heavily inebriated or under influence of poorly prescribed medication.
Why do school-age children, armed only with an incomplete education, zero real-world experience and a bloated sense of self-worth continue to believe they can sputter utter nonsense in this Forum with impunity?
Yo fuckhead, in case your 7th grade home economics teacher forgot to mention to you, Keynes is the consensus greatest economist of the 20th century and arguably in history. Even caricatures like Friedman would admit this.
No one has ever claimed, least of all Keynes himself that he is somehow infallible (he was known for his intellectual honesty, revising his ideas frequently when confronted with compelling contrary evidence). But whatever your convictions are about the man's theories, dismissing them as the product of an "idiot" (it has been said of Keynes that he is the greatest mind ever to come out of Cambridge University) can only be taken as a poor joke and call into question your mental competence (in the colloquial sense of the term, not the legal sense).
Stop talking about things you are not qualified to talk about. Stop talking about politics and economics. You have no idea what politics and economics are about - not a clue. Keep your half-baked thoughts and comically nonsensical assertions to yourselves or at least have the good sense to inflict them on only those who are professionally trained to handle them (i.e. your teachers). School is meant to quarantine your ideas from the real world to minimize the damage you might inadvertently cause to the general public. Come back and say your piece if you've lived life in the real world, been a leader of men, taken responsibility for a family and held a steady job of consequence (pizza delivery and waiting on tables to make extra coin to buy that new Wii game do not count).
Fucking kids.
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Canada5062 Posts
Back on topic:
Has anyone taken a look at the cost of CDS premiums on supposedly triple "A" rated companies like GE? It's ridiculous.
Forget MBSes - they're old news now. The next wave of bankruptcies will be triggered by these instruments. It's an appalling situation - there are 8 times more of these outstanding than the face value of the corporate debt market for the entire planet. Pure insanity. What were the regulators in the West thinking?
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what do you do for a living mensrea?
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On October 12 2008 05:38 ahrara_ wrote:
what do you do for a living mensrea?
Hah, good luck with that
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On October 12 2008 05:34 mensrea wrote:
Back on topic:
Has anyone taken a look at the cost of CDS premiums on supposedly triple "A" rated companies like GE? It's ridiculous.
Forget MBSes - they're old news now. The next wave of bankruptcies will be triggered by these instruments. It's an appalling situation - there are 8 times more of these outstanding than the face value of the corporate debt market for the entire planet. Pure insanity. What were the regulators in the West thinking?
They were probably too caught up in the rapidly increasing value of their share portfolios during the boom side of this debacle. Regulators in the United States operate under the misguided conception that the market should be left alone and the rest of the west just followed their lead I suppose.
I have heard people complaining about the much higher cost of borrowing but some specific figures would be nice if you have them on hand?
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Physician
United States4146 Posts
Why do school age children, armed only with an incomplete education, zero real-world experience and a bloated sense of self-worth continue to believe they can sputter utter nonsense in this Forum with impunity? Stop talking about things you are not qualified to talk about. You have no idea, not a clue.
Keep your half-baked thoughts and comically nonsensical assertions to yourselves or at least have the good sense to inflict them on only those who are professionally trained to handle them. School is meant to quarantine your ideas from the real world to minimize the damage you might inadvertently cause to the general public.
Come back and say your piece if you've lived life in the real world, been a leader of men, taken responsibility for a family and held a steady job of consequence. - mensrea '08
I broke a rib laughing reading that. I just had to crop/paste/edit that for my convenience too; the best part in red of course. I am keeping the quote in toto.
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Canada5062 Posts
On October 12 2008 11:34 Choros wrote:Show nested quote +On October 12 2008 05:34 mensrea wrote:
Back on topic:
Has anyone taken a look at the cost of CDS premiums on supposedly triple "A" rated companies like GE? It's ridiculous.
Forget MBSes - they're old news now. The next wave of bankruptcies will be triggered by these instruments. It's an appalling situation - there are 8 times more of these outstanding than the face value of the corporate debt market for the entire planet. Pure insanity. What were the regulators in the West thinking? I have heard people complaining about the much higher cost of borrowing but some specific figures would be nice if you have them on hand?
Well, CDS premiums technically reflect something different from borrowing costs (although obviously there is strong correlation). It's a direct measure of the market's view of a company's odds of defaulting on its debt. If you must know, GE's rates for a 2-year swap are currently hovering at 530 basis points (I use "currently" loosely since I haven't checked in several days - a lifetime during these turbulent times). Compare this to what they were prior to mid-Sept. (when, if you recall, the shit really started hitting the proverbial fan) when they were in the 85 - 90 basis points range. For GE Capital (GE's money train), I'm told it's even worse, although I do not have figures for them. Do the math and think about who it is we're talking about - this is GE, one of perhaps five or six companies in the world with a perfect triple A credit rating.
I do not know what GE's borrowing costs are today. I do know that GE's cost of capital used to be in the low 7% range which is about as low as you can get as far as financial companies go (yes, GE is technically categorized as a financial company, despite it's diversified portfolio of businesses, thanks to GE Capital). I do not have exact figures, but I'm sure that is easily 50 basis points or more better than another "gold" standard, Berkshire Hathaway. But, as the saying goes (these days nearly literally true), "that was yesterday". It doesn't take a genius to know either. Recall that GE recently raised $3 billion from Buffet in exchange for an equity stake. The interest that got issued were in the form of preferred shares at something like 10% coupon. That's very expensive capital (as equity usually is compared to debt). Now GE has announced it is issuing new common stock in the low 20s. Not only is this more expensive capital, but the price is ridiculously low compared to past valuations (check out GE's historicals on their stock buy-back program for the past several years and compare and you'll see what I mean). My guess is their cost of borrowing must be through the roof if they're raising capital this way.
But, what do I know.
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I think the question now given that is exactly how well firms will fare without being able to borrow much and with difficulty raising credit by other traditional means like issuing shares.
Firms who deal in the real world as opposed to financial institutions should be able to provide investment based off their revenues alone one would think, but of course an economy in recession throws that in doubt. And the way they are behaving would suggest they have no confidence in their ability to do this.
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On October 11 2008 21:51 Choros wrote:
You comment about Government and this is a factor I feel is very important.
In Australia at least it may have been different in other nations but Government here advocated damaging policies underfunding services despite having sufficient funds avaliable to supply sufficiently, along with mass privatisation etc your general free market ideologues who have caused such damage in the United States along with others had there way with the Australian economy causing various problems.
Bush and the neocons are *not* free market proponents.. they espouse "small government" rhetoric and yet the state has more power than ever.
At the same time total free market trends toward income inequality and a degradation of the system at its very foundations the poor and middle class, this undermines your economy such to render it unsustainable at any reasonable level.
Sure there will be income inequality.. people were not created equal, do not have the same abilities, intellect, talent, etc, and this will be reflected in their income. However I disagree that laissez-faire degrades itself so as to be unsustainable.
Statistics like inflation among others are symptoms the key is to look for the cause. This is the understanding we do not have, this is the understanding which has been taken from us as a consequence of a political system which institutionalise incompetence, something all of us in the west could agree on.
The cause of inflation is the Federal Reserve pumping giant amounts of cash into the economy through money printing and borrowing from foreign governments. Although the Austrian Business Cycle theory was solidified decades ago, it explains the causes and symptoms of this current crisis well.
Keynesian solved the problems of his day, Friedman in turn solved the problem's of his. We have failed to realise the need for continued adaption.
What problem did Keynes solve (asking genuinely, I haven't studied him in entirety)?
Having a large public sector which has multiple enterprises who generate profits as a normal company would can theoretically (and in practice in places like Singapore and to an extent China) generate enough revenues for Government that you have welfare state expenditure levels along with lox taxes to boot. That is what I call having your cake and eating it too. And this is a terrible element of economists I may regard as Friedmanite going around mass pritatising all our assets even though the public say no.
The problem with gov spending is that the money has to come from somewhere (the private sector); this is of course taken through taxes which will necessarily result in deadweight loss. Government can not spend more efficiently than the private sector.
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Canada5062 Posts
It's a sign of the shallowness of this Forum that a topic that should be consuming every intelligent citizen of all Western industrial societies should find itself embedded far down the list of subjects under current discussion.
Arguably the biggest economic crisis since the Great Depression, costing trillions of dollars and affecting billions of lives, is being resoundingly beaten in attention and recent traffic by the magnificent likes of "The Girl in the Window", "TL Clothes!!!", "Who would you go gay for?", "Tasteless this is your mother", and the always relevant "Females talking during movie's critical moments".
There are a few topics that I suppose one could reason is justified in garnering some modicum of interest ahead of the current economic crisis (e.g. "2008 US Presidential Election" and "Canadian Election, Eh?"), but I am nevertheless disappointed to find that the prurience of our users ("105 years old virgin") appears to trump good sense and maturity once again.
Back on topic (sorta):
1. The US Treasury has now basically capitulated and admitted it got it wrong the first time around by announcing its intention to take direct equity stakes in major financial institutions. About fucking time. Not always easy though to look yourself in the mirror and acknowledge your own madness.
2. I hope those fan-boys who have been ga-ga over the "genius" of Alan Greenspan have finally woken up to the reality of his ideology driven incompetence - something many professional economists of reasonable merit have known for over a decade.
3. I forgot to mention one more way to a faster economic recovery (apart from the direct re-capitalization of the major banks I had previously advocated and which the US government is now taking steps to implement - see point #1 above) - war.
I've always said that the US is a country whose social and economic well-being is dependent on its involvement in a foreign (god forbid it should happen on US soil!) military campaign at least once every decade. Let's see, when was the last one ... whoops, looks like it's almost that time of the decade again.
Ah, well. At least the US doesn't have to go about making stuff up to pick a fight this time like it's usually forced to do. Just need to escalate the pretty little conflagration it started in Iraq and/or Afghanistan.
Raytheon would be a good stock play about now, I think.
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Canada5062 Posts
(Hi, back. You're gonna have to remind me where I know you from though...)
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Hi Mensrea. You didn't answer my question from before. I'm guessing you're not going to =(.
W.r.t your last post: How is military production any different from a giant economic stimulus where the end results have no productive use whatsoever?
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EPT![[image loading]](http://cache.gawker.com/assets/images/consumerist/2008/10/economistohfuck.jpg)
