EPTIt is for this reason that I say Americas fate rests with the real economy, whatever happens in the financial sector is virtually irrelevant yet it steals the headlines. I am not convinced by the argument that fixing the banking sector and 'getting credit flowing again' will fix the real economy. More debt does not fix having too much debt. Its like suggesting that more alcohol will sober up a really drunk person.
The Goddamn Economy: A Civilized Version - Page 41
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Choros
Australia530 Posts
It is for this reason that I say Americas fate rests with the real economy, whatever happens in the financial sector is virtually irrelevant yet it steals the headlines. I am not convinced by the argument that fixing the banking sector and 'getting credit flowing again' will fix the real economy. More debt does not fix having too much debt. Its like suggesting that more alcohol will sober up a really drunk person. | ||
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The Storyteller
Singapore2486 Posts
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The Storyteller
Singapore2486 Posts
On March 25 2009 16:36 Choros wrote: I am not convinced by the argument that fixing the banking sector and 'getting credit flowing again' will fix the real economy. More debt does not fix having too much debt. Its like suggesting that more alcohol will sober up a really drunk person. But credit is essential to a modern economy. It just depends on whether people borrow for investment (education, industry etc.) or for goods with no long term value. | ||
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Choros
Australia530 Posts
On March 25 2009 16:40 The Storyteller wrote: But credit is essential to a modern economy. It just depends on whether people borrow for investment (education, industry etc.) or for goods with no long term value. If it is the case that a modern economy can only be sustained through increasing debt then clearly the collapse of that economy is inevitable. The point is not whether there should be credit, there should be and it is very important for productive investment as you mention. The underlying problem of the American economy is that American consumers no longer earn sufficient incomes to maintain the level of spending required to prevent recession. American consumers have been borrowing increasingly large sums of money in order to maintain consumption level above their income. The real problem at the heart of the American economy is the fact that incomes have been falling, and falling for quite a long time now, and the federal reserve has been throwing more debt money at the system in order to sustain it and prevent recession. To get 'credit flowing again' is basically an attempt to get people to start borrowing money again for general consumption, this will not fix anything, but it will make the problems even worse in the long run. The Banks already have around $8-9 Trillion sitting in their pocket they could lend out of they wanted too but they cannot / will not as they know that no one has the capacity to sustain a higher level of debt, and the people know they cannot afford to borrow any more thus credit has stopped flowing. The only real solution to the American economic crisis is to fix the crisis of incomes and thus far this issue has not been adequately addressed rather they have placed most of their focus on attempting to sustain the debt bubble which is covering up the income crisis which is the real problem and attempts to create short term demand which again does basically nothing to fix the real problem. | ||
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The Storyteller
Singapore2486 Posts
On March 25 2009 18:01 Choros wrote: To get 'credit flowing again' is basically an attempt to get people to start borrowing money again for general consumption, this will not fix anything, but it will make the problems even worse in the long run. The Banks already have around $8-9 Trillion sitting in their pocket they could lend out of they wanted too but they cannot / will not as they know that no one has the capacity to sustain a higher level of debt, and the people know they cannot afford to borrow any more thus credit has stopped flowing. The only real solution to the American economic crisis is to fix the crisis of incomes and thus far this issue has not been adequately addressed rather they have placed most of their focus on attempting to sustain the debt bubble which is covering up the income crisis which is the real problem and attempts to create short term demand which again does basically nothing to fix the real problem. I totally agree that income levels are insufficient to service debt, and also that there's a big, big, difference between increasing debt and getting credit flowing. But I thought the main point of "getting credit flowing again" was more to get credit to businesses which would in turn create jobs and value for the economy, thus getting it moving again, not so much to get it into the hands of consumers and increase their debt even more. | ||
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kemoryan
Spain1506 Posts
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Choros
Australia530 Posts
However the level of spending required to maintain the economy at the point it is (was) at can be sustainable if you disregard the ecology issue. We were perfectly capable of sustaining the state of the economy 20 years ago or 30 years ago which is basically the same level that we are at today. The fact that the current economic system is unsustainable is the consequence of destructive economic policies which have created this outcome. For example oppressive labor market policies specifically designed to push down wages, the United States used to have the highest wages in the world and this was a foundation of their success and the destruction of wages will be their undoing. The demolition of the public sector is another important cause of the current crisis. They would have you believe that lower wages will create more jobs but in practice less wages = less demand = less jobs. Their logic is critically flawed yet they seem oblivious to this truth. The changes to the system required to make it sustainable even including environmental issues are only relatively subtle, but the changes to the economic paradigm which has dominated politics are profound (basically the whole thing has to be thrown out) and no one in places of power in the west seem willing or able to actually change this. The truth is that the notion that a welfare state is inherently unsustainable is a destructive myth, a welfare state model can create wealth cycles which become self perpetuating providing good quality of life indefinitely. It is the removal of those positive aspects of the welfare state which has lead to this economic deterioration. You create unemployment benefits and the basic level of demand in the economy rises bringing up standards of living and employment levels along with it, you take those benefits away and the basic level of the economy will fall back to where it was to begin with. America is in the process of loosing all that was gained in the post 'new deal' era. Economic managers of the United States have worked tirelessly to undo all that which made the economy strong in the first place. China on the other hand understands economics, what are they doing? Strengthening labor unions, increasing unemployment benefits, raising public sector wages among other things. They are doing the exact opposite of what American economic managers have been and I fully expect their economy to recover quite nicely simply because the policies that they are carrying out will achieve this outcome. Economic outcomes are a product of economic policies. The obsessive focus on the financial sector only serves to remove outcomes from policy in the minds of the people. The suggestion is that this is all the fault of financial market deregulation combined with the greed of banks, Reaganomics (the real cause) is irrelevant in the minds of the media and politicians. As a consequence of the total lack of understanding in high places I have no confidence in the ability of the United States to recover. | ||
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D10
Brazil3409 Posts
Havent had much luck so far | ||
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Choros
Australia530 Posts
On March 25 2009 20:25 D10 wrote: Every week or so I have been hearing about china and others wanting an international currency to replace the dollar, where can i get more info about this ? Havent had much luck so far I read in the paper today that China suggested it and our Prime Minister basically said that it wasn't going to happen. But that said I think it is realistic we will see this happen in several years time. Edit: So I just watched an interview on Lateline and they asked about this and they said that there really is no prospect of this happening. | ||
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Ecael
United States6703 Posts
On March 25 2009 20:44 Choros wrote: I read in the paper today that China suggested it and our Prime Minister basically said that it wasn't going to happen. But that said I think it is realistic we will see this happen in several years time. Edit: So I just watched an interview on Lateline and they asked about this and they said that there really is no prospect of this happening. It is a difficult notion to advance, especially when accounting for the fact that it increases the complexity for each country in terms of controlling monetary policy and the amount of conflict of interests behind such a notion. Honestly, with the current environment, I am not quite sure why China is bringing up the issue at all. Perhaps they are certain of the recovery of the Chinese economy within the year even should they raise hell. I probably should take a bit of time to read the essay in question just to see what they brought up in specific to back up the proposition. But honestly, with the kind of [lack of] traction that it has been getting, it probably isn't going to work out to be anything substantial. About the labor issue, well, it is a sticky one if we are going to leave productivity out of the picture. Personally I see the issue with America atm more of a normalization of the wage levels to be on par with productivity, which applies similarly to China in their rapid industrialization and increase in the medium level of income. US and the level of growth it has seen in the areas that it has a greater advantage simply isn't up to the level of growth that we have seen in previous periods - too much money has been blown into the financial sector (that, arguably, isn't really anyone's fault), but at any case, the growth in productivity and wage has fallen far out of sync. The notion that a welfare state is inherently unsustainable is indeed false, at that, a lot of theories about economic growth involve the idea that there could be a distribution of income for individual welfare to increase across the board. The question, though, is how practical the policy is, I personally attach really little hope for it. | ||
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MC9876
Netherlands82 Posts
On March 25 2009 20:23 Choros wrote: Sure the quest for ecological sustainability is an important one which involves basically a complete economic restructure which is challenging but possible and without necessarily reducing material standard of living either in my opinion. However the level of spending required to maintain the economy at the point it is (was) at can be sustainable if you disregard the ecology issue. We were perfectly capable of sustaining the state of the economy 20 years ago or 30 years ago which is basically the same level that we are at today. The fact that the current economic system is unsustainable is the consequence of destructive economic policies which have created this outcome. For example oppressive labor market policies specifically designed to push down wages, the United States used to have the highest wages in the world and this was a foundation of their success and the destruction of wages will be their undoing. The demolition of the public sector is another important cause of the current crisis. They would have you believe that lower wages will create more jobs but in practice less wages = less demand = less jobs. Their logic is critically flawed yet they seem oblivious to this truth. The changes to the system required to make it sustainable even including environmental issues are only relatively subtle, but the changes to the economic paradigm which has dominated politics are profound (basically the whole thing has to be thrown out) and no one in places of power in the west seem willing or able to actually change this. The truth is that the notion that a welfare state is inherently unsustainable is a destructive myth, a welfare state model can create wealth cycles which become self perpetuating providing good quality of life indefinitely. It is the removal of those positive aspects of the welfare state which has lead to this economic deterioration. You create unemployment benefits and the basic level of demand in the economy rises bringing up standards of living and employment levels along with it, you take those benefits away and the basic level of the economy will fall back to where it was to begin with. America is in the process of loosing all that was gained in the post 'new deal' era. Economic managers of the United States have worked tirelessly to undo all that which made the economy strong in the first place. China on the other hand understands economics, what are they doing? Strengthening labor unions, increasing unemployment benefits, raising public sector wages among other things. They are doing the exact opposite of what American economic managers have been and I fully expect their economy to recover quite nicely simply because the policies that they are carrying out will achieve this outcome. Economic outcomes are a product of economic policies. The obsessive focus on the financial sector only serves to remove outcomes from policy in the minds of the people. The suggestion is that this is all the fault of financial market deregulation combined with the greed of banks, Reaganomics (the real cause) is irrelevant in the minds of the media and politicians. As a consequence of the total lack of understanding in high places I have no confidence in the ability of the United States to recover. To clarify it a bit more, this is basic Keynes principle of anti cycling. In time of crises, tax incomes fall down and social benefit costs rise. Less income for the government, but income of people will stabalize, in stead of falling down (ie more welfare costs) This system is quite good. The problem lies within politicians who are chosen for a certain period and (normally) want to spend money in stead of save it. | ||
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warding
Portugal2394 Posts
It is for this reason that I say Americas fate rests with the real economy, whatever happens in the financial sector is virtually irrelevant yet it steals the headlines. I am not convinced by the argument that fixing the banking sector and 'getting credit flowing again' will fix the real economy. More debt does not fix having too much debt. Its like suggesting that more alcohol will sober up a really drunk person Some companies did not foresee the recessions and did not have appropriate cash reserves to prepare for it. Others are simply too strained from the dramatic fall in demand. A lot of these companies are perfectly viable in the long run, but in the short they need financing. You also need a working banking system to get investment going again. Credit's not just for families. If you want to get demand going again, you need jobs. To get jobs, you need companies in good shape. And for that you need credit flowing. Your last post is a bunch of ideological rhetoric, not economic arguments. America's flexible labour politics have given it an edge in competitiveness and flexibility over the years. The US has had much lower unemployment rates, especially long-term rates, than other developed countries. How exactly do you suggest the US can raise real wages? What happens to the US's trade imbalance and american companies' competitiveness abroad? Raising wages, ceteris paribus, can't create growth by expanding aggregate demand because the supply curve goes up, and you end up with inflation. I would also like to hear about this demolition of the public sector and how it contributed to the crisis. Can you elaborate a little bit more on this one? On adjusting wages to meet productivity gains.... what if productivity gains in the past years was way overestimated? http://yglesias.thinkprogress.org/archives/2009/03/michael_mandel_recent_productivity_growth_is_a_myth.php | ||
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achap54
United States49 Posts
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oneofthem
Cayman Islands24199 Posts
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achap54
United States49 Posts
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MC9876
Netherlands82 Posts
On March 26 2009 01:30 achap54 wrote: American Express has reported that their credit card customers are paying down outstanding balances at record rates and that their customers have signifcantly reduced new charges against their American Express credit cards. Is this good? And what impact will it have on spending once confidence in the economy is restored? Is this a permanent change in spending mentality, or is it just bottling up demand that will return robustly later? I think this is very good and believe a change in mentality (don't buy too much on credit) will be a good thing in the long run. Maybe for now spending will drop a bit, but this will fix itself in the coming years. I still believe the US has a strong economy. | ||
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achap54
United States49 Posts
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Cambium
United States16368 Posts
On March 27 2009 12:18 achap54 wrote: My dad was sixteen when the US depression hit. It affected him for the rest of his life. He saved a lot, didn't trust financial institutions, etc. Will this resession permanently change people's attitudes? People will definitely be more cautious after the recession is over. However, this is not the first time recession has hit America. In fact, this is the second recession in this decade that hit America. People will slowly, but surely recover and regain confidence. | ||
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achap54
United States49 Posts
On March 28 2009 04:04 Cambium wrote: People will definitely be more cautious after the recession is over. However, this is not the first time recession has hit America. In fact, this is the second recession in this decade that hit America. People will slowly, but surely recover and regain confidence. I certainly hope so. | ||
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Choros
Australia530 Posts
It is for this reason that I say Americas fate rests with the real economy, whatever happens in the financial sector is virtually irrelevant yet it steals the headlines. I am not convinced by the argument that fixing the banking sector and 'getting credit flowing again' will fix the real economy. More debt does not fix having too much debt. Its like suggesting that more alcohol will sober up a really drunk person How exactly do you suggest the US can raise real wages? What happens to the US's trade imbalance and american companies' competitiveness abroad? Well the truth is that the fall in real wages is the consequence of economic policies. Suffice to say that basically what happened was the undoing of the 'new deal'. The most important cause of the fall in incomes was the destruction of the union movement. Infact in the 1920's the United States carried out a huge amount of union busting which lead to deteriorating incomes and a massive explosion in income inequality, this then lead to expansionary monetary policy and increasing levels of debt and ultimately the great depression. In 1980 Reagan called open season on the unions which almost immediately triggered a massive deterioration in income inequality particularly pushing down wages at the bottom end of the scale, whilst simultaneously giving out large tax cuts targeted at the rich. The only comparable example of deteriorating income equality in the developed world is in Britain during the Thatcher years which is its self revealing. There are other policies which have contributed to this situation including reducing public sector wages and employment levels. The attempt of the Bush administration to privatize the social security system would really have been the final nail in the coffin of the new deal. The United States during the 1930's quickly over the space of only a few years completely reversed the destruction of income equality through the creation of a social security system, reforming tax policy, investing in health and education etc and this is basically what is necessary to deal with the problems in the United States today. Destruction of new deal lead to economic decay and the restoration of the new deal should be able to turn the economy around quickly. The point is that you do not raise wages in the private sector through control methods, these create inflation, you raise wages by changing the structure of the labor market and through investment into the public sector including the social safety net. This did not create significant inflation in the past rather it lead to significant and sustained increases in standard of living and also increases in productivity. You will not have inflation problems unless you drive income demand above capacity but with America today producing at around 50% capacity there is no real inflation risk from this. (there is inflation risk due to the ridiculous expansion in money supply but this really is a separate issue) So what will the impact upon productivity be? Well the notion that America has the most productive workers in the world really is a myth, this is a statistical anomaly caused by a number of factors but for example if Merrill Lynch makes billions on stocks that gets added to the 'productivity' of American workers. History has shown that rising wages if anything has a positive impact upon productivity for one thing a 'happy worker is a productive worker', French workers for example work around 2 weeks less on average per year and enjoy much higher wages, yet their labor force productivity is basically the same as Americas is. The problem with the French economy is that they have mishandled old age pensions which is a relatively minor but pretty serious issue for them. | ||
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