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Lots of talk about the $700 Billion liquid injection into bank markets while at the same time the FED already shoved $630 Billion on its own to boost the economy (banks) (Bloomberg).
It's fun how miniscule these numbers are in the grand scale; US national debt is under ten Trillion (without counting in medicare and other liabilities which multiply it to insane proportions).
Most of the posters here are nowadays educated enough to know that FED creates this money out of thin air, but some may still be wondering how it's possible without swaying the whole boat over. That's achieved by having trillions and trillions of USD flowing around the world economy, so a little drop of $630 Billion wont do much in the ocean of Trillions.
It's a very well woven structure, and as long as dollar is used for the trade of the most used commodities (drugs, oil, etc), the system itself will make it possible for FED to inject more money into the already sinking US economy to keep it afloat for a little longer. Also, other countries have a vested interest in keeping the US economy afloat as well, as they own huge amounts of its national debt, and are fueling the situation by buying more of it.
The problem here is that we're not fixing the leaks, but merely bailing water out of the boat, and sooner or later it will sink, we'll just have to see how it's going to happen and what structural changes will it bring with it.
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I'd rather have a worldwide economy crisis, inflation, mass unemployment and people fucking starving to death on the streets in plain sight than another Patriot Act.
This is probably overreacting. Better than a few thousand people get their rights violated, than, uh, a few thousand people starving.
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ok so im retarded, youll have to explain this step by step like a little kid to me
how is the goddamn economy failing or whatever going to make me lose my job?
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Zurich15365 Posts
On October 01 2008 22:21 EmeraldSparks wrote:Show nested quote +I'd rather have a worldwide economy crisis, inflation, mass unemployment and people fucking starving to death on the streets in plain sight than another Patriot Act. This is probably overreacting. Better than a few thousand people get their rights violated, than, uh, a few thousand people starving.
Oh yeah? Then you would be in favor of partially disowning a few thousand wealthy people to save a few thousand starving kids in the Third World I suppose?
I am not overreacting, this is my opinion. My main reason for that is that however brutal the downfall, the economy will recover sooner or later. Any rights or freedom you give up are gone forever.
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On October 01 2008 23:03 Ghin wrote:
ok so im retarded, youll have to explain this step by step like a little kid to me
how is the goddamn economy failing or whatever going to make me lose my job?
It depends where you work. If what you produce or provide is something people are likely to forego buying under pressure of economisation, then reduced demand could lead to downsizing in your industry. If, for example, you do graphic arts for a magazine which is supported by advertising for products which people will be less likely to afford, then the contraction in spending could likely hit your job. If you work on the electricity grid or on a wheat farm, on the other hand, then most likely your job is much more secure. It also depends on how your employer (if you are not self-employed) has invested their money. If they own a lot of bad investments, then they may be forced to liquidate or downsize to make up the difference. Even if you don't lose your job, the effects of rising prices will still reduce your overall buying power unless you manage to get a raise better than inflation which, for things like the basics (food, energy, etc) has been enormous. The effects are complex, but many.
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Wow a very educating thread indeed. Thanks ect.
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On October 01 2008 23:08 zatic wrote:
Oh yeah? Then you would be in favor of partially disowning a few thousand wealthy people to save a few thousand starving kids in the Third World I suppose?
This is called taxes and public aid for development.
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lol@fight or flight
so you'd rather the Fed give money to banks as opposed to "lending" it?
the fed loans money to the banks because it helps in the regulation of money's interest rate (forgot the term), so that when there is an economic hiccup like inflation or deflation the Fed can try to minimize it's effect.
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On October 01 2008 19:20 jgad wrote:Show nested quote +On October 01 2008 15:27 ahrara_ wrote:
But you're not.
An argument consists of assertion and warrant. You can't just say "booms and busts are caused by government intervention". Why the hell are they? I'm not going to even entertain the next poster who thinks they've successfully rebutted 5000 words of reasoning by posting ONE assertion. It goes back to Keynes' General Theory. He postulated the concept of an "effective demand" which was an aggregate, macro-variable to describe the total demand for goods in an economy. He further postulated that using gold as a medium of exchange was inefficient. If, for example, there was rising unemployment, he would describe this as being caused by deficient "effective demand". Not enough people were going out to buy things because they were perhaps preoccupied with uncertainties about the future and were saving more money. Less people buying means less people employed, etc. So the solution? Well, since he considered gold mining to be a completely useless endeavour, he suggested that one could use a fiat style currency in place of gold and to create jobs one could simply pay people to bury jars full of cash and then pay other people to dig it up again. This, he thought, would serve the same purpose as gold mining did in creating economic expansions of the previous eras. If only government could create money out of thin air, then they could manage unemployment by monetising their salaries. Their jobs need not be as useless as digging up or burying jars of cash, he reasoned, but any benefit they provide would be in addition to simply being recipients of money in the global effort to raise effective demand. All of the Marxists loved this at the time because they saw it as a way to institute a centrally managed economy without the problems even Marx himself acknowledged - that socialism eventually led to the need for a totalitarian state to work. The consequence of more regulation, he saw, was even more regulation - this ad nauseum until the entirety of society was under direct control of the central authority. Like trying to smash the gopher with the big mallet - he just pops up somewhere else. The problem is that Keynes never appreciated that his macro variables said nothing about the distribution of specific industries or the need for actual production, and not just employment. What happened since and until now is that central banks would inflate their way out of any perceived economic downturns. Cash is injected into the system and jobs are created via some voodoo economics. It also gave governments the power to increase spending without raising taxes - deficits could just be monetised. But the problem is always rooted in the way that the cash is injected. In the tech boom it was cheap credit following a dramatic drop in Fed interest rates (to pay for the first Gulf War) which made lots of cheap money available. People were transfixed by the ability of technology to make infinite money at the time, so the cheap money was irresponsibly invested in tech stocks. Following the invasion of Afghanistan, the Fed again crashed interest rates - this time to ONE PERCENT! This was madness, and the only difference was that this time the hot ticket items were houses (for various other regulatory reasons) and the cheap money was irresponsibly invested there. In any case, even going back to the Great Depression, the cause has been malinvestment of artificially cheap credit. Without the power to create credit with impunity or to leverage investments through fractional reserve lending or to have such risky investments protected by a central authority, the onus would be on investors to ensure that they are investing responsibly. People selling credit would be much more careful about who they lend it to. The boom-bust is driven in a lot of other ways too. Consider now that houses are seeing massive deflation, but other sectors of the economy (such as commodities) have seen massive inflation. The Fed can't deal with this - they can only work with one variable, the interest rate. But invariably in their cash injection frenzy, they ultimately end up putting cash into one sector of the economy or another. Here the cheap credit created a transient artificial demand for houses. This gave a false economic signal that there was actually a rise in demand for houses. Now lots of firms had been investing in new developments and housing expansions, only to find that the demand was artificial and to see the market collapse. Now these people are in financial trouble as well - they had nothing to do with mortgages, but their business is in ruins now because their entire sector of the economy has been severely screwed with. I could go on. Intervention by a central power necessarily created distortions in the market which will ultimately tend to naturally correct themselves. Regulations are an attempt to make permanent some of these distortions, but they invariably affect more than they are intended to. Further regulation is required to fix the second-order effects of the first regulation. More problems ensue. It's a downward spiral. I'd suggest a read of the Power and Market section of the Rothbard book I posted. It's an exhaustive treatise on the topic.
admittedly economics theory at this depth is out of my league. interesting post tho. doing much better than fight or flight anyway
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the fed loans money to the banks because it helps in the regulation of money's interest rate (forgot the term), so that when there is an economic hiccup like inflation or deflation the Fed can try to minimize it's effect.
Inflation is caused by the Fed's monetary policy.
Here's a short article that offers a more free-market perspective on the crisis (it was written in 07 about the housing bubble, but obv that's relevant to the wall street collapse going on now).
http://mises.org/story/2787
Exerpt:
"It is the loose monetary policy of the Fed between December 2000 and June 2004 that laid the foundation for the emergence of various nonproductive activities, or bubble activities. (The federal funds rate target was lowered from 6.5% to 1%.) It is this loose monetary stance that gave rise to various bubble activities.
Between June 2004 and September 2007, the Fed reversed its stance by raising the federal funds rate from 1% to 5.25%. Once the Fed embarked on a tighter stance, this undermined various nonproductive activities that had emerged on the back of the previous loose monetary stance. In short, bubble activities came under pressure.
Now, the effect from a monetary policy change on various parts of the economy operates with a time lag that varies with respect to various sections of the economy. As a result of this, the effect from past changes in monetary policy can continue to dominate despite more recent changes. It is quite likely that the tighter stance since 2004 is only now starting to gain pace with the housing market being hit first. This means that sooner or later the various other parts of the economy are likely to exhibit difficulties."
This isn't meant as a direct counter to the OP, just somethin else to consider..
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On October 01 2008 20:08 jgad wrote:^ Agreed. Here's a great lecture for anyone interested : Keynes and the New Economics of FascismSome relevant economic concepts surrounding the current crisis.
Woah another Austrian economist on these boards? I thought I was the only one :D
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just a question is it foreseeable or calculatable when the stocks are at their lowest point?
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On October 02 2008 02:19 CaptainMurphy wrote:Woah another Austrian economist on these boards? I thought I was the only one :D
Hehe, we're a rare breed, but getting more attention lately, it seems.
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On October 02 2008 02:34 Wurzelbrumpft wrote:
just a question is it foreseeable or calculatable when the stocks are at their lowest point?
Pretty much every investment bank in the world is currently hiring numerical PhD gradutates (maths, physics, etc) in droves for stupid money to figure that out. The general field is called econometrics, which is an attempt to model these complex systems with equally complex mathematics. Personally, I think it's a silly way to approach the problem, but in terms of short-term gains it has proven a somewhat successful approach. New methods in universities now are looking at attempts to parameterize the unknowns of human behaviour and decision making into hybrid socio-economic models as well. I guess you could also consider the P/E ratio and history as somewhat indicative of a company's current profitability over its historical profitability. Doesn't really say much about the future, though.
There's also the traditional approach of looking at a very narrow portfolio and having a good sense about the nature of their business and products and how the industry seems to be trending - whether their company is proving to be increasing or decreasing in competitiveness, demand, etc. In short, I guess the answer is no - trading would be a sure win otherwise. There are ways to guess, but they're not at all universal laws and are easily misapplied with disastrous results.
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I'm going to leave the economics to econ majors and sit my poli-sci major ass on the discussion of the fed.
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Hah, that's no fun, man - get in on the stir. I'm a physicist, not an economist. Doesn't stop me ^^
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On October 02 2008 02:06 CaptainMurphy wrote:Show nested quote +the fed loans money to the banks because it helps in the regulation of money's interest rate (forgot the term), so that when there is an economic hiccup like inflation or deflation the Fed can try to minimize it's effect. Inflation is caused by the Fed's monetary policy.
Not necessarily, inflation can be caused by a myriad of things. Though I agree that government regulation of the economy should be done only in the most extreme of circumstances.
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On October 01 2008 04:08 ahrara_ wrote:
BAILOUT my ass
After the failure of AIG, the Fed realized that it couldn't go on giving these Ad Hoc bailouts. It had to once and for all fix the housing problem. When you want to fix anything, the best solution is to attack the root cause.
aharara, are you suggesting that we, the citizens of the United States, must attack the Fed?!?!
I, for one, think that this is a ridiculous thing to suggest and the ignorance of your statement appalls me. While it is true that the Fed is a main character in the growing debt of the United States, the upheaval of the Fed would not succeed in erasing said debts. Furthermore, a violent act of aggression that leads to an overthrow is more likely to cause problems than resolve them--not to mention the minuscule chance that an uprising against the current Fed would succeed. In short, advocating terrorism is not very appropriate in this context.
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HonestTea
5007 Posts
Film Major says what?
(Well, he says thanks first)
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EPT
