Buffett Says Credit Crisis Ebbs for Wall Street Firms
May 3 (Bloomberg) -- Billionaire Warren Buffett, chief executive officer of Berkshire Hathaway Inc., said the worst of the credit crunch has passed for Wall Street and the Federal Reserve probably averted chaos by rescuing Bear Stearns Cos.
Certainly the worst of the crisis in Wall Street is over,'' Buffett said in an interview on Bloomberg Television before Omaha, Nebraska-based Berkshire's annual shareholder meeting today.In terms of people with individual mortgages, there's a lot of pain left to come.''
Buffett, the world's richest man according to Forbes magazine, said the Fed acted properly when it helped arrange a buyout of New York-based Bear Stearns by JPMorgan Chase & Co. and that he turned down the opportunity. A failure to step in by regulators might have caused other firms to fail and led to a wider panic, he said.
The worry was that there would be contagion; it was a very real worry,'' Buffett said.It could've been a very, very, very chaotic situation.
Berkshire's own investment in derivative contracts recovered between $500 million and $600 million of lost value since the end of March, he said. Berkshire said yesterday the value of the investments had declined by $1.7 billion in the first quarter.
Is he really serious that they found a bottom?
Or is he just staying positive for his shareholders?
And I thought he stayed away from derivatives like kryptonite.
The money quote from Dimon :
"But we are not done with the crisis for a long time," Dimon said, adding that it was not the company's job to make bets on the future.
"There was also universal agreement on the Committee that the Treasury needs to prepare for additional financing needs over a more intermediate term. In fact, several members argued that the current deterioration in the fiscal outlook might be more than temporary and that the risk of further deterioration outweighs the risk of a surprise improvement in the deficit.
Furthermore, additional members again reiterated their concern that this latest "cyclical" deterioration in the fiscal outlook is particularly troublesome as the longer-term "secular" forces of entitlement spending and the aging of the baby boom generation and their effect on the budget deficit are no longer that distant in the future."
Unless the Fed govt. finds a way to get the deficit back under control, isn't it just a matter of time before supply of Treasuries starts to overwhelm demand, causing all Treasury yields to go up??
Where are the intermediate-term sources of supply gonna come from?
There's about 150 million of us who pay taxes. The Feds are spending $1,500 million more per day than they are collecting. $3500 pay cut. Good thing we are getting that $600.
Could be worse, you could live in California where the State with a Constitutionally balanced budget requirement is spending $18,500 million more than it is taking in FY '09. Distribute that over the 20 million or so who pay State taxes and that's another $1000 pay cut.
I've been making two points here pretty consistently. While some people here advocate one or both points, it can be a little hard to put them together.
A manufacturing job is worth more than a service job. Losing mfg. jobs is a killer because those jobs are permanently gone, and they usually are full-time and have benefits.
The employment numbers will lie right through this recession, because employment is different in a service-dominated economy. A lot of service businesses create and destroy jobs on demand. Workers have no security and few rights. Some workers, while W-2, get paid by the piece -- for example, home health care workers, who only get paid if somebody hires them. In a lot of retail and restaurant, shifts can vary from 25 hours one week to 40 the next, depending on manpower and demand.
There's an excellent post today at Sudden Debt where Hellasious puts these two points together with some good graphs. He explains why employment numbers are weaker than they look. You should read it.
Anyone read "The Coming Generational Storm" put out by MIT press 4 years back? Back then our country was $51 Trillion in debt due to promises made from Social Security, Medicare, Medicaid.
Voter's don't really seems to care, and none of the candidates up for election are really candidates of "change". I suppose if Ron Paul had the charisma of Perot, that might be different.
The taxes that Rob Dawg talks about are nothing compared to what we actually need to pay to get rid of the debt...
YLSP writes:
Anyone read "The Coming Generational Storm" put out by MIT press 4 years back? Back then our country was $51 Trillion in debt due to promises made from Social Security, Medicare, Medicaid.
And don't forget public pensions and retiree benefits. If I had children, I would think very seriously about emigrating. It's kind of hard to see a happy ending to this mess.
YLSP,
The $51T number was for scare value only. It was future value spread out over many years and did not include dynamic revenue assumptions and used several questionable demographic extrapolations. Yes, there exists many trillions probably tens of trillions of unfunded promises but nothing like 3.5x GDP.
doug nolan over at prudent bear has an especially on target rant regarding the debt house of cards we are talking about here..
excerpt
The current system has experienced a broad transformation to a Credit mechanism dominated by market-based instruments, in contrast to the traditional predominant position held by the banking system all the way through Minskys Money Manager era.
snip
With Financial Arbitrage Capitalism, the bounty of seemingly limitless (until recently) speculative profits has created a reward system encouraging unprecedented debt creation, leveraging, and myriad forms and layers of financial intermediation.
I have labeled this current stage with the Minsky term retrograde specifically because only through the expansion of all facets of this Credit Bubble debt creation, leveraging, and risk intermediation will adequate new profits and debt service capacities validate and sustain the ever-increasing layers of debt and financial arbitrage.
(that is, it MUST GROW OR DIE !!!!)
Minsky noted a fundamental weakness of Money Manager Capitalism: Unlike the earlier epoch of finance capitalism, the emphasis was not upon the capital development of the economy but rather upon the quick turn of the speculator, upon trading profits.
Financial Arbitrage Capitalism takes these defects to an entirely new level. Today, the major financial incentives dictating behavior are largely disengaged from the process of capital development and, furthermore, operate completely divorced from real economic profits overall. Or, more simply stated, current rewards spur the over-expansion of non-productive Credit specifically debt instruments not supported by underlying wealth-creating assets (think subprime and high-yielding mortgages generally).
snip
That Trillions of real and financial resources were so badly misallocated through the Mortgage Finance Bubble years will definitely not dissuade the argument that Trillions more will be necessary to avert the scourge of deflation. Apparently, the more egregious the misallocation and resulting impairment to the Financial and Economic Structures the more imperative it is to throw more non-productive Credit Inflation at the problem the mandatory fight to avert deflation.
(bernanke and the BS bailout bought us, and, him, time and was the right thing to do IF the fed and congress take steps to dampen the unwinding and the deflation,,,
but if as Nolan fears we just keep feeding the credit junkie then the big bust is only a matter of time.)
Committee members were in agreement that the problems in the housing market were significant, and many were concerned that without intervention the problems would grow worse. In fact, housing price data from S&P/Case-Shiller was released hours before our meeting and highlighted that the decline in housing prices is not over but that prices are actually accelerating to the downside. For example, while year-over-year prices were reported to be down almost 13%, prices on a 6-month, 3-month and 1-month basis have declined 21%, 25% and 28% annualized, respectively.
Several members voiced their endorsement for the Frank/Dodd bill that is currently in Congress. One member noted that while none of these bills are perfect, that this proposal is certainly focused on the key problem which is encouraging lenders and borrowers to find an alternative to foreclosure which serves few interests and might in and of itself fuel housing price declines and create additional defaults.
While few members argued against the "intent" of the proposal, several people articulated their concerns that embedded in such proposals are many unintended consequences. One such concern that otherwise able borrowers would be incentivised to default to capture the same benefit as the borrowers targeted by this legislation.
Several members noted that one of the key issues to encourage servicers to modify loans in hopes of preventing default and foreclosures is the legal liability associated with these actions given the disparate interests embedded in a securitized loan. A number of members recommended that Congress indemnify the servicers while at least one other questioned the long-term impact of what is essentially a repudiation of contract law.
This part is scary too! I wouldn't be incentized to default so I could get the same reduction in loan, rate and payment as my neighbor. I would just feel it's my obligation to my family to be able to get the same deal my good neighbor gets from "our" government.
Without propping up prices fast, like yesterday, the US is in for a long recession. Treasury confirmation with coffee. No wonder I read CR
Rob Dawg,
Yes, they assumed people to be much healthy than they are, but they made this assumption out to 2040... I'm going to be over 50 at that time and I have a healthier diet than my parents do. Furthermore medical advances march forward.
They made a good case for social security, and medicare/medicaid reform and I thought their reforms presented a good balance of compassion and economic reality. Besides, $30-40 Trillion is still a lot of money.
I've said here all along that if you want to understand employment trends, focus on the Household Survey over time. It doesn't include the birth/death fiction of the Employment Survey.
Yesterday, the Household Survey showed a 362,000 increase in employment for April, which made the headline writers go ape for joy.
For unknown reasons, there is a lot of month to month volatility in the Household Survey that tends to wash out over multi-month periods.
Here's the big picture:
Household Survey employment peaked at 146.647 million in November of 07. Over the next five months, through April, it declined by 316,000 jobs.
President Bush says the slow growth of the economy is "not good enough for America," but new rebate checks will inject some life and spending soon.
"This economy is going to come on," Bush said Friday.
One member noted that while none of these bills are perfect, that this proposal is certainly focused on the key problem which is encouraging lenders and borrowers to find an alternative to foreclosure which serves few interests and might in and of itself fuel housing price declines and create additional defaults.
Hey idiot! I didn't buy into this housing market frenzy... and there are plenty more like me. Foreclosures and falling home values directly serves our interests. There are plenty of people concerned over a housing bubble! No surprise however, given the recent stories about politicians failing at life (Clinton vs. coffee machine, Rangel vs. Give me a Benz, and Trent Lott vs. DC Metro).
I'm surprised they haven't looked at abolishing child-labor laws so that 3 or 4 income households can afford the house payments that 2 income households are starting to say "no mas" too...
Mock thanks for the clips from Nolan. His weekly blurbs are the scariest things on the web.
Furthermore medical advances march forward.
Yes, we are much better at keeping the people alive today but not necessarily more functional. I am working with my first 20 year old 600 plus pounder who spent two months in the ICU and probably has another 2-3 months to go in a very expensive unit. Almost all my previous patients were over 40. Unless they die they are very expensive unfunded repeat customers.
A manufacturing job is worth more than a service job. Losing mfg. jobs is a killer because those jobs are permanently gone, and they usually are full-time and have benefits
Indeed. Manufacturing actually produces wealth -- consumer goods, intermediate goods, and capital goods.
A service job does not produce wealth, it consumes it from the surplus of the wealth producers.
Though in theory many service jobs -- (essentially the entire "Professional" segment of the service economy -- increase the productivity of the producer .
Rob, the term you were looking for was "infinite horizon".
I'm not a doom & gloomer -- we are plenty productive and have the natural resources and social capital to power our way this century -- but the chalenges are serious and the policy approaches of the past 25 years are NOT going to serve us well for the next 25.
Strangely, it does already include the "fiscal stimulus" rebate checks, which come to ~$168B. These seem more "one time" than the war, but whatever..
If you're interested in the future, it looks grim 10-20 years out when the required GDP growth to keep the debt/GDP ratio constant at current tax rates would be >4%. By http://www.urban.org/UploadedPDF/1001074_Still_Crazy.pdf
I doubt we have that long since they're assuming low rate Treasuries
Hey idiot! I didn't buy into this housing market frenzy... and there are plenty more like me.
While i sympathize, it isn't all about you. There is the broader economic landscape to think about and even if the less-savvy (and a lot who should have known better) get a hand, it will go a long way to keeping everyone afloat. This logic seems a little sparse around these parts.
You wouldn't be buying a house without a job, or without that down payment if some financial institutions went down taking your savings/401k/IRA with them, or with a huge percentage of the population. Neither would you like the outcome of a massive economic dislocation, a depression, or a long and deep recession either. It would put your goals out of reach for the rest of your life.
So suck it up. It's the penalty for living in a democracy and an advanced society. Or go live on an island somewhere so that you won't have to consider the broader good. The democracy part dictates that you get what the masses want, even if you disagree. You can, however, take advantage of that if you stop thinking the world ought to behave as you think it should, and instead deal with how it does...sort of like talking about the glod standard, fiat currency, or Ron Paul for president. Why waste energy?
About 1.4 million persons (not seasonally adjusted) were marginally attached to the labor force in April.
.. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
When the reality of living in a global capital market comes back to bite us all in the ass with capital flight not even the chablis set of BAH-ston will be spared.
The reason manufacturing jobs have more impact, both on the plus and minus side, isn't because of some altuistic thought. As dryfly has pointed out, the supply chain and operations part of manufacturing creates more jobs up and down the chain. These jobs tend to be skilled and higher paying, and happen on both the blue and white collar sides of the equation.
Service jobs do not have the same employment impact on the chain, and as another poster said, tend to also be fungable on the hours, pay, and utilization of the employee.
That being said, manufacturing jobs, in the way some are thinking, are gone forever not just "offshored". Technology has taken the place of legions of hands, which you would see if you've spent any time in a modern car manufacturing facility. Robots welding, moving around the floor delivering parts, moving assemblies, putting pieces into position, and even cleaning up took the place of thousands of workers. What remains are more skilled technical jobs which, if you think of the average Walmart employee, they aren't going to be able to do. The people that used to tighten bolts and get overpaid for it (i remember my grandfather talking about floor sweepers at the GE making almost 20 an hour) have been displaced for good. So what do you do with them?
In April, the number of persons working part time for economic reasons increased by 306,000 to 5.2 million.
This level was 849,000 higher than in April 2007. These individuals indicated that they were working part time because their hours had been cut back or because they were unable to find a full-time job.
>
5 million here and 1.4 million there and we will be talking about real people.
Anyone read "The Coming Generational Storm" put out by MIT press 4 years back? Back then our country was $51 Trillion in debt due to promises made from Social Security, Medicare, Medicaid.
It is one of the shallowest books ever written. Money today means nothing in the future & vice versa - even when 'inflation' is factored in (at least from today's guess of what inflation will be).
The three questions you have to ask to get your head around the problems vis-a-vis future populations are...
1) can the society produce enough goods & services AT THAT TIME IN THE FUTURE to meet the needs of that population - very young, working age & elderly combined?
2) is there a mechanism for equitable transfer & transaction of those goods & services?
3) are we investing enough NOW in real production, technology & infrastructure to be able to meet those real physical needs THEN (not just 'money projections')?
The actual dollar amount doesn't matter that much... neither the spending nor saving of it... all the amount of money says is how much the goods and service cost AT THAT TIME IN MONEY (prices are both a function of actual supply /demand of the goods AND the supply of money). And also what it costs now to invest in real capacity (vs just saving).
So I am no where near as concerned about the shortage of savings nor the apparently huge dollar estimate of 'future liabilities' as I am about what I perceive as a failure to invest in actual goods & services production NOW to meet those needs IN THE FUTURE.
Productivity (both effectiveness & efficiency) is the key - it always was and still is.
People see these huge dollar counts for SS & freak... well that is nothing new. That has happened EVERY generation when projecting dollar costs for things in the future... same old same old. Produce those 'goods' cheaply enough in the future & it all goes away. Don't do that hand you have real problems.
So as not to sound pollyannaish I realize we might really be hitting our head capacity wise in the future if we don't start investing more now in real goods & services capacity: energy (production & conservation) food & a higher quality lower consumption lifestyle.
There isn't enough 'savings' in the world to fill a 'lock box' if we don't produce enough goods & services to meet demand.
That is and will be the key going forward. I have no idea how it will play out... but I don't worry about the 'numbers' so much... I worry a lot about the stuff those 'numbers' should be able to buy.
When the reality of living in a global capital market comes back to bite us all in the ass with capital flight not even the chablis set of BAH-ston will be spared.
Yes energycon, I seem to remember in the 70's and early 80's when everyone said that, by now, everything would be in the crapper because we'd have run out of oil. I remember when i was a kid that communism was going to destroy us. Then it was the Japanese...we'd all be their slaves by now as they became the dominant global force. Now it's the Chinese and Indians that are going to overtake us. Oh, let's not forget we're all going to be underwater from global warming in 30 years too.
Please wake me when there is an original line about all of this. And globalization is here, not going away, and that's the way it is. Technology made it possible in a way never before. Deal with it. Or not and tilt your lance at windmills if you like. But I think finding ways to make reality work is far more interesting. And profitable.
Re: ipodius
Wait, you're telling me, to suck it up! The person who made a wise financial decision?
Or go live on an island somewhere so that you won't have to consider the broader good.
How is it to the broader good that people should have to work 40 years to even have a reasonable expectation of paying off their houses? Or have to make a choice between being their for their children or buying a house (ie. number of places where you can only afford a home with second income).
No one gave a darn about the broader good as home prices sky-rocketed and everyone selling became rich on inflated asset prices for the past 5 years. So why should I care about the broader good now that the equation is turning in my favor?
People's 401k's should be able to weather this economic downturn... no? Aren't older folks encouraged to shift their funds out of the stock market to keep the profit's they've made? So those who will be most hurt should be younger folks, and I'm willing to trade off my 401k value to own a home... please I would love it if went down 50% so I could afford to buy!
Sorry comrade... you're going to have to appeal to logic and reason and not emotions if you want me to believe that a bailout is good...
Brushing aside all the statistical details, I seem to see a really big possibility that what we are experiencing is NOT just another "business cycle" recession to be followed by an inevitable upturn into prosperity.
We may be experiencing a significant downward adjustment in our standard of living that will be long-term.
Too much borrowing, too much spending, and that's where you wind up.
but when do you stand up for things that are not right?
Corruption, lies, dirty business, bad wars, and all the rest have one solution. Vote. Put people in that will deal with them. What we got was this administration and the majority elected it. So there you go.
And some things are worth standing up for...voting rights, equal protection for all under the law no matter what their race, faith, ethnicity or sexual orientation is. But these economic discussions...fiat currency, the gold standard, the Fed, market interventions...that is going to happen no matter what. So is globalization and continuted technological displacement. Save the outrage for people like Angelo Mozillo who just built a huge scam machine and is now filthy rich while his "customers" are losing everything they have, even their dreams. You know?
Troy said: "...but the challenges are serious and the policy approaches of the past 25 years are NOT going to serve us well for the next 25."
Not to worry. They'll adapt and evolve, just like they always have.
Which reminds me of a story. The finance minister from a Communist country visits London, marveling at the variety, quality and amount of bread available.
He asks his host "So tell me, who is in charge of making sure London gets the right amount of bread every day?", completely misunderstanding that it's the result of the mutual cooperation (knowing, but also unknowing) of the different independent parties involved in the process.
YLSP, if you think that virtue is like some sort of return-deposit system where if you just behave a certain way, you'll be rewarded, you're going to have a long and very disappointing life. The world doesn't work that way. I'm sure I'm not the first one to tell you this. So yes, suck it up. Your actions do not guarantee anything, or that things will work out in the way you imagine such actions should. Welcome to adulthood.
dryfly, I stood up at the end of your last post and shouted AMEN.
That being said, manufacturing jobs, in the way some are thinking, are gone forever not just "offshored". Technology has taken the place of legions of hands, which you would see if you've spent any time in a modern car manufacturing facility. Robots welding, moving around the floor delivering parts, moving assemblies, putting pieces into position, and even cleaning up took the place of thousands of workers. What remains are more skilled technical jobs which, if you think of the average Walmart employee, they aren't going to be able to do. The people that used to tighten bolts and get overpaid for it (i remember my grandfather talking about floor sweepers at the GE making almost 20 an hour) have been displaced for good. So what do you do with them?
Exactly. That is the $20 trillion dollar question - these guys are NOT going to be able to program those factory robots anytime soon.
What's really scary is they are automating third world factories now too - there might be BILLIONS of these folks worldwide.
Maybe when oil gets really scarce they finish the cycle & return the the same fields & villages their ancestors came from in the early days of the industrial revolution. When energy gets expensive we'll be farming with 'labor' again.
Please demonstrate originality while asking it of others...your MO consists of erecting straw men for anyone who does not adhere to your worldview. Boooooooring.
Saw this on local news station last night. After commercial pick the on/off button at bottom 2of2 and video appears.
They couldn't even speak english and bought 500K homes! Last night they interviewed some other Spanglish speaking bagholders and it was worse than this video.
3) are we investing enough NOW in real production, technology & infrastructure to be able to meet those real physical needs THEN (not just 'money projections')?
That has to come from savings. Think of the deserted island and you are catching a fish a day. You know if you make a net you can catch two fish a day then possibly make a shelter. You do not eat one day and make a net. You were living off the savings in your body of eating previous fish. There is no investment without savings. Infininte amount of claims of goods and services can be generated but the actual time for investment has to come from decreased consumption.
energycon, i could say the same of you. Do you have anything to contribute to this thread other than making statements about me? Practice what you preach.
I make roughly 80k a year have very little debt,rarely eat out and only vacation back home staying with parents. Its just me and a part time 3 year old and I am feeling stretched. I can only imagine the average household with 2 cars and kids to feed and clothe.
I hate to say it but there is absolutely no way in hell we pay off the debts this country has ran up short of adding a zero to every bill. It would be cool to earn 800k a year though.
What's really scary is they are automating third world factories now too - there might be BILLIONS of these folks worldwide.
EXACTLY. You know, this is not going to come out the way I want it to, but thank God there are these service-sector jobs or we'd be picking up the tab to support a lot of these people. The point, of course, is lost on some around here because they don't think that deeply about the issue and spout words like "manufacturing" thinking of what that meant 30 years ago. That world is gone forever.
When I was working on a project in the Czech Republic for school (after communism) I spoke with the government official who was the most candid person I had met about this issue. He said "look, these people are completely unprepared for this world. What are we to do? We have to take care of them so for a generation, our government spending is going to have to reflect that. We have to feed and house them, and try to make sure their children get educated to break that."
Take a look at your average service-sector employee today. Do you think we've succeded in educating that person enough or training them for a job? Do you think these people are going to go to school and study for an IT jobs? To be RNs or medical techs? We need those jobs or these people will be on the dole. Think about it. It's dislocation, but no one calls it that here.
energycon, i could say the same of you. Do you have anything to contribute to this thread other than making statements about me? Practice what you preach.
Yeah, but your posts are filled with extreme generalizations and really do seeth with arrogance and self-righteousness. And you tend to attribute things to people's posts that simply aren't there.
Illustrative example: I could say something like "Well, the sun will rise tomorrow". You'd fire back, "Oh so according to you we're all going to burn to death tomorrow. I'm sorry but that's just not going to happen; now wake up, get with the modern program, and learn how to deal with. We're modern; you're not...haha, neener neener."
There isn't enough 'savings' in the world to fill a 'lock box' if we don't produce enough goods & services to meet demand.
dryfly, the line of 'demanders' is going to be quite a bit longer than one might first think, since we have been spending the rest of the world's savings and at some point they're likely to ask for the goods & services we promised. Quite likely before our productivity has increased enough to deliver. Broken promises all around - not a recipe for smooth sailing.
Bill writes:
I wonder how McCain will feel when, inside of 100 years, some other power has troops stationed in the US? Luckily for him, he'll be dead before then.
Bill | 05.03.08 - 11:03 am | #
Bill, are you brain dead? What a stupid comment. Go to a political blog to chunder your leftist trash. Dullard troll.
anoninCA again, and that post contributed what to this topic? do you know what ad hominem is? if you don't, look it up. And there is a solution if you don't like my posts. killfile me. i'd be delighted.
Capital flight is an unlooked for consequence, a risk from heedlessly flooding the global capital markets with bailout stacked on bailout under the umbrella of "the general good." As a society, we have been unsustainably consuming more than we produce for decades and the potential exists for hitting a tipping point that would result in significantly higher costs for all forms of debt in the USA.
Indeed, the world has the potential to behave in unanticipated ways.
I'd be a lot more sympathetic to that argument if many of the people who made it weren't the people who profited from the boom. That sort of talk would earn a lot more respect from me if it was paired with a discussion or claw-backs and how to avoid future moral hazard.
Many people here were pointing out for years that the housing situation was gong to end up in disaster. They were dismissed as cranks and idiots. Now they are being asked to participate in a "necessary" bailout of the situation by the same experts who, until just a few months ago, where denying there was anything to worry about.
If we punish prudence and reward both idiocy and swindling, long run we get what we deserve. We may be close to that long run.
Yes/no - the future capacity comes from 'deferred current consumption' that is invested... savings is one type of deferred consumption but not all savings results in investment.
The 'money value' isn't what's important - look at gold, it does 'nothing' yet people 'save' it - its what that money buys today in the form of 'future capacity' that is important for future generaations.
Understand - I am NOT in favor of over consumption - I've said that here over-n-over and why I'm not upset about the dollar falling in value - it slows our consumption of 'stuff' even if it doesn't immediately slow our consumption of 'dollars'... that is step one in slowing REAL consumption though and sending us a message to produce more.
But saving in and of itself will NOT save the future... that is my point. Anti-SS freaks don't understand that - its not the future cost of SS in future or present dollars that is the problem it is the current consumption & lack of real investment that is the problem. SS is just one of many possible mechanisms to transfer those future goods among the population - but the goods have to be there first or it is a no go. That is the problem with ALL schemes to tackle future retirees - private and public.
energycon, my basic point in this thread was that some were pointing to a loss of manufacturing jobs as, someone, indicative of a problem and pointed to the rist of lower-paying service sector jobs as an evil. My observation from reading these was that, obviously, these people have never set foot in a modern manufacturing facility because, if they did, they would certainly know that that greeter at Walmart certainly wasn't going to be working there. dryfly got that point instantly, because, he's in manufacturing and knows. Hence his thoughtful reply.
And I am still struggling with the "bailouts" you mention because the only one to date has been those checks going out in the mail. All other actions have not, at this time, incurred any losses. The losses so far have been on shareholders, bondholders, hedge funds, and those with derivatives exposure.
Quite likely before our productivity has increased enough to deliver. Broken promises all around - not a recipe for smooth sailing.
MLM | Homepage | 05.03.08 - 1:00 pm | #
That just depends - after all - those other demanders borrowed us MONEY... we will repay in MONEY. Its what we can buy with it that matters - did we produce enough?
I am not certain at all that we have as big a problem as everyone supposes from that front - if we focus on the real physical inputs.
On the other hand after watching corn, beans, oil & metals sky in price VERY RAPIDLY - I'm not sure a 'balanced budget' and current account surplus NOW would make us 'safe' for the future.
That is my point - made over and over - the dollar cost projections NOW - for needs 30 to 40 years in the future - IN DOLLARS - is a fools errand. Though we all seem to be eager to carry that basket & head off on that errand.
No one gave a darn about the broader good as home prices sky-rocketed and everyone selling became rich on inflated asset prices for the past 5 years. So why should I care about the broader good now that the equation is turning in my favor?
Must admit, it's a good point. Tough sh*t if others don't agree. It's just as valid an argument as theirs.
That sort of talk would earn a lot more respect from me if it was paired with a discussion or claw-backs and how to avoid future moral hazard.
btw praetorian, i am NOT anti-regulation. the end result on this should be more regulation on the finance industry and even hedge funds in my view. And I do have notions of what that regulation should entail. I also think some of these people should be criminally prosectuted and I expect there will be sacrificial victims, just like after Enron. Then the world goes on and in 10 years people forget.
And yes, many did say things about housing. But for all time people have participated in speculative bubbles. being right is besides the point. it has to be mopped up after because, well because people want it mopped up and the greater economic good entails it. You mop up and take measures to make sure it doesn't happen again. telling everyone you were right will win you no respect, nor should it.
So why should I care about the broader good now that the equation is turning in my favor?
A lot of people think that the economy is turning in their favor just now, about to reward their virtue as prudent savers and investors. I fear those people may be in for an unpleasant surprise.
As the collateral quality continues to deteriorate on the paper held by the Fed, do you believe they will push that all back on the balance sheets of the banking system?
And you are certain in your knowledge that there are no opportunity costs in the actions taken by the Fed? And that the short term 'gains' are greater than the long term costs of the alternative(s)?
I am not certain either way, I just see some huge risks that others appear to be ignoring...the one thing that I am certain of is that just as the benefits of the latest round of 'growth' were disproportionately distributed, the costs of will be as well.
the one thing that I am certain of is that just as the benefits of the latest round of 'growth' were disproportionately distributed, the costs of will be as well.
Oh yeah. Safe bet that, for sure. Think of the stock market crash of 1929. How many of the people living in misery in 1932 were stock market speculators? How many of the young men killed in 1942?
I am not certain either way, I just see some huge risks that others appear to be ignoring
actually, energycon, i agree with you about the risk. but i don't really know at this time if no action was better than the actions taken. it's too early to say. so i remain impartial. that impartiality is taken here as tacit approval. i'd like to believe that the fed made informed and educated decisions. so for now i give them the benefit of the doubt and recent market conditions seem to be on their side. that is subject to change, however, but my point is to save the outrage until that risk beoomes more clear and the risk on non-action better known. no taxpay money has been destroyed so far. only by those checks going out.
ipodius said:
Your actions do not guarantee anything, or that things will work out in the way you imagine such actions should. Welcome to adulthood.
What did I say that made you think I believe this? The original comment I made was in response to House subcommittee member who said something like, few benefit from increasing foreclosures. That statement is just bass-ackwards, since there are many people who will benefit from foreclosures and falling house prices. So because I point out this member of Congress is not necessarily correct, I'm some immature person who thinks I'm entitled to success?
Regardless, I think if anyone should "sacrifice for the greater good" it's the older people. I don't think some of the older folks remember what it's like to be young. When my dad was the same age as me he bought a house and didn't have to spend more than 3x median income for it. This was in the Washington DC area, it was a 3x2 ~ 1800 sqft... and where I grew up. To be under 30 in this country means you have to choose between a) family, b) money, and sometimes trade off health insurance. I'm not sure this happened 30 years ago. By the way, you were able to live on one-income. The changes in that have occurred in the meantime mean that now the American lifestyle, or American dream can only be maintained by a 2-income household, hence my joke regarding the repeal of child-labor laws so we can all have 3-income households. By nature having a 2-income household means you have to trade off family.
Honestly, we know some missionary friends living in the Southern California. They live off of donations, and were trying to find a house. One of the older people they work with suggested, "why don't you just buy a house...", these are houses that are being offered at over $1M, and their suggestion was for this family on an unstable income to buy a house?! Talk about a dislocation...
But as we live in a democracy dominated by baby boomers (which you pointed out), they can continue to put off dealing with the issues that are constantly coming up in this blog and pushing them off on my generation and our children. I don't mean this to be a slam on boomers in general, but it's pointed out that this is a democracy.
Anyway, I'm just sharing my experiences and the way I see things... as are you.
Its what we can buy with it that matters - did we produce enough?
My point was that we aren't just talking about 'us'. We're talking about a whole lot of soon to be 'Angry Savers' in the rest of the world who loaned 'us' money under the illusion that they would be able to get paid back (with interest) in goods and services for it.
My outlook is that money is promises. We are now busy reneging on those promises precisely because we don't have the capacity/will to keep them by providing goods and services.
You see a microcosm of this in the conversation in this thread regarding having done the right thing and saved, vs. having participated in the party. The savers are rightfully pissed off.
So will we have the productive capacity to keep everyone in the U.S. fed, clothed and housed in the future? I would think so. Will we have the productive capacity to maintain the illusion that our promises will be kept? No way. In the sweeping away of those illusions lies much trouble.
energyecon said: "I am not certain either way, I just see some huge risks that others appear to be ignoring..."
Are they really being ignored?
Credit spreads are high, the stock market went through a substantial -18% correction before it bottomed-out, the economy slowed down, unemployment crept up a bit, Congress and the President have passed/are working on legislature to help out, the Fed has acted dramatically to address the problems, and those problems are regularly appearing on the front pages of newspapers.
Those are all responses to the risk, and they're pretty significant ones.
If even our constant-state-of-denial-everything-is-great-we're-winning-the-war-on-terror President is complaining that Congress isn't doing enough or acting quickly enough, who else is left that doesn't get it?
I wonder how McCain will feel when, inside of 100 years, some other power has troops stationed in the US? Luckily for him, he'll be dead before then.
Bill | 05.03.08 - 11:03 am | #
Bill, are you brain dead? What a stupid comment. Go to a political blog to chunder your leftist trash. Dullard troll.
cats and rats | 05.03.08 - 1:02 pm | #
mock turtle chimes in
i take exception to both comments...but here's something to ponder
if the debt and the economy go the way we fear it might...
our country will become a second rate military power...unable to support military spending that now amounts to around 3/4 trillion per year incl associated costs often hidden..
and even if we are not relegated to second tier status...there will be several viable competitors..BRIC countries for possible example.
so now what happens if THEIR interests in 50 years, much like our interest today, result in one of these competitors taking military action in central america...will we in 50 years have the economic and military might to prevail in our own hemisphere???
You empty your wallet first. You remind me of old time gospel preacher who passes around a plate for money to benefit the poor but as he's leaving the town square he goes to the strip bar and blows all the money he had.
The next day his sermon starts off with a passage of how times are tough, people need to bind together to defeat evil and save our poor bretheren. The plate get's passed around again.
Sorry the god know doesn't need a dollar bill and my family comes foremost. I will not pay for someones house. The problem that you fail to see is not everyones dumb and can't figure out a robot or software. Some of us will figure out a way for us not to pay for any of it.
Rewarding greed, envy and stupidity only makes us more greedy, envious and stupid. Sorry I fail to see your point of view. Your view seems to be obstructed and obviously while you were on the SS Beagle with Darwin you argued agains natural selection and evolution of species.
Recessions happen, depressions we can only hope not, jobs are lost, people lose houses (since the beginning of man) yet life will go on.
You want to hand this to your children? Then I would say your as selfish as the rest of the greedy, envious circle that created this frigging mess.
Learn from mistakes and move on. If the foreclosure victims can't take it find an island and borrow from each other..
Anyway, I'm just sharing my experiences and the way I see things... as are you.
Yes, YLSP, and your thoughts are appreciated. But you may take comfort in knowning that, actually, it's always been the same. Each generation goes through the same process. I can remember my mom and dad talking about buying the last house they did when I was 12. They talked and talked because it was going to be a stretch for them. The price? 39,500. Everything is relative.
And you should be cheered to note that I have been doing fine off my one income for all of my adult life. So it can be done. I even put myself through grad school twice. The major point behind my posts is that if you pay attention to your own actions, read situations for what they are instead of what you would like them to be, and follow your own set of codes, you'll do well because you'll see opportunities presented to you. I always believe in trying to play the house instead of betting against it.
yogurt- "What they ought to be concerned about is that with intervention the problems will become even worse than that."
Granted, there is tremendous moral hazard ahead. Had there been no intervention, everyone responsible seems to agree that the system would have melted down. The Fed chose a path that solved the immediate problem, but created another. Such is life.
What they MUST DO now is impress upon the financial community the circumstances in which they will NOT come to the rescue. If they don't, expectations for bailouts will rise going forward.
Give Ben a break. He's done a nice job so far, given the circumstances. He inherited a nightmare.
YSLP said: "...But as we live in a democracy dominated by baby boomers (which you pointed out), they can continue to put off dealing with the issues that are constantly coming up in this blog and pushing them off on my generation and our children."
Why is it always with the focus on the negative on this board?
My wife and I (both baby-boomers) have had (and will likely have more) extensive and expensive dental work done, the result of less-than-ideal dental hygiene when we were younger.
Our teenage daughter, however, has never had a cavity and likely never will, the result of medical advancements and of our passing-on good dental habits to her. She'll save untold thousands of dollars over her lifetime from that single improvement.
One day she's also going to inherit a house that'll probably be worth $1/2 million (conservatively) and who knows how much else in assets.
My point is that there are always compensations, it's not all bad, it's just that the bad gets all the press.
Rewarding greed, envy and stupidity only makes us more greedy, envious and stupid. Sorry I fail to see your point of view.
I'm sure these people in FC don't think of anything as a "bailout" and, so far, it's all been a lot of noise with very little result. it's like why you tell someone to boil water when a baby is being delivered. there's no use for the water, it just gives someone the illusion that they're helping.
and all this bailout talk is just that. talk. talk talk talk...blah blah blah. the number of people who will be "bailed out" will fit in a couple of city buses. but they're doing something! just like the thinking that $600 is going to help an average family. how out of touch do you have to be to even think that? even 1200 isn't going to do much right now. if this program helps the next two quarter's gdp by more than .1 i'd be astonished.
so i'm not as outraged as you. this is just bread and circus. now if you want to get me going on countrywide....
I beg to differ. We are already seeing the expectations for bailouts rise (student loans, car loans, etc., etc.), and Ben is responding in the positive.
Bear was Ben's chance to save the system while providing an object lesson in just how terrible the punishment would be to equity and debt holders, and management. He failed to thread the needle.
Conjure and I criticized the Fed when they failed to immediately get on the phones after the failure of the Bear Stearns hedge funds last year. Had they done so, this crisis might have been averted, or its severity lessened. The Fed was asleep at the switch and failed to see how those failures would ripple through the system.
Yes Sebastian, we should look on the bright side. For example, here's the price of gas now in various countries:
Rank Country Price/gal
1. Bosnia-Herzegovina $10.86
2. Eritrea $9.58
3. Norway $8.73
4. United Kingdom $8.38
5. Netherlands $8.37
6. Monaco $8.31
7. Iceland $8.28
8. Belgium $8.22
9. France $8.07
10. Germany $7.86
111. United States $3.45
Source: AIRINC
Yes the US is 111th on the most expensive places to buy gas list. Notice the number of EU countries in there. They haven't fallen apart about it. Of course, they don't drive their fat asses around in monstrous SUVs either, going from drive-though to drive-though
My point is that doomsday was not necessarily averted, but it was at least postponed.
Oh great. Now you tell me. And I just spent the morning taking all the rice, beans, ammo, toilet paper, forever stamps, and canned goods out of the bunker i had built when the conjure clock hit 12.
The US economy is far more sensitive to the price of gasoline than any other OECD country. The prices in the EU are a function of very high taxes on gasoline that have promoted significant investments in conservation.
Energyecon, relatively speaking, I am not as sanguine as Warren Buffett. This thing has a long way to go before it unwinds. Thus far, Bernanke's moves impress me. He's made the best of a very bad situation.
As to end games, we're not there yet. If it reaches that point, there are only two solutions of which I'm aware: liquidate the economy or buy a few years at most by inflating it.
dryfly: The three questions you have to ask to get your head around the problems vis-a-vis future populations are...
1) can the society produce enough goods & services AT THAT TIME IN THE FUTURE to meet the needs of that population - very young, working age & elderly combined?
2) is there a mechanism for equitable transfer & transaction of those goods & services?
3) are we investing enough NOW in real production, technology & infrastructure to be able to meet those real physical needs THEN (not just 'money projections')?
Dryfly, you write the best comments on here. Excellent explanation of what matters in the future and what doesn't.
Sorry, ipodius, I thought you were on the memo's distribution list
(as he's putting the cans back in the box...) no, it's probably my fault. most likely i only read the bullet points in the top summary. but i am debating whether the forever stamps are worth the space.
Billionaire Warren Buffett, chief executive officer of Berkshire Hathaway Inc., said the worst of the credit crunch has passed for Wall Street and the Federal Reserve probably averted chaos by rescuing Bear Stearns Cos.
You know, I don't read this as sanguine or calling a bottom. To me he is saying that now the financial firms can unwind their junk in an orderly manner rather than having a systemic crash. It doesn't mean there isn't still quite a lot of junk to unwind.
My point was that we aren't just talking about 'us'. We're talking about a whole lot of soon to be 'Angry Savers' in the rest of the world who loaned 'us' money under the illusion that they would be able to get paid back (with interest) in goods and services for it.
No a good many of 'them' loaned us money with the intension they could keep their currency weak, export like hell into our economy and build up their industrial & 'offshore' services base from nothing.
In which case it was 'Mission Accomplished'.
If private 'savers' got in front of that train - in front of their own central banks - too bad for them. Maybe next time they will be wiser and 'invest' in their own country and not 'save' in ours. Heck they could have invested in growing more rice for instance instead of producing cheap Nike shoes...
This as they say in the schools is a 'teachable moment'. I hope they & we all learn the lesson.
Meanwhile the lesson should be projected into the future - saving money doesn't grow rice - now or in the future. Only growing rice grows rice.
savings is one type of deferred consumption but not all savings results in investment.
I really am uedubucatated in all this but the savings(time&labor)withheld from the system makes the savings that results in investment more valuable. It would seem to me the more efficient the savings vehicle is the greater the investment capacity.
It would seem to me the more efficient the savings vehicle is the greater the investment capacity.
One would think so though I am not certain. The think to remember I believe is that saving in the form of 'deferred consumption' is essential... but saving alone WITHOUT a mechanism or incentive favoring real investment and where the saver's 'coupon, chit or share' entitles him to a part of the future production resulting from that additional future capacity... is virtually worthless.
And I see no way we can have that 'future claim' if we don't control & own the factors of production. So getting all wound up about the SS deficit is getting all wound up about a lot of 'paper'. Focus on what the paper would buy, do we have enough/produce of it and are our 'chits' or claims on a piece of it 'valuable' and 'enforceable'.
I think we are missing the fundamentals & focusing on the paper because we can't get out heads around the fundies but can easily 'add up' the 'paper'. Anyone with an excel spreadsheet can do that.
I won't belabor the point, but I still argue that the people bailed out were the Bear bondholders and also JP Morgan Chase (who had substantial counterparty risk to Bear if it fell).
sure, the stockholders lost a lot, but had the Fed not acted they would have lost it all... instead they got $10 a share or whatever.
also, we can't see what's happening with the the various Term lending facilities that have been INCREASED of late.
I would call that a potential bailout as well, since the players are getting "below-market" rates on their questionable collateral.
well yearning, the fed didn't have control over the stock price paid. they're only interest was in preventing the unorderly unwinding of BSC assets. Of course JPM had that interest too, since their exposure to the risk was very high. so if you're Jamie, what do you do? you take them but make it more palitable to shareholders by insisting on the 30b (original) backstop from the fed. the fed does due dilligence on the situation, and says fine because the BK and massive unwind effects are worse.
shareholders raise a ruckus, so Jamie goes back with $10, based on the money he had set aside for claims anyhow, and takes 1b off the fed's plate so they can sign off. the shareholders really did, however, get screwed. so did the employees who had stock as bonus. I'm all good with this transaction, btw, and think it is too early to tell if the fed will suffer loss. there is risk. but if not, Ben pulled off a very savvy move.
the raising of the auctions raises my eyebrow, but i believe what you are seeing is the effect of interest rate cuts over. the fed will now switch to pushing liquidity into the system until the banks lend, and some unwinding of positions happens. the fed doesn't care one whit about solvecy, as they know there will be massive losses. what they care about is the system, and they are acting to keep it functional. no matter what.
and, btw, all these operations are sterile, so if i read one more "printing money post" i swear I'm taking the ammo out of the bunker and up to a tower.
isn't this all really transparent though yearning? you can look at the fed's balance sheet. i guess what you're referring to is the actual collateral and such. but why does that bother you? would you be able to put a mark to it? it's all conjecture at this point, isn't it?
and that, yearning, is the actual problem. not insolvency at all. the problem is uncertainty. you couldn't put a mark to the assets, and neither could i. i could guess, but that guess is only good at this point in time. what will the mark be 6 months from now? 1 year? that's the problem with the financial market, NOT solvency. Look at all the money raised in the last couple of quarters! there is plenty of cash out there...solvency is not the heart of the matter.
dont worry DryFly i know a lot of so called "savers" in eastern europe who invested into technological stocks 5 years ago at the bottom and now with the easteuropean currencies appreciating higher than euro and concurent fall of dollar, have lossess of 70+% even tough they bought at the bottom of nasdaq.
best deal was to put money in original appreciating currency to bank in CD
the best thing is, that my friends are still investing in money market and other funds even tough i repeatedly told them about various problems (iliquid paper/counterparty risks). well i am finished with trying to help them. they can pay the fees for nothing if they want so much ...
a wise person learns on mistakes of others, fool on his own
Saving money grows tractors, terraces, and irrigation systems. They grow more rice.
I'm in complete agreement with your description of the motivations for FCB's to buy our debt. But, we didn't have to throw a party with the money. That was our decision.
If you think we can somehow selectively default on our promises, picking only those whose motivations we don't like for having made loans to us, I suggest you will in the end be proven wrong.
good lord, the natives here can't even take little blinking robots around never mind rifles. lol this is "only criminals and cops have guns" territory!
But I do want to say this again to think about: the problem is that no one knows what these instruments are going to end up being worth because no one knows how the RE endgame will play out, and when it will happen. That's the issue at the absolute heart of this matter.
What is the NPV of these cashflows? Well, that depends on who defaults. What is the counterparty risk? Well, that depends on how many defaults there are. When will we know? That depends on where the market ends up. All the models have "i dunno" as the input. In fact, there is argument that these are worth MORE than people think right now. So that's what is gumming up with financial works.
My point was that we aren't just talking about 'us'. We're talking about a whole lot of soon to be 'Angry Savers' in the rest of the world who loaned 'us' money under the illusion that they would be able to get paid back (with interest) in goods and services for it.
I'm not sure that this is correct. Watching those other countries, they seem to have loaned us money so that they would have jobs in the present, not a claim to goods and services in the future. Really, they've been just as short-sighted as we have.
Really, they've been just as short-sighted as we have.
Why am I sitting here thinking of the long running controversy between the evil mortgage lenders... 'They should have known not to make those loans, they only did it so that their executives would get a big bonus that year.
And the evil subprime borrowers... 'They should have known not to take that loan, there was no way they could pay it back.
"ipodius writes:
But I do want to say this again to think about: the problem is that no one knows what these instruments are going to end up being worth because no one knows how the RE endgame will play out, and when it will happen. ...
What is the NPV of these cashflows? Well, that depends on who defaults. What is the counterparty risk? Well, that depends on how many defaults there are."
The Bank of England's Stability Report (out last week; available for free on their web site; look it up yourself) looked at the valuation of these securities. They argued that the securities are currently irrationally cheap (versus being irrationally expensive last year).
I'm not a credit person, and I have no opionions on the NPV either way. However, it is obvious that there is a shortage of cash buying firepower out there - there's a lot of cheap fixed income assets. And many of these are sovereign-guaranteed assets (e.g., theoretically credit risk free). I see no reason to disagree with the belief that these MBS are under-priced.
For all the carping and whining about the Fed's operations, I still don't see them taking significant credit risk. I have not looked at the details, but I believe that there are a number of standard protections for the Fed:
(1) They are full recourse (not including the BSC deal; that JPM only absorbs the first $1bn). The counterparty's equity is backing up the loans.
(2) They probably monitor the collateral fairly frequently. If it drops in value, the counterparty has to pony up more. They thus are protected from falling collateral values (to an extent).
(3) If the counterparty defaults, the government probably subordinates other debt holders, not the other way around. Thus the whole balance sheet of the counterparty may effectively be the collateral, not just what is posted.
(4) The collateral is presumably fairly sound and has already been marked down.
The Fed can fund these positions at the T-Bill rate. The odds are that these operations will be a serious profit center for the gov't.
iPodius Regulus thusly intoned with regal voice: Of course, [Europeans] don't drive their fat asses around in monstrous SUVs either, going from drive-though to drive-though
Ah, but they do drive:
Americans use cars for 88% of motorized passenger-miles. In Europe, the figure is 78%.
Better still, this tidbit of per capita daily driving:
Sprawling auto dependent auto centric; Los Angeles 23
Transit darling compact city new urban poster child; Portland 24
Europeans generally pay their high taxes via consumption conduits. Here in the US we pay our high taxes on production metrics.
What would the US do with $3.00 per gallon equivalent Federal Excise levies on transportation energy? If past is prologue then we will misapply the revenue to wasteful transit subsidies, corporate investment and research subsidies and extremely ill founded urban development subsidies. None of which have ever had the intended results. Oh, and $3.00 per gallon? $450 billion dollars.
. I remember when i was a kid that communism was going to destroy us. Then it was the Japanese...we'd all be their slaves by now as they became the dominant global force. Now it's the Chinese and Indians that are going to overtake us. Oh, let's not forget we're all going to be underwater from global warming in 30 years too.
at no time during these threats was the sp500 trading at 22x E.
I remember when i was a kid that communism was going to destroy us. Then it was the Japanese...we'd all be their slaves by now as they became the dominant global force. Now it's the Chinese and Indians that are going to overtake us. Oh, let's not forget we're all going to be underwater from global warming in 30 years too.
Yup, there are always false alarms. The boy who cried wolf. But at the end of that story, the wolf really does show up, and when they hear the alarm, everybody says, "Yeah, right."
Saving money grows tractors, terraces, and irrigation systems. They grow more rice.
No. Saving money used to do that. Now it backfills speculative financial bets gone sour. Putting money into the extant US financial system is not going to generate economic stimulus until after the banking system has been made whole. That has been the entire point of the last year of irrational Fed policy; to help the banks. Lowering FFR done much for mortgage rates? Why? Want to help the economy? Float the arbitrary "Prime Rate" from extant 300bp to market rates which would likely be 75-125bp on top of FFR. Deeply negative real interest rates worked once. Why not again? [Please don't answer, I know, this last is just rhetorical flourish.]
... Money today means nothing in the future & vice versa - even when 'inflation' is factored in (at least from today's guess of what inflation will be).
1) can the society produce enough goods & services AT THAT TIME IN THE FUTURE to meet the needs of that population - very young, working age & elderly combined?
2) is there a mechanism for equitable transfer & transaction of those goods & services?
3) are we investing enough NOW in real production, technology & infrastructure to be able to meet those real physical needs THEN (not just 'money projections')?
I think that's a good way of putting it. But I think the whole point of money is to abstract away these things so you don't have to think about the details.
Ideally if you're making money and putting it into the bank that means the above problems are being solved. And people have the expectation that this is the case.
I think however this relationship between money and the above factors is breaking down primarily due to the actions of the Federal Reserve (and the politicians that influence it) and secondarily due to Wall Street.
Once people no longer distinguish between money and the reality it's supposed to prepresent it just becomes too darn profitable to wedge yourself in between the two to take advantage of peoples' ignorance.
So I think maybe human nature all but guarantees that a central bank is going to turn into an intrument of mass abuse at some point. The whole reason people become politicians, afterall, is for power (never mind the 0.001% of them that are actual idealists). Give them an instrument for subersively co-opting peoples' wealth and I think it's going to be used for that purpose.
And this ends up undermining that equitable distribution of goods you point out.
And that's the real point here:
What happens when people realize that the expectations they had about money and savings were not only wrong, but were in fact used as a means to deprive them of wealth they had earned through their own efforts and put in various savings and investments for "safe keeping"?
History seems to suggest that can cause a major breakdown in the cooperation between individuals, businesses, and governments that's essential to the kind of prosperity we have today. Technology and productivity can't make people trust each other.
Worse, if the benefits of technology and productive are spread unevenly they can become a means for further concentrating wealth or for outright subjugation.
The more history I read the more I start to realize that simply because of human nature one of the most fundamental obsatcles to the stability of a society is the concentration of wealth. In fact most proscriptions against marriage between close relatives are not to prevent inbreeding (our instinctive behavior does a remarkably good job of avoiding dangerous procreation), these kinds of laws usually have their origins in preventing excessive pooling of wealth in specific families.
Yet most people get up in the morning with the goal of accumulating wealth in mind. And the fact that this goal gets people out of bed to begin with accounts for a great deal of our prosperity.
But if a handful of them succeed too well that negates all of the benefits and and ultimately bring about an end to individual freedoms.
I'm starting to think that there was a great deal of thought and hard won knowledge that went into early attempts to decentralize and add transparency to power structures in this country.
I think the structure of our financial system and especially the Federal Reserve are becoming anathema to that kind of thinking.
Hopefully other factors like information techonlogy and expanding free markets in other countries will counteract those effects, but I wouldn't use that as an excuse to be complacent about it.
I think Wall Street in combination with Washington's help via the Federal Reserve (bought and paid for) will happily set up a dictatorhip in the US if they can get away with it.
It sounds conspiratorial, but given what we know from history it would be surprising if they didn't at least try.
I know I would if I were in the position to do so.
The only reason I complain about Wall Street and the Federal reserve is because I'm bitter about not being in the position to be plundering the wealth of the masses.
isn't this all really transparent though yearning?
no it is not.
i guess what you're referring to is the actual collateral and such.
partly.
we also don't have transparency in terms of WHO is getting this collateral.
why doesn't the fed publish names of banks who get the collateral? (rhetorical. of course I know that this would cause a run on that bank)
isn't this what the discount window was for? so that banks could have access to liquidity IN TIMES OF NEED AT A PENALTY RATE? instead we have a new fed that works in secret to fund secretly against secret collateral. and not at a penalty rate.
would you be able to put a mark to it? it's all conjecture at this point, isn't it?
it doesn't matter. I still should be able to see it and decide for myself if I agree with the mark that the Fed is using.
The fed "assures" us that they have "overcollateralized" these funding facility loans. Then let me see. There's no harm in that, is there?
I hypothesize that the collateral is worse than the Fed is letting on. but who can say since we can't see?
that is a whole lot of "probablies" and "presumablies" isn't it.
but that's all we have to go on.
the fed has PROBABLY overcollateralized, whatever that means
The fed is PROBABLY monitoring this situation
The fed will PRESUMABLY force banks to ante up more collateral if their original collateral falls in value (but what to do if that would cause the bank to become even more insolvent?)
the collateral is PROBABLY marked down (like all the other level III assets I presume?)
again, the problem is we have no transparency
All I know is that all this secrecy is often a harbinger of ABUSE OF POWER.
I want a list of all banks that are using the funding facilities released to SOMEBODY. I don't see how the Fed has this authority to do all these transactions UNSUPERVISED.
I want a list of all the collateral followed by SOMEBODY.
at some time in the future, ALL of this is to be released into the public for reexamination.
All executives of these banks should take MASSIVE reduction in income if they need borrow from the fed. We can pay them about as much as a typical govt employee, since they are sucking on the govt teat. that income should be routed back to the bank, since it is insolvent.
The banks should be allowed to borrow from the Fed at lower than market rates for now, but pay a massive penalty once the credit markets are stabilized.
you can argue that "they aren't insolvent" all you want. but as we say "Markets can stay irrational longer than you can stay solvent".
normal people have to learn this the hard way. but not the big banks. they get a non-bailout that really reeks to high hell.
Please wake me when there is an original line about all of this. And globalization is here, not going away, and that's the way it is. Technology made it possible in a way never before. Deal with it. Or not and tilt your lance at windmills if you like. But I think finding ways to make reality work is far more interesting. And profitable.
This kind of thinking was prevalent before WWI. People saw an everlasting age of cooperation and prosperity due to a rise in technology and international trade.
Remember those idyllic World Fairs in the early 1900s?
Doesn't mean this time it's not the real thing, but history is full of examples of golden ages of technological and intellectual progress suddenly coming to disasterous ends.
Good times too often become an excuse not to think ahead.
There is not enough money or information out there to get the various debt instruments trading at consensus pricing with small spreads. So far most of the people bringing money to the table are vultures and asset based lenders.
Vultures are not the least bit interested in reaching a compromise price to re-establish credit markets with narrow spreads. They are interested in buying at a price that is just about guaranteed to yield 20% plus in the first year. The lenders won't sell at those prices, so the markets remain frozen and the lenders continue to have constipated balance sheets.
If that were the only problem, then Ben's "asset based loans on easy terms, no questions asked" would be a pretty good solution giving the banks time and capacity to make enough good loans to earn some money and pay off the old loans on the questionable collateral.
Two questions:
1) What are the banks going to make good loans on so they can earn their way back to solvency? I don't think they're really going to make enough money to pay off all those bad debts they are carrying when there is zero demand for the sliced and diced securitized products they've been hawking for the last few years.
2) Who is minding the stores to get value from the so-called collateral the banks have dumped on the Fed? Here is where Tanta comes in. The evidence is overwhelming that loss severity on home mortgages will be a multiple of what it needs to be because the banks don't have the capacity to process workouts in a timely manner. I think the same thing is going to happen for CRE, especially because the capital structures are so complicated that nobody knows what they own. Plus the complicated capital structure really means that the same brick and mortar project has been sold in multiple forms to multiple investors. Each project that craters will cause defaults that are a multiple of the cash losses.
so if i read one more "printing money post" i swear I'm taking the ammo out of the bunker and up to a tower.
If the Fed loans are 28 days in duration and have been going on for a few months some of them must have been paid back by now right? Do we know if they are being paid back as planned? Seems to me that if they are not being paid back and are just rolled over every 28 days, which seems frankly much more likely, that there has indeed been a defacto stealth printing of money that has occurred.
If the Fed loans are 28 days in duration and have been going on for a few months some of them must have been paid back by now right? Do we know if they are being paid back as planned?
For a graphic view of the situation check out: The Slosh Report The Slosh Report
True, but if I grow the rice, how much can I keep to eat?
Dryfly seems to have put some thought into this SS stuff, and he makes good comments. But still, I can help but see that his proposals end up sounding like rice too cheap to meter (mangled metaphor?). Or, deflate the hell out of the price of future goods we'll need through the miracle of productivity to solve the problem.
Fine, but to my opening question, doesn't division of proceed between producer (rice grower) and non-producer (boomer eating rice) enter into this? I don't grow rice, but I do collect a paycheck, and the gubmint takes 7.6% of it for the benefit of today's retiree (well, partly). That's more than my parents were taxed, and less than my niece will average for her lifetime. Sure, this is partly due to the enlarged ratio of time consuming vs. time producing represented by lengthening lifespans and years spent in retirement. But the concern is that the tithe will eventually become so onerous to future generations that they will refuse to participate. The reason, though, is not just a transient event due to boomer passage, but a permanent change in the ratio of workers to non-workers.
I guess this relates back to a point Bill Gross tried to make on an observation, not his own, in an IO during the SS privatization debate ('member dat?). In there, Bill also points out that future stuff can only be produced in the future. This necessitates Dryfly's chits, but doesn't explain how the chit account balances. But I'm not sure how Dryfly does either, all due respect.
Doesn't the ratio of producer to non-producer ultimately govern all these proposals, because it equates to a growing issue in our society, the amount of one's labor, in the finished product's worth, that one can keep for himself?
Good morning all!
Record deficit, and that's after watching the dollar go down 40%. When does the magical export boom begin?
Slightly OT:
Bloomberg:
Buffett Says Credit Crisis Ebbs for Wall Street Firms
May 3 (Bloomberg) -- Billionaire Warren Buffett, chief executive officer of Berkshire Hathaway Inc., said the worst of the credit crunch has passed for Wall Street and the Federal Reserve probably averted chaos by rescuing Bear Stearns Cos.
Certainly the worst of the crisis in Wall Street is over,'' Buffett said in an interview on Bloomberg Television before Omaha, Nebraska-based Berkshire's annual shareholder meeting today.In terms of people with individual mortgages, there's a lot of pain left to come.''
Buffett, the world's richest man according to Forbes magazine, said the Fed acted properly when it helped arrange a buyout of New York-based Bear Stearns by JPMorgan Chase & Co. and that he turned down the opportunity. A failure to step in by regulators might have caused other firms to fail and led to a wider panic, he said.
The worry was that there would be contagion; it was a very real worry,'' Buffett said.It could've been a very, very, very chaotic situation.
Berkshire's own investment in derivative contracts recovered between $500 million and $600 million of lost value since the end of March, he said. Berkshire said yesterday the value of the investments had declined by $1.7 billion in the first quarter.
Is he really serious that they found a bottom?
Or is he just staying positive for his shareholders?
And I thought he stayed away from derivatives like kryptonite.
Curious as to whether the $400-500 billion deficit number cited includes Iraq/Afghanistan costs.
If not, it's going to be well north of those figures.
The 2007 deficit cited, presumably, excludes Iraq.
Declining federal finances is one more reason to avoid a multi-billion dollar housing bailout.
It's too bad the Federal Reserve doesn't have to mark-to-market the crappy assets it is holding from the Bear Stearns deal.
The money quote from Dimon :
"But we are not done with the crisis for a long time," Dimon said, adding that it was not the company's job to make bets on the future.
Expired
Wonder how long he'll last with that kind of bias
If only Republicans had been in charge the last 8 years we wouldn't have had to worry about wild foreign adventures or deficit spending.
To me, here's the most important part:
"There was also universal agreement on the Committee that the Treasury needs to prepare for additional financing needs over a more intermediate term. In fact, several members argued that the current deterioration in the fiscal outlook might be more than temporary and that the risk of further deterioration outweighs the risk of a surprise improvement in the deficit.
Furthermore, additional members again reiterated their concern that this latest "cyclical" deterioration in the fiscal outlook is particularly troublesome as the longer-term "secular" forces of entitlement spending and the aging of the baby boom generation and their effect on the budget deficit are no longer that distant in the future."
Unless the Fed govt. finds a way to get the deficit back under control, isn't it just a matter of time before supply of Treasuries starts to overwhelm demand, causing all Treasury yields to go up??
Where are the intermediate-term sources of supply gonna come from?
I wonder how McCain will feel when, inside of 100 years, some other power has troops stationed in the US? Luckily for him, he'll be dead before then.
Where are the intermediate-term sources of demand gonna come from?
There's about 150 million of us who pay taxes. The Feds are spending $1,500 million more per day than they are collecting. $3500 pay cut. Good thing we are getting that $600.
Could be worse, you could live in California where the State with a Constitutionally balanced budget requirement is spending $18,500 million more than it is taking in FY '09. Distribute that over the 20 million or so who pay State taxes and that's another $1000 pay cut.
Bill, they've already gave it the okey-dokey according to some.
National Post Story
Fine mess you've got us in Ollie! Printing presses anyone?
I've been making two points here pretty consistently. While some people here advocate one or both points, it can be a little hard to put them together.
There's an excellent post today at Sudden Debt where Hellasious puts these two points together with some good graphs. He explains why employment numbers are weaker than they look. You should read it.
rich writes:
Where are the intermediate-term sources of demand gonna come from?
My guess is medical care entitlements.
I wonder if they're factoring in any potential loses for any of the mortgage bailout programs?
Rich - Good question.
BTW, do you know if "intermediate term" is ~3 yrs? Or more like 10 yrs?
Sorry, here's the link for Sudden Debt.
Sudden Debt
Anyone read "The Coming Generational Storm" put out by MIT press 4 years back? Back then our country was $51 Trillion in debt due to promises made from Social Security, Medicare, Medicaid.
Voter's don't really seems to care, and none of the candidates up for election are really candidates of "change". I suppose if Ron Paul had the charisma of Perot, that might be different.
The taxes that Rob Dawg talks about are nothing compared to what we actually need to pay to get rid of the debt...
Some workers, while W-2, get paid by the piece -- for example, home health care workers, who only get paid if somebody hires them.
Huh? Health care piece work? Who gets paid if someone doesn't hire them?
Buffet invetements are all about consumer spending which was going higher and higher as US consumer went further into debt and saved less.
BRK is just at the point that unless someone save all that made the US economy what it is today - BRK profits will be eroded over time.
YLSP writes:
Anyone read "The Coming Generational Storm" put out by MIT press 4 years back? Back then our country was $51 Trillion in debt due to promises made from Social Security, Medicare, Medicaid.
And don't forget public pensions and retiree benefits. If I had children, I would think very seriously about emigrating. It's kind of hard to see a happy ending to this mess.
YLSP,
The $51T number was for scare value only. It was future value spread out over many years and did not include dynamic revenue assumptions and used several questionable demographic extrapolations. Yes, there exists many trillions probably tens of trillions of unfunded promises but nothing like 3.5x GDP.
jus me writes:
Rich - Good question.
BTW, do you know if "intermediate term" is ~3 yrs? Or more like 10 yrs?
Within context, "intermediate term" seems to mean what happens next after 2008 and maybe 2009.
To me, this says one of two things with deliberate ambiguity:
I would lean toward the first.
doug nolan over at prudent bear has an especially on target rant regarding the debt house of cards we are talking about here..
excerpt
The current system has experienced a broad transformation to a Credit mechanism dominated by market-based instruments, in contrast to the traditional predominant position held by the banking system all the way through Minskys Money Manager era.
snip
With Financial Arbitrage Capitalism, the bounty of seemingly limitless (until recently) speculative profits has created a reward system encouraging unprecedented debt creation, leveraging, and myriad forms and layers of financial intermediation.
I have labeled this current stage with the Minsky term retrograde specifically because only through the expansion of all facets of this Credit Bubble debt creation, leveraging, and risk intermediation will adequate new profits and debt service capacities validate and sustain the ever-increasing layers of debt and financial arbitrage.
(that is, it MUST GROW OR DIE !!!!)
Minsky noted a fundamental weakness of Money Manager Capitalism: Unlike the earlier epoch of finance capitalism, the emphasis was not upon the capital development of the economy but rather upon the quick turn of the speculator, upon trading profits.
Financial Arbitrage Capitalism takes these defects to an entirely new level. Today, the major financial incentives dictating behavior are largely disengaged from the process of capital development and, furthermore, operate completely divorced from real economic profits overall. Or, more simply stated, current rewards spur the over-expansion of non-productive Credit specifically debt instruments not supported by underlying wealth-creating assets (think subprime and high-yielding mortgages generally).
snip
That Trillions of real and financial resources were so badly misallocated through the Mortgage Finance Bubble years will definitely not dissuade the argument that Trillions more will be necessary to avert the scourge of deflation. Apparently, the more egregious the misallocation and resulting impairment to the Financial and Economic Structures the more imperative it is to throw more non-productive Credit Inflation at the problem the mandatory fight to avert deflation.
(bernanke and the BS bailout bought us, and, him, time and was the right thing to do IF the fed and congress take steps to dampen the unwinding and the deflation,,,
but if as Nolan fears we just keep feeding the credit junkie then the big bust is only a matter of time.)
Committee members were in agreement that the problems in the housing market were significant, and many were concerned that without intervention the problems would grow worse. In fact, housing price data from S&P/Case-Shiller was released hours before our meeting and highlighted that the decline in housing prices is not over but that prices are actually accelerating to the downside. For example, while year-over-year prices were reported to be down almost 13%, prices on a 6-month, 3-month and 1-month basis have declined 21%, 25% and 28% annualized, respectively.
Several members voiced their endorsement for the Frank/Dodd bill that is currently in Congress. One member noted that while none of these bills are perfect, that this proposal is certainly focused on the key problem which is encouraging lenders and borrowers to find an alternative to foreclosure which serves few interests and might in and of itself fuel housing price declines and create additional defaults.
While few members argued against the "intent" of the proposal, several people articulated their concerns that embedded in such proposals are many unintended consequences. One such concern that otherwise able borrowers would be incentivised to default to capture the same benefit as the borrowers targeted by this legislation.
Several members noted that one of the key issues to encourage servicers to modify loans in hopes of preventing default and foreclosures is the legal liability associated with these actions given the disparate interests embedded in a securitized loan. A number of members recommended that Congress indemnify the servicers while at least one other questioned the long-term impact of what is essentially a repudiation of contract law.
This part is scary too! I wouldn't be incentized to default so I could get the same reduction in loan, rate and payment as my neighbor. I would just feel it's my obligation to my family to be able to get the same deal my good neighbor gets from "our" government.
Without propping up prices fast, like yesterday, the US is in for a long recession. Treasury confirmation with coffee. No wonder I read CR
Rob Dawg,
Yes, they assumed people to be much healthy than they are, but they made this assumption out to 2040... I'm going to be over 50 at that time and I have a healthier diet than my parents do. Furthermore medical advances march forward.
They made a good case for social security, and medicare/medicaid reform and I thought their reforms presented a good balance of compassion and economic reality. Besides, $30-40 Trillion is still a lot of money.
I've said here all along that if you want to understand employment trends, focus on the Household Survey over time. It doesn't include the birth/death fiction of the Employment Survey.
Yesterday, the Household Survey showed a 362,000 increase in employment for April, which made the headline writers go ape for joy.
For unknown reasons, there is a lot of month to month volatility in the Household Survey that tends to wash out over multi-month periods.
Here's the big picture:
Household Survey employment peaked at 146.647 million in November of 07. Over the next five months, through April, it declined by 316,000 jobs.
http://research.stlouisfed.org/fred2/data/CE16OV.txt
On a YOY basis through April, 618,000 jobs were added, an average of 51,000 a month, a growth rate of .4%.
I believe November was a cyclical peak in Household employment, and we will not see 146.647 million jobs again for at least 4-5 years.
I believe Household employment will bottom in this recession at about 140-142 million. Part of it is baby boomer retirements.
President Bush says the slow growth of the economy is "not good enough for America," but new rebate checks will inject some life and spending soon.
"This economy is going to come on," Bush said Friday.
Bush says economy is going to `come on.'
Magic Mushrooms.
One member noted that while none of these bills are perfect, that this proposal is certainly focused on the key problem which is encouraging lenders and borrowers to find an alternative to foreclosure which serves few interests and might in and of itself fuel housing price declines and create additional defaults.
Hey idiot! I didn't buy into this housing market frenzy... and there are plenty more like me. Foreclosures and falling home values directly serves our interests. There are plenty of people concerned over a housing bubble! No surprise however, given the recent stories about politicians failing at life (Clinton vs. coffee machine, Rangel vs. Give me a Benz, and Trent Lott vs. DC Metro).
I'm surprised they haven't looked at abolishing child-labor laws so that 3 or 4 income households can afford the house payments that 2 income households are starting to say "no mas" too...
"I didn't buy into this housing market frenzy... and there are plenty more like me."
This is a big crap sandwich and everyone get to take a bite. Want cheese on that?
Mock thanks for the clips from Nolan. His weekly blurbs are the scariest things on the web.
Furthermore medical advances march forward.
Yes, we are much better at keeping the people alive today but not necessarily more functional. I am working with my first 20 year old 600 plus pounder who spent two months in the ICU and probably has another 2-3 months to go in a very expensive unit. Almost all my previous patients were over 40. Unless they die they are very expensive unfunded repeat customers.
A manufacturing job is worth more than a service job. Losing mfg. jobs is a killer because those jobs are permanently gone, and they usually are full-time and have benefits
Indeed. Manufacturing actually produces wealth -- consumer goods, intermediate goods, and capital goods.
A service job does not produce wealth, it consumes it from the surplus of the wealth producers.
Though in theory many service jobs -- (essentially the entire "Professional" segment of the service economy -- increase the productivity of the producer .
Rob, the term you were looking for was "infinite horizon".
I'm not a doom & gloomer -- we are plenty productive and have the natural resources and social capital to power our way this century -- but the chalenges are serious and the policy approaches of the past 25 years are NOT going to serve us well for the next 25.
We need STIMULUS!!! More STIMULUS!!! FREE STIMULUS!!!
Probably cheaper than $600 per family too...
Dan-
That's unified budget that includes the SocSec "lock box" income surplus and exludes "one time" charges such as the Iraq war.
The real deficit is ~$830B, and should hit $1T real soon now!
The SS surplus is ~$191B this year.
Social Security Trust Funds
The Iraq war is also ~$190B this year, if W gets his way.
Increase In War Funding Sought - washingtonpost.com
Strangely, it does already include the "fiscal stimulus" rebate checks, which come to ~$168B. These seem more "one time" than the war, but whatever..
If you're interested in the future, it looks grim 10-20 years out when the required GDP growth to keep the debt/GDP ratio constant at current tax rates would be >4%. By
http://www.urban.org/UploadedPDF/1001074_Still_Crazy.pdf
I doubt we have that long since they're assuming low rate Treasuries
Dryfly- I sure wish they wouldn't play those cialis/viagra commercials as I'm sitting thier with my 14 year old daughter.
Sure was a lot better growing up watching Mr clean, bologna and pam commercials!
Housing is just one of many messes here!
You mean if I sit around watching football having a few beer with some buddies, this should not be part of GNP?
Are you saying that manufacturing stuff should be rated higher than watching football?
A lot of those commercials are on the evening network news.
Don't let your daughter watch evening network news. It's not appropriate for kids.
Just remember, Americans can stay irrational a lot longer than America can stay solvent....
OT:
Chasing the market down in San Jose, CA.
CAP is current asking price
FSP is Final Sale Price
SouthSanJose.com: South San Jose, CA Real Estate - Property History for
Seeing some list price rollbacks to ~2004. And some occasional prices below 300 $/ft^2.
Correct me if I am wrong but gamblimg casinos contribute to the GNP, right?
Are you telling me that manufacturing stuff should be rated higher than gambling revenue?
Let me get this staight. Are you suggesting that drinking and gambling at a casino do not contribute to the GNP?
What kind of country is this anyway?
Hey idiot! I didn't buy into this housing market frenzy... and there are plenty more like me.
While i sympathize, it isn't all about you. There is the broader economic landscape to think about and even if the less-savvy (and a lot who should have known better) get a hand, it will go a long way to keeping everyone afloat. This logic seems a little sparse around these parts.
You wouldn't be buying a house without a job, or without that down payment if some financial institutions went down taking your savings/401k/IRA with them, or with a huge percentage of the population. Neither would you like the outcome of a massive economic dislocation, a depression, or a long and deep recession either. It would put your goals out of reach for the rest of your life.
So suck it up. It's the penalty for living in a democracy and an advanced society. Or go live on an island somewhere so that you won't have to consider the broader good. The democracy part dictates that you get what the masses want, even if you disagree. You can, however, take advantage of that if you stop thinking the world ought to behave as you think it should, and instead deal with how it does...sort of like talking about the glod standard, fiat currency, or Ron Paul for president. Why waste energy?
About 1.4 million persons (not seasonally adjusted) were marginally attached to the labor force in April.
.. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.
http://www.bls.gov/news.release/pdf/empsit.pdf
A person has to look at the bright side of things. Even if our country crumbles into oblivion, there should be some excellent trading opportunities.
ipodius,
Nice straw man.
When the reality of living in a global capital market comes back to bite us all in the ass with capital flight not even the chablis set of BAH-ston will be spared.
The reason manufacturing jobs have more impact, both on the plus and minus side, isn't because of some altuistic thought. As dryfly has pointed out, the supply chain and operations part of manufacturing creates more jobs up and down the chain. These jobs tend to be skilled and higher paying, and happen on both the blue and white collar sides of the equation.
Service jobs do not have the same employment impact on the chain, and as another poster said, tend to also be fungable on the hours, pay, and utilization of the employee.
That being said, manufacturing jobs, in the way some are thinking, are gone forever not just "offshored". Technology has taken the place of legions of hands, which you would see if you've spent any time in a modern car manufacturing facility. Robots welding, moving around the floor delivering parts, moving assemblies, putting pieces into position, and even cleaning up took the place of thousands of workers. What remains are more skilled technical jobs which, if you think of the average Walmart employee, they aren't going to be able to do. The people that used to tighten bolts and get overpaid for it (i remember my grandfather talking about floor sweepers at the GE making almost 20 an hour) have been displaced for good. So what do you do with them?
You can, however, take advantage of that if you stop thinking the world ought to behave as you think it should, and instead deal with how it does...
I am guilty of that quite often, but when do you stand up for things that are not right?
from 12:29PM
In April, the number of persons working part time for economic reasons increased by 306,000 to 5.2 million.
This level was 849,000 higher than in April 2007. These individuals indicated that they were working part time because their hours had been cut back or because they were unable to find a full-time job.
Anyone read "The Coming Generational Storm" put out by MIT press 4 years back? Back then our country was $51 Trillion in debt due to promises made from Social Security, Medicare, Medicaid.
It is one of the shallowest books ever written. Money today means nothing in the future & vice versa - even when 'inflation' is factored in (at least from today's guess of what inflation will be).
The three questions you have to ask to get your head around the problems vis-a-vis future populations are...
1) can the society produce enough goods & services AT THAT TIME IN THE FUTURE to meet the needs of that population - very young, working age & elderly combined?
2) is there a mechanism for equitable transfer & transaction of those goods & services?
3) are we investing enough NOW in real production, technology & infrastructure to be able to meet those real physical needs THEN (not just 'money projections')?
The actual dollar amount doesn't matter that much... neither the spending nor saving of it... all the amount of money says is how much the goods and service cost AT THAT TIME IN MONEY (prices are both a function of actual supply /demand of the goods AND the supply of money). And also what it costs now to invest in real capacity (vs just saving).
So I am no where near as concerned about the shortage of savings nor the apparently huge dollar estimate of 'future liabilities' as I am about what I perceive as a failure to invest in actual goods & services production NOW to meet those needs IN THE FUTURE.
Productivity (both effectiveness & efficiency) is the key - it always was and still is.
People see these huge dollar counts for SS & freak... well that is nothing new. That has happened EVERY generation when projecting dollar costs for things in the future... same old same old. Produce those 'goods' cheaply enough in the future & it all goes away. Don't do that hand you have real problems.
So as not to sound pollyannaish I realize we might really be hitting our head capacity wise in the future if we don't start investing more now in real goods & services capacity: energy (production & conservation) food & a higher quality lower consumption lifestyle.
There isn't enough 'savings' in the world to fill a 'lock box' if we don't produce enough goods & services to meet demand.
That is and will be the key going forward. I have no idea how it will play out... but I don't worry about the 'numbers' so much... I worry a lot about the stuff those 'numbers' should be able to buy.
When the reality of living in a global capital market comes back to bite us all in the ass with capital flight not even the chablis set of BAH-ston will be spared.
Yes energycon, I seem to remember in the 70's and early 80's when everyone said that, by now, everything would be in the crapper because we'd have run out of oil. I remember when i was a kid that communism was going to destroy us. Then it was the Japanese...we'd all be their slaves by now as they became the dominant global force. Now it's the Chinese and Indians that are going to overtake us. Oh, let's not forget we're all going to be underwater from global warming in 30 years too.
Please wake me when there is an original line about all of this. And globalization is here, not going away, and that's the way it is. Technology made it possible in a way never before. Deal with it. Or not and tilt your lance at windmills if you like. But I think finding ways to make reality work is far more interesting. And profitable.
Re: ipodius
Wait, you're telling me, to suck it up! The person who made a wise financial decision?
Or go live on an island somewhere so that you won't have to consider the broader good.
How is it to the broader good that people should have to work 40 years to even have a reasonable expectation of paying off their houses? Or have to make a choice between being their for their children or buying a house (ie. number of places where you can only afford a home with second income).
No one gave a darn about the broader good as home prices sky-rocketed and everyone selling became rich on inflated asset prices for the past 5 years. So why should I care about the broader good now that the equation is turning in my favor?
People's 401k's should be able to weather this economic downturn... no? Aren't older folks encouraged to shift their funds out of the stock market to keep the profit's they've made? So those who will be most hurt should be younger folks, and I'm willing to trade off my 401k value to own a home... please I would love it if went down 50% so I could afford to buy!
Sorry comrade... you're going to have to appeal to logic and reason and not emotions if you want me to believe that a bailout is good...
Brushing aside all the statistical details, I seem to see a really big possibility that what we are experiencing is NOT just another "business cycle" recession to be followed by an inevitable upturn into prosperity.
We may be experiencing a significant downward adjustment in our standard of living that will be long-term.
Too much borrowing, too much spending, and that's where you wind up.
but when do you stand up for things that are not right?
Corruption, lies, dirty business, bad wars, and all the rest have one solution. Vote. Put people in that will deal with them. What we got was this administration and the majority elected it. So there you go.
And some things are worth standing up for...voting rights, equal protection for all under the law no matter what their race, faith, ethnicity or sexual orientation is. But these economic discussions...fiat currency, the gold standard, the Fed, market interventions...that is going to happen no matter what. So is globalization and continuted technological displacement. Save the outrage for people like Angelo Mozillo who just built a huge scam machine and is now filthy rich while his "customers" are losing everything they have, even their dreams. You know?
Troy said: "...but the challenges are serious and the policy approaches of the past 25 years are NOT going to serve us well for the next 25."
Not to worry. They'll adapt and evolve, just like they always have.
Which reminds me of a story. The finance minister from a Communist country visits London, marveling at the variety, quality and amount of bread available.
He asks his host "So tell me, who is in charge of making sure London gets the right amount of bread every day?", completely misunderstanding that it's the result of the mutual cooperation (knowing, but also unknowing) of the different independent parties involved in the process.
But I'm an optimist.
Sebastia
YLSP, if you think that virtue is like some sort of return-deposit system where if you just behave a certain way, you'll be rewarded, you're going to have a long and very disappointing life. The world doesn't work that way. I'm sure I'm not the first one to tell you this. So yes, suck it up. Your actions do not guarantee anything, or that things will work out in the way you imagine such actions should. Welcome to adulthood.
dryfly, I stood up at the end of your last post and shouted AMEN.
That being said, manufacturing jobs, in the way some are thinking, are gone forever not just "offshored". Technology has taken the place of legions of hands, which you would see if you've spent any time in a modern car manufacturing facility. Robots welding, moving around the floor delivering parts, moving assemblies, putting pieces into position, and even cleaning up took the place of thousands of workers. What remains are more skilled technical jobs which, if you think of the average Walmart employee, they aren't going to be able to do. The people that used to tighten bolts and get overpaid for it (i remember my grandfather talking about floor sweepers at the GE making almost 20 an hour) have been displaced for good. So what do you do with them?
Exactly. That is the $20 trillion dollar question - these guys are NOT going to be able to program those factory robots anytime soon.
What's really scary is they are automating third world factories now too - there might be BILLIONS of these folks worldwide.
Maybe when oil gets really scarce they finish the cycle & return the the same fields & villages their ancestors came from in the early days of the industrial revolution. When energy gets expensive we'll be farming with 'labor' again.
ipodius,
Please demonstrate originality while asking it of others...your MO consists of erecting straw men for anyone who does not adhere to your worldview. Boooooooring.
Saw this on local news station last night. After commercial pick the on/off button at bottom 2of2 and video appears.
They couldn't even speak english and bought 500K homes! Last night they interviewed some other Spanglish speaking bagholders and it was worse than this video.
Groups of people facing foreclosure marched by banks in Antioch to demand help - 5/03/08 - San Francisco News - abc7news.com
For those not familiar Antioch, ca is in 50 miles east of SF. Hot and ugly, sometimes scary when you get close to Pittsburg, Ca.
3) are we investing enough NOW in real production, technology & infrastructure to be able to meet those real physical needs THEN (not just 'money projections')?
That has to come from savings. Think of the deserted island and you are catching a fish a day. You know if you make a net you can catch two fish a day then possibly make a shelter. You do not eat one day and make a net. You were living off the savings in your body of eating previous fish. There is no investment without savings. Infininte amount of claims of goods and services can be generated but the actual time for investment has to come from decreased consumption.
energycon, i could say the same of you. Do you have anything to contribute to this thread other than making statements about me? Practice what you preach.
ipodius said: "...Vote. Put people in that will deal with them. What we got was this administration and the majority elected it. So there you go...."
I just had to share this.
Our NC governor, Mike Easley, announced earlier this week that he was endorsing Hillary Clinton.
He was booed when introduced at the N.C. Democratic Party's annual Jefferson-Jackson Dinner last night, and had to speak over continued jeers.
I kid you not. Democracy in action.
Sebastian
Sebastian,
I make roughly 80k a year have very little debt,rarely eat out and only vacation back home staying with parents. Its just me and a part time 3 year old and I am feeling stretched. I can only imagine the average household with 2 cars and kids to feed and clothe.
I hate to say it but there is absolutely no way in hell we pay off the debts this country has ran up short of adding a zero to every bill. It would be cool to earn 800k a year though.
I have nothing in particular to add to these comments, but would like to say that all of you (even Sebastian, Grrr!) are in fine form today.
This is an informative, thought-provoking, and entertaining thread.
What's really scary is they are automating third world factories now too - there might be BILLIONS of these folks worldwide.
EXACTLY. You know, this is not going to come out the way I want it to, but thank God there are these service-sector jobs or we'd be picking up the tab to support a lot of these people. The point, of course, is lost on some around here because they don't think that deeply about the issue and spout words like "manufacturing" thinking of what that meant 30 years ago. That world is gone forever.
When I was working on a project in the Czech Republic for school (after communism) I spoke with the government official who was the most candid person I had met about this issue. He said "look, these people are completely unprepared for this world. What are we to do? We have to take care of them so for a generation, our government spending is going to have to reflect that. We have to feed and house them, and try to make sure their children get educated to break that."
Take a look at your average service-sector employee today. Do you think we've succeded in educating that person enough or training them for a job? Do you think these people are going to go to school and study for an IT jobs? To be RNs or medical techs? We need those jobs or these people will be on the dole. Think about it. It's dislocation, but no one calls it that here.
energycon, i could say the same of you. Do you have anything to contribute to this thread other than making statements about me? Practice what you preach.
Yeah, but your posts are filled with extreme generalizations and really do seeth with arrogance and self-righteousness. And you tend to attribute things to people's posts that simply aren't there.
Illustrative example: I could say something like "Well, the sun will rise tomorrow". You'd fire back, "Oh so according to you we're all going to burn to death tomorrow. I'm sorry but that's just not going to happen; now wake up, get with the modern program, and learn how to deal with. We're modern; you're not...haha, neener neener."
There isn't enough 'savings' in the world to fill a 'lock box' if we don't produce enough goods & services to meet demand.
dryfly, the line of 'demanders' is going to be quite a bit longer than one might first think, since we have been spending the rest of the world's savings and at some point they're likely to ask for the goods & services we promised. Quite likely before our productivity has increased enough to deliver. Broken promises all around - not a recipe for smooth sailing.
Bill writes:
I wonder how McCain will feel when, inside of 100 years, some other power has troops stationed in the US? Luckily for him, he'll be dead before then.
Bill | 05.03.08 - 11:03 am | #
Bill, are you brain dead? What a stupid comment. Go to a political blog to chunder your leftist trash. Dullard troll.
anoninCA again, and that post contributed what to this topic? do you know what ad hominem is? if you don't, look it up. And there is a solution if you don't like my posts. killfile me. i'd be delighted.
ipodius,
Capital flight is an unlooked for consequence, a risk from heedlessly flooding the global capital markets with bailout stacked on bailout under the umbrella of "the general good." As a society, we have been unsustainably consuming more than we produce for decades and the potential exists for hitting a tipping point that would result in significantly higher costs for all forms of debt in the USA.
Indeed, the world has the potential to behave in unanticipated ways.
ipodius,
I'd be a lot more sympathetic to that argument if many of the people who made it weren't the people who profited from the boom. That sort of talk would earn a lot more respect from me if it was paired with a discussion or claw-backs and how to avoid future moral hazard.
Many people here were pointing out for years that the housing situation was gong to end up in disaster. They were dismissed as cranks and idiots. Now they are being asked to participate in a "necessary" bailout of the situation by the same experts who, until just a few months ago, where denying there was anything to worry about.
If we punish prudence and reward both idiocy and swindling, long run we get what we deserve. We may be close to that long run.
Cheers,
prat
That has to come from savings.
Yes/no - the future capacity comes from 'deferred current consumption' that is invested... savings is one type of deferred consumption but not all savings results in investment.
The 'money value' isn't what's important - look at gold, it does 'nothing' yet people 'save' it - its what that money buys today in the form of 'future capacity' that is important for future generaations.
Understand - I am NOT in favor of over consumption - I've said that here over-n-over and why I'm not upset about the dollar falling in value - it slows our consumption of 'stuff' even if it doesn't immediately slow our consumption of 'dollars'... that is step one in slowing REAL consumption though and sending us a message to produce more.
But saving in and of itself will NOT save the future... that is my point. Anti-SS freaks don't understand that - its not the future cost of SS in future or present dollars that is the problem it is the current consumption & lack of real investment that is the problem. SS is just one of many possible mechanisms to transfer those future goods among the population - but the goods have to be there first or it is a no go. That is the problem with ALL schemes to tackle future retirees - private and public.
energycon, my basic point in this thread was that some were pointing to a loss of manufacturing jobs as, someone, indicative of a problem and pointed to the rist of lower-paying service sector jobs as an evil. My observation from reading these was that, obviously, these people have never set foot in a modern manufacturing facility because, if they did, they would certainly know that that greeter at Walmart certainly wasn't going to be working there. dryfly got that point instantly, because, he's in manufacturing and knows. Hence his thoughtful reply.
And I am still struggling with the "bailouts" you mention because the only one to date has been those checks going out in the mail. All other actions have not, at this time, incurred any losses. The losses so far have been on shareholders, bondholders, hedge funds, and those with derivatives exposure.
Quite likely before our productivity has increased enough to deliver. Broken promises all around - not a recipe for smooth sailing.
MLM | Homepage | 05.03.08 - 1:00 pm | #
That just depends - after all - those other demanders borrowed us MONEY... we will repay in MONEY. Its what we can buy with it that matters - did we produce enough?
I am not certain at all that we have as big a problem as everyone supposes from that front - if we focus on the real physical inputs.
On the other hand after watching corn, beans, oil & metals sky in price VERY RAPIDLY - I'm not sure a 'balanced budget' and current account surplus NOW would make us 'safe' for the future.
That is my point - made over and over - the dollar cost projections NOW - for needs 30 to 40 years in the future - IN DOLLARS - is a fools errand. Though we all seem to be eager to carry that basket & head off on that errand.
No one gave a darn about the broader good as home prices sky-rocketed and everyone selling became rich on inflated asset prices for the past 5 years. So why should I care about the broader good now that the equation is turning in my favor?
Must admit, it's a good point. Tough sh*t if others don't agree. It's just as valid an argument as theirs.
That sort of talk would earn a lot more respect from me if it was paired with a discussion or claw-backs and how to avoid future moral hazard.
btw praetorian, i am NOT anti-regulation. the end result on this should be more regulation on the finance industry and even hedge funds in my view. And I do have notions of what that regulation should entail. I also think some of these people should be criminally prosectuted and I expect there will be sacrificial victims, just like after Enron. Then the world goes on and in 10 years people forget.
And yes, many did say things about housing. But for all time people have participated in speculative bubbles. being right is besides the point. it has to be mopped up after because, well because people want it mopped up and the greater economic good entails it. You mop up and take measures to make sure it doesn't happen again. telling everyone you were right will win you no respect, nor should it.
So why should I care about the broader good now that the equation is turning in my favor?
A lot of people think that the economy is turning in their favor just now, about to reward their virtue as prudent savers and investors. I fear those people may be in for an unpleasant surprise.
So why should I care about the broader good now that the equation is turning in my favor?
Because, unfortunately, they're the majority, not people like you.
ipodius,
As the collateral quality continues to deteriorate on the paper held by the Fed, do you believe they will push that all back on the balance sheets of the banking system?
And you are certain in your knowledge that there are no opportunity costs in the actions taken by the Fed? And that the short term 'gains' are greater than the long term costs of the alternative(s)?
I am not certain either way, I just see some huge risks that others appear to be ignoring...the one thing that I am certain of is that just as the benefits of the latest round of 'growth' were disproportionately distributed, the costs of will be as well.
the one thing that I am certain of is that just as the benefits of the latest round of 'growth' were disproportionately distributed, the costs of will be as well.
Oh yeah. Safe bet that, for sure. Think of the stock market crash of 1929. How many of the people living in misery in 1932 were stock market speculators? How many of the young men killed in 1942?
Sebastian, you are a moron.
Obamabots will pack any meeting they are allowed to get in, and they will dominate the meeting with their love and fervor for their candidate.
Most voters aren't as passionately committed as the Obamabots. They just drink a few beers and go vote.
But a vote is still a vote.
NC vote will be closer than you think. Just watch.
I am not certain either way, I just see some huge risks that others appear to be ignoring
actually, energycon, i agree with you about the risk. but i don't really know at this time if no action was better than the actions taken. it's too early to say. so i remain impartial. that impartiality is taken here as tacit approval. i'd like to believe that the fed made informed and educated decisions. so for now i give them the benefit of the doubt and recent market conditions seem to be on their side. that is subject to change, however, but my point is to save the outrage until that risk beoomes more clear and the risk on non-action better known. no taxpay money has been destroyed so far. only by those checks going out.
ipodius said:
Your actions do not guarantee anything, or that things will work out in the way you imagine such actions should. Welcome to adulthood.
What did I say that made you think I believe this? The original comment I made was in response to House subcommittee member who said something like, few benefit from increasing foreclosures. That statement is just bass-ackwards, since there are many people who will benefit from foreclosures and falling house prices. So because I point out this member of Congress is not necessarily correct, I'm some immature person who thinks I'm entitled to success?
Regardless, I think if anyone should "sacrifice for the greater good" it's the older people. I don't think some of the older folks remember what it's like to be young. When my dad was the same age as me he bought a house and didn't have to spend more than 3x median income for it. This was in the Washington DC area, it was a 3x2 ~ 1800 sqft... and where I grew up. To be under 30 in this country means you have to choose between a) family, b) money, and sometimes trade off health insurance. I'm not sure this happened 30 years ago. By the way, you were able to live on one-income. The changes in that have occurred in the meantime mean that now the American lifestyle, or American dream can only be maintained by a 2-income household, hence my joke regarding the repeal of child-labor laws so we can all have 3-income households. By nature having a 2-income household means you have to trade off family.
Honestly, we know some missionary friends living in the Southern California. They live off of donations, and were trying to find a house. One of the older people they work with suggested, "why don't you just buy a house...", these are houses that are being offered at over $1M, and their suggestion was for this family on an unstable income to buy a house?! Talk about a dislocation...
But as we live in a democracy dominated by baby boomers (which you pointed out), they can continue to put off dealing with the issues that are constantly coming up in this blog and pushing them off on my generation and our children. I don't mean this to be a slam on boomers in general, but it's pointed out that this is a democracy.
Anyway, I'm just sharing my experiences and the way I see things... as are you.
Its what we can buy with it that matters - did we produce enough?
My point was that we aren't just talking about 'us'. We're talking about a whole lot of soon to be 'Angry Savers' in the rest of the world who loaned 'us' money under the illusion that they would be able to get paid back (with interest) in goods and services for it.
My outlook is that money is promises. We are now busy reneging on those promises precisely because we don't have the capacity/will to keep them by providing goods and services.
You see a microcosm of this in the conversation in this thread regarding having done the right thing and saved, vs. having participated in the party. The savers are rightfully pissed off.
So will we have the productive capacity to keep everyone in the U.S. fed, clothed and housed in the future? I would think so. Will we have the productive capacity to maintain the illusion that our promises will be kept? No way. In the sweeping away of those illusions lies much trouble.
many were concerned that without intervention the problems would grow worse
What they ought to be concerned about is that with intervention the problems will become even worse than that.
energyecon said: "I am not certain either way, I just see some huge risks that others appear to be ignoring..."
Are they really being ignored?
Credit spreads are high, the stock market went through a substantial -18% correction before it bottomed-out, the economy slowed down, unemployment crept up a bit, Congress and the President have passed/are working on legislature to help out, the Fed has acted dramatically to address the problems, and those problems are regularly appearing on the front pages of newspapers.
Those are all responses to the risk, and they're pretty significant ones.
If even our constant-state-of-denial-everything-is-great-we're-winning-the-war-on-terror President is complaining that Congress isn't doing enough or acting quickly enough, who else is left that doesn't get it?
Sebastia
I wonder how McCain will feel when, inside of 100 years, some other power has troops stationed in the US? Luckily for him, he'll be dead before then.
Bill | 05.03.08 - 11:03 am | #
Bill, are you brain dead? What a stupid comment. Go to a political blog to chunder your leftist trash. Dullard troll.
cats and rats | 05.03.08 - 1:02 pm | #
mock turtle chimes in
i take exception to both comments...but here's something to ponder
if the debt and the economy go the way we fear it might...
our country will become a second rate military power...unable to support military spending that now amounts to around 3/4 trillion per year incl associated costs often hidden..
and even if we are not relegated to second tier status...there will be several viable competitors..BRIC countries for possible example.
so now what happens if THEIR interests in 50 years, much like our interest today, result in one of these competitors taking military action in central america...will we in 50 years have the economic and military might to prevail in our own hemisphere???
Ipodius,
You empty your wallet first. You remind me of old time gospel preacher who passes around a plate for money to benefit the poor but as he's leaving the town square he goes to the strip bar and blows all the money he had.
The next day his sermon starts off with a passage of how times are tough, people need to bind together to defeat evil and save our poor bretheren. The plate get's passed around again.
Sorry the god know doesn't need a dollar bill and my family comes foremost. I will not pay for someones house. The problem that you fail to see is not everyones dumb and can't figure out a robot or software. Some of us will figure out a way for us not to pay for any of it.
Rewarding greed, envy and stupidity only makes us more greedy, envious and stupid. Sorry I fail to see your point of view. Your view seems to be obstructed and obviously while you were on the SS Beagle with Darwin you argued agains natural selection and evolution of species.
Recessions happen, depressions we can only hope not, jobs are lost, people lose houses (since the beginning of man) yet life will go on.
You want to hand this to your children? Then I would say your as selfish as the rest of the greedy, envious circle that created this frigging mess.
Learn from mistakes and move on. If the foreclosure victims can't take it find an island and borrow from each other..
sorry for the typos...published itself before i could spell check
Anyway, I'm just sharing my experiences and the way I see things... as are you.
Yes, YLSP, and your thoughts are appreciated. But you may take comfort in knowning that, actually, it's always been the same. Each generation goes through the same process. I can remember my mom and dad talking about buying the last house they did when I was 12. They talked and talked because it was going to be a stretch for them. The price? 39,500. Everything is relative.
And you should be cheered to note that I have been doing fine off my one income for all of my adult life. So it can be done. I even put myself through grad school twice. The major point behind my posts is that if you pay attention to your own actions, read situations for what they are instead of what you would like them to be, and follow your own set of codes, you'll do well because you'll see opportunities presented to you. I always believe in trying to play the house instead of betting against it.
yogurt- "What they ought to be concerned about is that with intervention the problems will become even worse than that."
Granted, there is tremendous moral hazard ahead. Had there been no intervention, everyone responsible seems to agree that the system would have melted down. The Fed chose a path that solved the immediate problem, but created another. Such is life.
What they MUST DO now is impress upon the financial community the circumstances in which they will NOT come to the rescue. If they don't, expectations for bailouts will rise going forward.
Give Ben a break. He's done a nice job so far, given the circumstances. He inherited a nightmare.
YSLP said: "...But as we live in a democracy dominated by baby boomers (which you pointed out), they can continue to put off dealing with the issues that are constantly coming up in this blog and pushing them off on my generation and our children."
Why is it always with the focus on the negative on this board?
My wife and I (both baby-boomers) have had (and will likely have more) extensive and expensive dental work done, the result of less-than-ideal dental hygiene when we were younger.
Our teenage daughter, however, has never had a cavity and likely never will, the result of medical advancements and of our passing-on good dental habits to her. She'll save untold thousands of dollars over her lifetime from that single improvement.
One day she's also going to inherit a house that'll probably be worth $1/2 million (conservatively) and who knows how much else in assets.
My point is that there are always compensations, it's not all bad, it's just that the bad gets all the press.
Sebastia
rich said: "Sebastian, you are a moron."
But still smarter than you, so that's something.
S.
Rewarding greed, envy and stupidity only makes us more greedy, envious and stupid. Sorry I fail to see your point of view.
I'm sure these people in FC don't think of anything as a "bailout" and, so far, it's all been a lot of noise with very little result. it's like why you tell someone to boil water when a baby is being delivered. there's no use for the water, it just gives someone the illusion that they're helping.
and all this bailout talk is just that. talk. talk talk talk...blah blah blah. the number of people who will be "bailed out" will fit in a couple of city buses. but they're doing something! just like the thinking that $600 is going to help an average family. how out of touch do you have to be to even think that? even 1200 isn't going to do much right now. if this program helps the next two quarter's gdp by more than .1 i'd be astonished.
so i'm not as outraged as you. this is just bread and circus. now if you want to get me going on countrywide....
mp -
I beg to differ. We are already seeing the expectations for bailouts rise (student loans, car loans, etc., etc.), and Ben is responding in the positive.
Bear was Ben's chance to save the system while providing an object lesson in just how terrible the punishment would be to equity and debt holders, and management. He failed to thread the needle.
We're just getting started.
I would like to add one more thing.
Conjure and I criticized the Fed when they failed to immediately get on the phones after the failure of the Bear Stearns hedge funds last year. Had they done so, this crisis might have been averted, or its severity lessened. The Fed was asleep at the switch and failed to see how those failures would ripple through the system.
They "get it" now.
mp,
Clearly - with respect to the potential severity - are you as sanguine in the question of liquidity vs. solvency?
And if they do, is there another end game besides monetization?
MLM- "He failed to thread the needle."
It's quite possible, and may even be likely. My point is that doomsday was not necessarily averted, but it was at least postponed.
Yes Sebastian, we should look on the bright side. For example, here's the price of gas now in various countries:
Rank Country Price/gal
1. Bosnia-Herzegovina $10.86
2. Eritrea $9.58
3. Norway $8.73
4. United Kingdom $8.38
5. Netherlands $8.37
6. Monaco $8.31
7. Iceland $8.28
8. Belgium $8.22
9. France $8.07
10. Germany $7.86
111. United States $3.45
Source: AIRINC
Yes the US is 111th on the most expensive places to buy gas list. Notice the number of EU countries in there. They haven't fallen apart about it. Of course, they don't drive their fat asses around in monstrous SUVs either, going from drive-though to drive-though
My point is that doomsday was not necessarily averted, but it was at least postponed.
Oh great. Now you tell me. And I just spent the morning taking all the rice, beans, ammo, toilet paper, forever stamps, and canned goods out of the bunker i had built when the conjure clock hit 12.
The US economy is far more sensitive to the price of gasoline than any other OECD country. The prices in the EU are a function of very high taxes on gasoline that have promoted significant investments in conservation.
Energyecon, relatively speaking, I am not as sanguine as Warren Buffett. This thing has a long way to go before it unwinds. Thus far, Bernanke's moves impress me. He's made the best of a very bad situation.
As to end games, we're not there yet. If it reaches that point, there are only two solutions of which I'm aware: liquidate the economy or buy a few years at most by inflating it.
Personally, I'd liquidate it.
ipodius- "Oh great. Now you tell me."
Sorry, ipodius, I thought you were on the memo's distribution list.
dryfly: The three questions you have to ask to get your head around the problems vis-a-vis future populations are...
1) can the society produce enough goods & services AT THAT TIME IN THE FUTURE to meet the needs of that population - very young, working age & elderly combined?
2) is there a mechanism for equitable transfer & transaction of those goods & services?
3) are we investing enough NOW in real production, technology & infrastructure to be able to meet those real physical needs THEN (not just 'money projections')?
Dryfly, you write the best comments on here. Excellent explanation of what matters in the future and what doesn't.
mp,
Many here may not be sympathetic with the viewpoint, but indeed in many ways Bernanke is a bagholder here.
That is the question - do a Mellon vs. an Easy Al - I have the uneasy feeling that deferring the pain is being financed on the mother of all ARMs...
C&C
You need to realize that Buffet talks his book just like any other trader. Remember he's long equities.
"Derivatives are weapons of mass destruction" - but he uses them all the time as part of his portfolio management.
Sorry, ipodius, I thought you were on the memo's distribution list
(as he's putting the cans back in the box...) no, it's probably my fault. most likely i only read the bullet points in the top summary. but i am debating whether the forever stamps are worth the space.
Billionaire Warren Buffett, chief executive officer of Berkshire Hathaway Inc., said the worst of the credit crunch has passed for Wall Street and the Federal Reserve probably averted chaos by rescuing Bear Stearns Cos.
You know, I don't read this as sanguine or calling a bottom. To me he is saying that now the financial firms can unwind their junk in an orderly manner rather than having a systemic crash. It doesn't mean there isn't still quite a lot of junk to unwind.
My point was that we aren't just talking about 'us'. We're talking about a whole lot of soon to be 'Angry Savers' in the rest of the world who loaned 'us' money under the illusion that they would be able to get paid back (with interest) in goods and services for it.
No a good many of 'them' loaned us money with the intension they could keep their currency weak, export like hell into our economy and build up their industrial & 'offshore' services base from nothing.
In which case it was 'Mission Accomplished'.
If private 'savers' got in front of that train - in front of their own central banks - too bad for them. Maybe next time they will be wiser and 'invest' in their own country and not 'save' in ours. Heck they could have invested in growing more rice for instance instead of producing cheap Nike shoes...
This as they say in the schools is a 'teachable moment'. I hope they & we all learn the lesson.
Meanwhile the lesson should be projected into the future - saving money doesn't grow rice - now or in the future. Only growing rice grows rice.
savings is one type of deferred consumption but not all savings results in investment.
I really am uedubucatated in all this but the savings(time&labor)withheld from the system makes the savings that results in investment more valuable. It would seem to me the more efficient the savings vehicle is the greater the investment capacity.
Ipodius, many here seem to believe that Conjure and I are doomsayers. We're not. We just call it as we see it.
All problems can be fixed and, in that sense, we're optimists.
Emma Anne- "To me he is saying that now the financial firms can unwind their junk in an orderly manner rather than having a systemic crash."
I think that's a good reading, but I'm still not sure the junk can be unwound in an orderly manner.
dryfly- "Only growing rice grows rice."
Wisdom.
All problems can be fixed and, in that sense, we're optimists.
Oh yes, and I agree. Some fixes are, however, painful. I'm a cautious optimist too.
And i've decided to not put the forever stamps back and, instead, put the box of p0rn in there. That would barter better anyhow
It would seem to me the more efficient the savings vehicle is the greater the investment capacity.
One would think so though I am not certain. The think to remember I believe is that saving in the form of 'deferred consumption' is essential... but saving alone WITHOUT a mechanism or incentive favoring real investment and where the saver's 'coupon, chit or share' entitles him to a part of the future production resulting from that additional future capacity... is virtually worthless.
And I see no way we can have that 'future claim' if we don't control & own the factors of production. So getting all wound up about the SS deficit is getting all wound up about a lot of 'paper'. Focus on what the paper would buy, do we have enough/produce of it and are our 'chits' or claims on a piece of it 'valuable' and 'enforceable'.
I think we are missing the fundamentals & focusing on the paper because we can't get out heads around the fundies but can easily 'add up' the 'paper'. Anyone with an excel spreadsheet can do that.
ipodius:
I'm not jumping on you...
but I'm not sure a bailout didn't happen.
I won't belabor the point, but I still argue that the people bailed out were the Bear bondholders and also JP Morgan Chase (who had substantial counterparty risk to Bear if it fell).
sure, the stockholders lost a lot, but had the Fed not acted they would have lost it all... instead they got $10 a share or whatever.
also, we can't see what's happening with the the various Term lending facilities that have been INCREASED of late.
I would call that a potential bailout as well, since the players are getting "below-market" rates on their questionable collateral.
thoughts?
again: I guess my concern about this is that the situation is not transparent.
the problem IMO (and no, not my "the world should be fair" worldview) is that there is a lack of transparency in the marketplace.
the Fed engenenders this lack of transparency by allowing these very non-public facilities.
creating zombie banks in effect, no? except they're hard to identify because they look just like regular banks... they're like Pod People Banks
well yearning, the fed didn't have control over the stock price paid. they're only interest was in preventing the unorderly unwinding of BSC assets. Of course JPM had that interest too, since their exposure to the risk was very high. so if you're Jamie, what do you do? you take them but make it more palitable to shareholders by insisting on the 30b (original) backstop from the fed. the fed does due dilligence on the situation, and says fine because the BK and massive unwind effects are worse.
shareholders raise a ruckus, so Jamie goes back with $10, based on the money he had set aside for claims anyhow, and takes 1b off the fed's plate so they can sign off. the shareholders really did, however, get screwed. so did the employees who had stock as bonus. I'm all good with this transaction, btw, and think it is too early to tell if the fed will suffer loss. there is risk. but if not, Ben pulled off a very savvy move.
the raising of the auctions raises my eyebrow, but i believe what you are seeing is the effect of interest rate cuts over. the fed will now switch to pushing liquidity into the system until the banks lend, and some unwinding of positions happens. the fed doesn't care one whit about solvecy, as they know there will be massive losses. what they care about is the system, and they are acting to keep it functional. no matter what.
and, btw, all these operations are sterile, so if i read one more "printing money post" i swear I'm taking the ammo out of the bunker and up to a tower.
isn't this all really transparent though yearning? you can look at the fed's balance sheet. i guess what you're referring to is the actual collateral and such. but why does that bother you? would you be able to put a mark to it? it's all conjecture at this point, isn't it?
and that, yearning, is the actual problem. not insolvency at all. the problem is uncertainty. you couldn't put a mark to the assets, and neither could i. i could guess, but that guess is only good at this point in time. what will the mark be 6 months from now? 1 year? that's the problem with the financial market, NOT solvency. Look at all the money raised in the last couple of quarters! there is plenty of cash out there...solvency is not the heart of the matter.
dont worry DryFly
i know a lot of so called "savers" in eastern europe who invested into technological stocks 5 years ago at the bottom and now with the easteuropean currencies appreciating higher than euro and concurent fall of dollar, have lossess of 70+% even tough they bought at the bottom of nasdaq.
best deal was to put money in original appreciating currency to bank in CD
the best thing is, that my friends are still investing in money market and other funds even tough i repeatedly told them about various problems (iliquid paper/counterparty risks). well i am finished with trying to help them. they can pay the fees for nothing if they want so much ...
a wise person learns on mistakes of others, fool on his own
I'm still not sure the junk can be unwound in an orderly manner.
Well, "orderly" is a relative term.
so if i read one more "printing money post" i swear I'm taking the ammo out of the bunker and up to a tower.
LOL, I will refrain for the sake of Boston.
saving money doesn't grow rice
Saving money grows tractors, terraces, and irrigation systems. They grow more rice.
I'm in complete agreement with your description of the motivations for FCB's to buy our debt. But, we didn't have to throw a party with the money. That was our decision.
If you think we can somehow selectively default on our promises, picking only those whose motivations we don't like for having made loans to us, I suggest you will in the end be proven wrong.
Saving money grows tractors, terraces, and irrigation systems
Pretty sure dryfly was contrasting investing versus hoarding.
LOL, I will refrain for the sake of Boston.
good lord, the natives here can't even take little blinking robots around never mind rifles. lol this is "only criminals and cops have guns" territory!
But I do want to say this again to think about: the problem is that no one knows what these instruments are going to end up being worth because no one knows how the RE endgame will play out, and when it will happen. That's the issue at the absolute heart of this matter.
What is the NPV of these cashflows? Well, that depends on who defaults. What is the counterparty risk? Well, that depends on how many defaults there are. When will we know? That depends on where the market ends up. All the models have "i dunno" as the input. In fact, there is argument that these are worth MORE than people think right now. So that's what is gumming up with financial works.
My point was that we aren't just talking about 'us'. We're talking about a whole lot of soon to be 'Angry Savers' in the rest of the world who loaned 'us' money under the illusion that they would be able to get paid back (with interest) in goods and services for it.
I'm not sure that this is correct. Watching those other countries, they seem to have loaned us money so that they would have jobs in the present, not a claim to goods and services in the future. Really, they've been just as short-sighted as we have.
Saving money grows tractors, terraces, and irrigation systems
Pretty sure dryfly was contrasting investing versus hoarding
Oooops, investing in things that return an increase in production versus products for immediate consumption.
Really, they've been just as short-sighted as we have.
Why am I sitting here thinking of the long running controversy between the evil mortgage lenders... 'They should have known not to make those loans, they only did it so that their executives would get a big bonus that year.
And the evil subprime borrowers... 'They should have known not to take that loan, there was no way they could pay it back.
Guess we really are all subprime now.
"ipodius writes:
But I do want to say this again to think about: the problem is that no one knows what these instruments are going to end up being worth because no one knows how the RE endgame will play out, and when it will happen. ...
What is the NPV of these cashflows? Well, that depends on who defaults. What is the counterparty risk? Well, that depends on how many defaults there are."
The Bank of England's Stability Report (out last week; available for free on their web site; look it up yourself) looked at the valuation of these securities. They argued that the securities are currently irrationally cheap (versus being irrationally expensive last year).
I'm not a credit person, and I have no opionions on the NPV either way. However, it is obvious that there is a shortage of cash buying firepower out there - there's a lot of cheap fixed income assets. And many of these are sovereign-guaranteed assets (e.g., theoretically credit risk free). I see no reason to disagree with the belief that these MBS are under-priced.
For all the carping and whining about the Fed's operations, I still don't see them taking significant credit risk. I have not looked at the details, but I believe that there are a number of standard protections for the Fed:
(1) They are full recourse (not including the BSC deal; that JPM only absorbs the first $1bn). The counterparty's equity is backing up the loans.
(2) They probably monitor the collateral fairly frequently. If it drops in value, the counterparty has to pony up more. They thus are protected from falling collateral values (to an extent).
(3) If the counterparty defaults, the government probably subordinates other debt holders, not the other way around. Thus the whole balance sheet of the counterparty may effectively be the collateral, not just what is posted.
(4) The collateral is presumably fairly sound and has already been marked down.
The Fed can fund these positions at the T-Bill rate. The odds are that these operations will be a serious profit center for the gov't.
iPodius Regulus thusly intoned with regal voice:
Of course, [Europeans] don't drive their fat asses around in monstrous SUVs either, going from drive-though to drive-though
Ah, but they do drive:
Americans use cars for 88% of motorized passenger-miles. In Europe, the figure is 78%.
Better still, this tidbit of per capita daily driving:
Sprawling auto dependent auto centric; Los Angeles 23
Transit darling compact city new urban poster child; Portland 24
Europeans generally pay their high taxes via consumption conduits. Here in the US we pay our high taxes on production metrics.
What would the US do with $3.00 per gallon equivalent Federal Excise levies on transportation energy? If past is prologue then we will misapply the revenue to wasteful transit subsidies, corporate investment and research subsidies and extremely ill founded urban development subsidies. None of which have ever had the intended results. Oh, and $3.00 per gallon? $450 billion dollars.
. I remember when i was a kid that communism was going to destroy us. Then it was the Japanese...we'd all be their slaves by now as they became the dominant global force. Now it's the Chinese and Indians that are going to overtake us. Oh, let's not forget we're all going to be underwater from global warming in 30 years too.
at no time during these threats was the sp500 trading at 22x E.
I remember when i was a kid that communism was going to destroy us. Then it was the Japanese...we'd all be their slaves by now as they became the dominant global force. Now it's the Chinese and Indians that are going to overtake us. Oh, let's not forget we're all going to be underwater from global warming in 30 years too.
Yup, there are always false alarms. The boy who cried wolf. But at the end of that story, the wolf really does show up, and when they hear the alarm, everybody says, "Yeah, right."
MLM writes:
[about;] saving money doesn't grow rice
Saving money grows tractors, terraces, and irrigation systems. They grow more rice.
No. Saving money used to do that. Now it backfills speculative financial bets gone sour. Putting money into the extant US financial system is not going to generate economic stimulus until after the banking system has been made whole. That has been the entire point of the last year of irrational Fed policy; to help the banks. Lowering FFR done much for mortgage rates? Why? Want to help the economy? Float the arbitrary "Prime Rate" from extant 300bp to market rates which would likely be 75-125bp on top of FFR. Deeply negative real interest rates worked once. Why not again? [Please don't answer, I know, this last is just rhetorical flourish.]
there so Totally Printing Money
ALl day Printing Money
The FED prints money all DAY LONG.
Gives it to loser's LITERALLY
ie? BSC
Print Print Print
Criminy RussianRoulette, take it back! Don't make ipodius go up in the tower.
... Money today means nothing in the future & vice versa - even when 'inflation' is factored in (at least from today's guess of what inflation will be).
1) can the society produce enough goods & services AT THAT TIME IN THE FUTURE to meet the needs of that population - very young, working age & elderly combined?
2) is there a mechanism for equitable transfer & transaction of those goods & services?
3) are we investing enough NOW in real production, technology & infrastructure to be able to meet those real physical needs THEN (not just 'money projections')?
I think that's a good way of putting it. But I think the whole point of money is to abstract away these things so you don't have to think about the details.
Ideally if you're making money and putting it into the bank that means the above problems are being solved. And people have the expectation that this is the case.
I think however this relationship between money and the above factors is breaking down primarily due to the actions of the Federal Reserve (and the politicians that influence it) and secondarily due to Wall Street.
Once people no longer distinguish between money and the reality it's supposed to prepresent it just becomes too darn profitable to wedge yourself in between the two to take advantage of peoples' ignorance.
So I think maybe human nature all but guarantees that a central bank is going to turn into an intrument of mass abuse at some point. The whole reason people become politicians, afterall, is for power (never mind the 0.001% of them that are actual idealists). Give them an instrument for subersively co-opting peoples' wealth and I think it's going to be used for that purpose.
And this ends up undermining that equitable distribution of goods you point out.
And that's the real point here:
What happens when people realize that the expectations they had about money and savings were not only wrong, but were in fact used as a means to deprive them of wealth they had earned through their own efforts and put in various savings and investments for "safe keeping"?
History seems to suggest that can cause a major breakdown in the cooperation between individuals, businesses, and governments that's essential to the kind of prosperity we have today. Technology and productivity can't make people trust each other.
Worse, if the benefits of technology and productive are spread unevenly they can become a means for further concentrating wealth or for outright subjugation.
The more history I read the more I start to realize that simply because of human nature one of the most fundamental obsatcles to the stability of a society is the concentration of wealth. In fact most proscriptions against marriage between close relatives are not to prevent inbreeding (our instinctive behavior does a remarkably good job of avoiding dangerous procreation), these kinds of laws usually have their origins in preventing excessive pooling of wealth in specific families.
Yet most people get up in the morning with the goal of accumulating wealth in mind. And the fact that this goal gets people out of bed to begin with accounts for a great deal of our prosperity.
But if a handful of them succeed too well that negates all of the benefits and and ultimately bring about an end to individual freedoms.
I'm starting to think that there was a great deal of thought and hard won knowledge that went into early attempts to decentralize and add transparency to power structures in this country.
I think the structure of our financial system and especially the Federal Reserve are becoming anathema to that kind of thinking.
Hopefully other factors like information techonlogy and expanding free markets in other countries will counteract those effects, but I wouldn't use that as an excuse to be complacent about it.
I think Wall Street in combination with Washington's help via the Federal Reserve (bought and paid for) will happily set up a dictatorhip in the US if they can get away with it.
It sounds conspiratorial, but given what we know from history it would be surprising if they didn't at least try.
I know I would if I were in the position to do so.
The only reason I complain about Wall Street and the Federal reserve is because I'm bitter about not being in the position to be plundering the wealth of the masses.
But I'll think of something yet.
Just you wait and see.
isn't this all really transparent though yearning?
no it is not.
i guess what you're referring to is the actual collateral and such.
partly.
we also don't have transparency in terms of WHO is getting this collateral.
why doesn't the fed publish names of banks who get the collateral? (rhetorical. of course I know that this would cause a run on that bank)
isn't this what the discount window was for? so that banks could have access to liquidity IN TIMES OF NEED AT A PENALTY RATE? instead we have a new fed that works in secret to fund secretly against secret collateral. and not at a penalty rate.
would you be able to put a mark to it? it's all conjecture at this point, isn't it?
it doesn't matter. I still should be able to see it and decide for myself if I agree with the mark that the Fed is using.
The fed "assures" us that they have "overcollateralized" these funding facility loans. Then let me see. There's no harm in that, is there?
I hypothesize that the collateral is worse than the Fed is letting on. but who can say since we can't see?
circumstantial evidence of inbreeding
exhibit A
extensive and expensive dental work done, the result of less-than-ideal dental hygiene when we were younger
And I thought he stayed away from derivatives like kryptonite.
curiouserandcuriouser | 05.03.08 - 10:42 am
They came with the reinsure he bought years ago and they can't figure out kill it.
Sebastian'sWorld
Climbing up towers and sniping may not be useful to society.
@bondguy:
that is a whole lot of "probablies" and "presumablies" isn't it.
but that's all we have to go on.
the fed has PROBABLY overcollateralized, whatever that means
The fed is PROBABLY monitoring this situation
The fed will PRESUMABLY force banks to ante up more collateral if their original collateral falls in value (but what to do if that would cause the bank to become even more insolvent?)
the collateral is PROBABLY marked down (like all the other level III assets I presume?)
again, the problem is we have no transparency
All I know is that all this secrecy is often a harbinger of ABUSE OF POWER.
Here's what I want:
I want a list of all banks that are using the funding facilities released to SOMEBODY. I don't see how the Fed has this authority to do all these transactions UNSUPERVISED.
I want a list of all the collateral followed by SOMEBODY.
at some time in the future, ALL of this is to be released into the public for reexamination.
All executives of these banks should take MASSIVE reduction in income if they need borrow from the fed. We can pay them about as much as a typical govt employee, since they are sucking on the govt teat. that income should be routed back to the bank, since it is insolvent.
The banks should be allowed to borrow from the Fed at lower than market rates for now, but pay a massive penalty once the credit markets are stabilized.
you can argue that "they aren't insolvent" all you want. but as we say "Markets can stay irrational longer than you can stay solvent".
normal people have to learn this the hard way. but not the big banks. they get a non-bailout that really reeks to high hell.
Please wake me when there is an original line about all of this. And globalization is here, not going away, and that's the way it is. Technology made it possible in a way never before. Deal with it. Or not and tilt your lance at windmills if you like. But I think finding ways to make reality work is far more interesting. And profitable.
This kind of thinking was prevalent before WWI. People saw an everlasting age of cooperation and prosperity due to a rise in technology and international trade.
Remember those idyllic World Fairs in the early 1900s?
Doesn't mean this time it's not the real thing, but history is full of examples of golden ages of technological and intellectual progress suddenly coming to disasterous ends.
Good times too often become an excuse not to think ahead.
ac and Yearning,
Long ago, mankind invented the multiple sentence paragraph to condense ideas. It was a marvelous technological breakthrough.
But then came PowerPoint, and mankind regressed back into the primordial slime.
MLM writes:
But then came PowerPoint, and mankind regressed back into the primordial slime.
A Microsoft product... heh.
And on the 8th Day, tired of all this God stuff and all the problems thisw God stuff hath generated his progeny created the Mac.
And on the 8th Day, tired of all this God stuff and all the problems thisw God stuff hath generated his progeny created the Mac.
Leading most of my professors to run PowerPoint on their Macs.
There is not enough money or information out there to get the various debt instruments trading at consensus pricing with small spreads. So far most of the people bringing money to the table are vultures and asset based lenders.
Vultures are not the least bit interested in reaching a compromise price to re-establish credit markets with narrow spreads. They are interested in buying at a price that is just about guaranteed to yield 20% plus in the first year. The lenders won't sell at those prices, so the markets remain frozen and the lenders continue to have constipated balance sheets.
If that were the only problem, then Ben's "asset based loans on easy terms, no questions asked" would be a pretty good solution giving the banks time and capacity to make enough good loans to earn some money and pay off the old loans on the questionable collateral.
Two questions:
1) What are the banks going to make good loans on so they can earn their way back to solvency? I don't think they're really going to make enough money to pay off all those bad debts they are carrying when there is zero demand for the sliced and diced securitized products they've been hawking for the last few years.
2) Who is minding the stores to get value from the so-called collateral the banks have dumped on the Fed? Here is where Tanta comes in. The evidence is overwhelming that loss severity on home mortgages will be a multiple of what it needs to be because the banks don't have the capacity to process workouts in a timely manner. I think the same thing is going to happen for CRE, especially because the capital structures are so complicated that nobody knows what they own. Plus the complicated capital structure really means that the same brick and mortar project has been sold in multiple forms to multiple investors. Each project that craters will cause defaults that are a multiple of the cash losses.
The economy can't be all bad if we are setting records.
Regarding FED's collateral acceptance policy - Why they taking credit card and auto loans now? Because banks have nothing to pawn anymore??
We use resources via markets that favor the powerful who control creditmoney, weapons and resources.
Knowing this, why would any rational person experience disappointment with reality?
Who's rational?
Even if they were free and fair, our decisions may not be the wisest.
...if the markets were free and fair
All in favor of the central problem being our inability to wisely use resources, say "Aye!"
I like the idea of markets. I also like the idea of learning from our history. Sadly, neither has been perfected, yet.
Long ago, mankind invented the multiple sentence paragraph to condense ideas. It was a marvelous technological breakthrough.
thanks for that contribution, it really added to the discussion.
so if i read one more "printing money post" i swear I'm taking the ammo out of the bunker and up to a tower.
If the Fed loans are 28 days in duration and have been going on for a few months some of them must have been paid back by now right? Do we know if they are being paid back as planned? Seems to me that if they are not being paid back and are just rolled over every 28 days, which seems frankly much more likely, that there has indeed been a defacto stealth printing of money that has occurred.
If the Fed loans are 28 days in duration and have been going on for a few months some of them must have been paid back by now right? Do we know if they are being paid back as planned?
For a graphic view of the situation check out: The Slosh Report
The Slosh Report
dryfly- "Only growing rice grows rice."
True, but if I grow the rice, how much can I keep to eat?
Dryfly seems to have put some thought into this SS stuff, and he makes good comments. But still, I can help but see that his proposals end up sounding like rice too cheap to meter (mangled metaphor?). Or, deflate the hell out of the price of future goods we'll need through the miracle of productivity to solve the problem.
Fine, but to my opening question, doesn't division of proceed between producer (rice grower) and non-producer (boomer eating rice) enter into this? I don't grow rice, but I do collect a paycheck, and the gubmint takes 7.6% of it for the benefit of today's retiree (well, partly). That's more than my parents were taxed, and less than my niece will average for her lifetime. Sure, this is partly due to the enlarged ratio of time consuming vs. time producing represented by lengthening lifespans and years spent in retirement. But the concern is that the tithe will eventually become so onerous to future generations that they will refuse to participate. The reason, though, is not just a transient event due to boomer passage, but a permanent change in the ratio of workers to non-workers.
I guess this relates back to a point Bill Gross tried to make on an observation, not his own, in an IO during the SS privatization debate ('member dat?). In there, Bill also points out that future stuff can only be produced in the future. This necessitates Dryfly's chits, but doesn't explain how the chit account balances. But I'm not sure how Dryfly does either, all due respect.
Doesn't the ratio of producer to non-producer ultimately govern all these proposals, because it equates to a growing issue in our society, the amount of one's labor, in the finished product's worth, that one can keep for himself?
Thought provoking commentary today, thanks all.
i eat my own poo