Why are all the articles on this so vague as to % drop relative to what?
I understand its % drop from December 2008, but articles usually bury that fact. Its interesting to note that sales are basically unchanged from November.
Isnt that the more important story?
I feel like the authors of the MSM articles just parrot want its reported by the companies without any critical thought whatsoever
So this tells us that 50%-off discounts for cars sold by US car makers really can have a negative impact on properly run companies. So when do we start bail-out-bail-outs for companies that were well run but need a bail-out to withstand the hammering they're taking from bailed-out companies? That's a bail-out I can support.
Thanks to bigger declines throughout 2008, the U.S. automakers will likely mark the first calendar year where their combined market share was less than 50 percent, based on results through November, when they held 47 percent.
the market strategist cited in the article is named 'Blinky Chadha" and he/she (???) predicted a 12% SP500 rise in 2008 and is now calling for a 26% rise in 2009. Aside form the stunning ineptitude of the predictions....i just won't listen to an adult that still goes by "Blinky". I just won't.
Probably too late to matter, though. Nemo | Homepage | 01.05.09 - 2:31 pm | #
Too late to change the immediate actions - those are in the works, have been even before the election regardless who would have won - but not too late to redirect efforts & discussions AFTERWARD.
BTW - I agree w/ the article that classical Keynesian approaches will NOT work if 'work' is defined as returning America to 'full employment' AND simultaneously produce a wealthier America. We are going to be - in aggregate - poorer with or without the stimulus. Either working near full employment [for a lot less in purchasing power] or high unemployment but those working making better money [stronger dollar]. All the stimulus does is effect the distribution (who gets hurt the worst) and the timing (when do the wheels fall off and how long). The dollar crashing is the wild card - I still think it is possible that happens later not sooner IF the merchantilists continue to fund regardless of their economic interests - some times political interests trump. I'd bett hey don't give up as easy as the FT suggests.
But if the auto industry falls apart totally - a major area where the merchantilists were making headway recently [parts biz - not whole vehicles so much]... then they might throw in the towel & quit manipulating much sooner than I initially expect. If so the dollar tanks damn soon & violently. CR's last two posts show auto biz is reeling as bad as ever.
...the fact that policy makers appear to believe that getting back on track involves getting money to americans to buy crap--well the wheels on that intellectual bus have yet to fall off.
that's what I'm waiting for. that's my bottom-sort-of litmus test--when policy makers believe we have to make something productive, where productive is defined as--productive verses consumptive.
"........withstand the hammering they're taking from bailed-out companies?"
Duh.....The BAIL-OUTS are in effect weakening the whole industry. the free $$$ is put into the weakest member to compete with the member that has been running his business responsibly - thereby weakening BOTH.
How long do we have to wait before car prices are 50% lower than today's prices?
I say one month. Maybe two. - Hawley Smoot
Used cars always* trade at a discount to new. Used wholesale inventory is unbelievable. Watching some of my customers "bidding" over the net on some cherry vehicles the new wholesale price is not to be comprehended. 20 seconds is an extended bidding war. Reserve pricing draws no bids, why waste time? Generic vehicles open at 10-20¢ on the dollar and sometimes languish.
No, the auto sector correction is just starting. I related earlier how last week the paper had an ad for brand new 2007 Dodge Durangos.
Yet another hit to consumer gross equity balance sheets.
*Always. In this context ignore specialty/exotic or classics. This is about 0-12 year old vehicles of roughly similar model type.
Is there a single example in history of a stimulus package that succeeded in ending a deflation? Apparatchik ZackAttack | Homepage | 01.05.09 - 2:59 pm | #
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
Apparatchik ZackAttack | Homepage | 01.05.09 - 2:59 pm | #
FWIW: A week ago, I went to a Honda dealership to test drive a new 2009 model (near Silicon Valley). The first model the salesperson picked wouldnt start-dead battery. Same for the second. Same for the third. I think he got the fourth (fifth?) going and we finally took the test drive. The other funny thing was that the although the lot and showroom floor were virtually empty (1 or 2 other customers) it took the sales guy a couple of minutes to walk over to us and when he did, he talked about how busy he was and how has been besieged by customers. Not sure how well I did, but I got 9% off MSRP.
Willem Buiter's piece this morning has set off quite a bit of discussion in the economoblogosphere. I like Arnold Kling's take.
Probably too late to matter, though.
Nemo | Homepage | 01.05.09 - 2:31 pm |
I think what the stimulus argument comes down to is whether the potential damage done to our credibility as a borrower and our future ability to borrow outweighs the potential benefits of BigTime Stimulus. For example, does BigTime Stimulus mean $250 oil in 2011 vs. $50 oil?
I think at the rate negative sentiment towards the United State's abuse of money and debt is building, the further perception of such abuses could lead to a dramatic and potentially excessive response by the markets that in effect act to punish the US for future attempts to borrow (this might manifest as a surge in oil prices every time some domestic spending program is announced, for example).
Personally I think the single-minded focus on enacting BigTime Stimulus without consideration of the long-term consequences comes across as exactly the same sort of politically motivated short-sightedness and desire for instant gratification that got us here, whether or not that's really the case here or not.
Increasingly I think the US is developing a credibility problem that could lead to disaster down the road if it causes capital and credit flight. I think BigTime Stimulus compounds this problem to a degree that may have very grim consequences down the road.
....worst in 49-years........That would be a 1960 model Chevy......give me one of those with the 327 (did they have the 409 in '60?) and I'll behave....
Personally I think the single-minded focus on enacting BigTime Stimulus without consideration of the long-term consequences comes across as exactly the same sort of politically motivated short-sightedness and desire for instant gratification that got us here, whether or not that's really the case here or not.
An alternate conclusion - one that does not require assuming mass stupidity - is that they're focusing on the short-term because if we don't survive that - the long term becomes rather irrelevant.
Put another way - perhaps the explanation is that they understand better than you just how bad things really are.
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
Apparatchik ZackAttack | Homepage | 01.05.09 - 2:59 pm | #
WWII.
dryfly | 01.05.09 - 3:05 pm |
I like that Buiter actually takes the time to address this observation and distinguishes it from the current situation based on a) the credibility of the US at the time and b) the credibility of the cause of defeating the Nazi and the Japanese threat.
I think even Krugman has addressed this more abstractly in recent posts by addressing the political will to spend.
But given how the United States has used the money it's borrowed during the past couple of decades I can see how that political will wouldn't and maybe in fact shouldn't be there.
Personally I don't believe in giving a gun to somebody who accidentally shot three people dead while cleaning the last one they had.
I think what the stimulus argument comes down to is whether the potential damage done to our credibility as a borrower and our future ability to borrow outweighs the potential benefits of BigTime Stimulus. For example, does BigTime Stimulus mean $250 oil in 2011 vs. $50 oil?
ac | 01.05.09 - 3:07 pm | #
To know if that is a good deal or not you have to know the other side of the coin... say:
30%UE with $50 oil and median income of those still working at $40K/yr or 4%UE with $250 oil and median income of those working at say $60K/yr
Neither would look pretty - full employment but work for less or risk a whole lot not working and then what?
Of course nothing says we couldn't royally screw up - 30%UE w/ $250 oil AND median income <$40K/yr.
I doubt we walk the elephant backward though (low UE, high median income, low commodity prices, low interest rates)... THAT is what everyone is trying to do and I think it is undoable. IMHO.
it took the sales guy a couple of minutes to walk over to us ...
Dave of SV
Similar experience at a local Infinity lot. I was the ONLY person there, dressed nicely (even showered!) etc. Spent 20 minutes looking around and was not approached by anyone.
In my humble opinion, the analysts on the site are getting it wrong --- ridiculing the idea that the correlation exists or that the dollar will plunge in value.
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
====
NASA space race
war in vietnam
lyndon johnsons great society
mock turtle | 01.05.09 - 3:08 pm |
Let's not forget the inflationary crises down the road that seems to have resulted from this spending.
Personally I really think the key is in understanding that the crisis doesn't fundamentally come from the inflation or deflation, but the separation of the financial system from the economy as the money supply changes at a slower or faster rate than real wealth, in addition to actual economic abuses that may be compounding that.
The conclusion that this leads to, though, is if the deflation is an accurate representation of economic circumstances, then preventing monetary deflation is just focusing on treating the symptom rather than the disease, and ultimately leads to an even greater separation between the financial system and the economy, and even more crises down the road.
Either that or people with crap credit are having a tough time getting loans. Zoom Zoom | 01.05.09 - 3:19 pm | # Bingo. Those who once bought Kia's now fail to qualify. This could have been true for GM's retail sales, arguably, if the Fed hadn't tossed them $5B for sub-prime loans.
Personally I really think the key is in understanding that the crisis doesn't fundamentally come from the inflation or deflation, but the separation of the financial system from the economy as the money supply changes at a slower or faster rate than real wealth, in addition to actual economic abuses that may be compounding that.
The conclusion that this leads to, though, is if the deflation is an accurate representation of economic circumstances, then preventing monetary deflation is just focusing on treating the symptom rather than the disease, and ultimately leads to an even greater separation between the financial system and the economy, and even more crises down the road. ac | 01.05.09 - 3:21 pm | #
I think there is a lot of merit in that argument and I don't typically hear it in the I/D debate. Good point.
1-Use internet first-they have more ability to negotiate based off of avg. cost to sale vehicle. Thier overhead and advertising is less than showroom and if you price shop 3 local dealers at same time and tell them you are..Your in position to let them beat each other up and you get better price.....
2-Always shop at end of month and if possible on wed-thurs....
3-Work with fleet manager if not the internet manager or directly with sales manager...
4 always walk out the door after negotiations..they will run to lot before you pull out (if thier good)
and say they might have a better deal after some # crunching..
You don't walk, your playing thier poker game..call their bluff...
slightly used is looking great this year...
If your credit score is above 700, you own them....
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
Apparatchik ZackAttack | Homepage | 01.05.09 - 2:59 pm | #
(Dryfly) WWII.
The Depression deflation was ended in 1933 by a combination of devaluation and stimulus. Similar policies ended the Great Depression deflation (which wasn't Great in most countries) almost everywhere. WWII stopped a second liquidity trap in the late 1930's.
I think the solution to deflation, a monetary problem, should be monetary - inflating the money supply. Fiscal stimulus should be for solving "real economy" problems like unemployment. I leave it as an exercise for the reader to decide whether the proposed stimulus will produce benefits worth its cost.
SAN FRANCISCO (MarketWatch) -- Kia Motors America said Monday that U.S. December sales fell 39.2% to 14,644 vehicles from 24,068 a year ago. U.S. December sales of the company's Spectra dropped to 2,720 units from 6,688 last year, and sales of Kia's Sportage fell to 2,182 vehicles from 5,109 a year ago. Kia is an affiliate of Hyundai Motor America and the sales and marketing arm of Kia Motors Corp.
i agree that overshoot from the stimulus package is likely to give us inflation
and i think "they" are counting on it
what other way to wipe out debt than to pay it back in dollars worth, say, half as much (50cent dollars!)
there is no course of action here that doesnt result in great harm being done somewhere to some constituency
however, my belief (guess) is that to let it go "a la treas secretary mellon" would be to have social disorder of a magnitude that would bring fear into the hearts of even those who have well stocked bunkers
--
Just finished watching Obamas news conference on economy.
It hit me that everything in American governance is tailored to fit dopes, especially the born-and-bred variety. This includes the President, the Fed Chairman, the Treasury Secretary and on and on. Anyone not suitable for dopes would have no chance. One example would suffice. Bernanke was about to write a book in 2002 titiled, How Politicians and Policymakers Caused the Great Depression. Well, who all are in-charge now?
This is more than a recession. That needs to be said, because it is continually being compared to past events. This is different. The sentiment is that after a lull, things will continue as they always have. That is not a safe assumption.
however, my belief (guess) is that to let it go "a la treas secretary mellon" would be to have social disorder of a magnitude that would bring fear into the hearts of even those who have well stocked bunkers
mock turtle
Maybe. And maybe we get that anyhow if real credit is withdrawn from the US (the Fed can always provide nominal credit).
One thing I think it's worth keeping in mind though, is that Hoover didn't really take Mellon's advice. At best you can argue that the Depression was perhaps caused by a failure to do enough, not that we sat back and did nothing.
This really kind of underscores the fundamental problem facing economics today - not enough experimental data in industrialized economies to make compelling empirical conclusions either way.
Fair Economist [I think the solution to deflation, a monetary problem, should be monetary]
You need to distinguish the problem from the symptom in order to arrive at a viable solution. Deflation is a symptom of a structural Problem - insolvency and too much debt to service.
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
Apparatchik ZackAttack | Homepage | 01.05.09 - 2:59 pm | #
WWII.
dryfly | 01.05.09 - 3:05 pm | #
LOL!!!!
What kind of stimulus is it where you are drafted into the service and if you aren't you are subject to rationing?
I suppose having a car battery connected to your balls is a "stimulus" but the recovery only happens when the stimulation STOPS.
Jas, look on the bright side. The worse things get economically, the more they lower taxes. Just think of the prosperity a real meltdown will bring. Whoohoo!
"Let's not forget the inflationary crises down the road that seems to have resulted from this spending."
Or perhaps it was spending on the rather unnecessary Vietnam War. OPEC lent a helping hand as well.
Vietnam was actually mostly what I was referring to. I would tend to think the other spending would play a far less significant role in terms of contributing to inflation.
But as people pointed out earlier, it is wartime spending that really seems to be able to generate inflationary pressures. I'm just pointing out that those pressures may come with a cost.
In the case of Vietnam that cost may have ultimately been the "Great Recession" and the double digit employment of the early 80s, though it's hard to know for sure.
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
NASA space race
war in vietnam
lyndon johnsons great society
mock turtle | 01.05.09 - 3:08 pm | # "
First, if these programs did "stimulate", they stimulated an economy that was already experiencing creeping inflation under Eisenhower.
Second, it's probably more accurate to say that the economy was stimulated by Kennedy's tax cuts.
It is my understanding that WW2 can only be described as effective "stimulus" considering so much productive capacity was destroyed in Europe and Asia.
In early December I heard an econ prof say that inflation rates depend a lot on expectations. He thought most people are worried about their deflating assets, so he expected inflation to remain low over the next year at least. However, he also said that he was worried about deflation "a little".
It is my understanding that WW2 can only be described as effective "stimulus" considering so much productive capacity was destroyed in Europe and Asia.
That would seem consistent with WW2 producing a multi-decade boom and Vietnam producing stagflation - in one you wiped out Krups and Mr. Toyota's grandfather, in the other you torched a bunch of straw huts.
That's the solution to excess debt. However, the methods the Fed has used to deal with recessionary pressures so far have also created an additional problem with a liquidity trap/deflation. Now we get to deal with that too.
Why not start a war with China, bomb all their cities into rubble, then loan them (their) money back to rebuild. Would this not increase American economic growth?
Thanks for the update - my OT contribution - did DX fill the gap today and if it turns down from here put potentially put a head and shoulders in play?
Deflation is a HUGE problem. Once serious deflation sets in economic activity halts. Nobody lends, because the mattress pays better and nobody buys because it's cheaper next month. Deflation also worsens the underlying problems because it increases the value of already excessive debt burdens.
Fiscal stimulus solves nothing. Once it's used up, the same people are unemployed again.
A lot of unemployment in a recession is frictional - it's not that the people can't work and not that there's nothing for them to do, it's that they don't know what they can do that's useful for other people. Temporary employment gives time for the market to adjust and find new/expanded services to fill.
I doubt we walk the elephant backward though (low UE, high median income, low commodity prices, low interest rates)... THAT is what everyone is trying to do and I think it is undoable. IMHO. dryfly | 01.05.09 - 3:15 pm | #
Yes, that needs a game-changer, a deus ex machina. Such things do happen technologically, and can happen in the real world if a certain amount of resources are thrown in their direction. We have a lot of technologies that could be developed to help achieve that effect; as with everything else, it needs political will and a big club to beat back the people who make too much money off things as they are.
I just printed out the forecasts and added my own (650 S&P) at the bottom. Pinning up in my office and hoping to laugh in 12 months ... of course, that assumes I still have an office in 12 months (that's probably a 50/50). Better odds than I give these f-tards who are forecasting.
the man from nantucket writes:
the market strategist cited in the article is named 'Blinky Chadha" and he/she (???) predicted a 12% SP500 rise in 2008 and is now calling for a 26% rise in 2009. Aside form the stunning ineptitude of the predictions....i just won't listen to an adult that still goes by "Blinky". I just won't.
the man from nantucket | 01.05.09 - 2:46 pm | #
What effect will this have on prices, oil up and gold down?
Accordingly, JP Morgan see the most significant change coming in the DJ-AIGCI rebalance. Here the market weight of crude oil is expected to increase from 9.6 per cent to 13.8 per cent, gold from 10.8 per cent to 7.9 per cent, copper (COMEX) from 4.5 per cent to 7.3 per cent, live cattle from 6.4 per cent to 4.3 per cent and sugar from 4.7 per cent to 3.0 per cent. Meanwhile, S&P GSCI crude oil weight will go from 32 per cent to 33.8 per cent. Their analysis:
In financial terms, we expect the rebalancing to have the greatest impact in gold, COMEX copper, crude oil, gold, and live cattle. We estimate that the rebalancing of the two indices is expected to result in $877 million of selling in gold, $699 million of buying in COMEX copper, $528 million of selling in live cattle, and $523 million of buying in crude oil.
The Depression deflation was ended in 1933 by a combination of devaluation and stimulus.
Awesome. I guess that means we can look forward to at least 15 years of stimulus and a world war.
No, the deflation ended right away and the economy took off like a rocket from 1933-36 with growth rates exceeding any other 3 year period in American history. We then went into a new depression when FDR tried to stop the eeeevil librul programs, and that depression was ended by WWII since FDR lost his working majority in 1938.
I think an updated version of FDR's programs - mild inflation, cleaning up bad banks, labor-intensive conservation and infrastructure, and a basic safety net (now including healthcare) - is the way out of the current problems. I don't see why continuing any of that indefinitely is a particular problem.
Fair Economist, in the interests of full disclosure, you should always use your middle name, Keynesian. As in, "Fair Keynesian Economist."
Deflation is a cure. Commerce doesn't stop at all. If there was 25% unemployment in 1933, as we've all heard, that means that 75% of the people were still working, right? Deflation punishes the greedy speculators, the gamblers, the hucksters, and those who made silly business decisions. It wipes them out, as it should. There was another deflation after the Panic of 1873, and its principal effect was raising the standard of living of workers, artisans, and craftsmen. Their wages could buy more.
Persecuted Comrade Anonymouse writes:
"OT: (For the record, as if anyone really cares)"
Don't worry, I'm keeping a record. Followed your lead on EEV, but will be careful with stops as these devils are slippery.
Dunno about DUG. Is this for short term (how short?); I'm holding DXO as long term I believe in Rich's posture. But I'll protect with stops
there as well.
OT-
some quotes from customers trying to get a car loan thru my companies software at large dallas dealership-Import...
"We have been approved at several dealerships, but with stipulations. Such as way too much money down or a co-signer. We have very long term job stabilty and a great income we just need a chance to get approved on our terms!"
"I am looking for $0 down"
"If it makes a difference, my parents own the company that i work at. Me getting fired isn't a possibility. I don't have a car right now, but the $49 down $149 monthly was something i could do. I'm interested in any kind of car that gets good gas mileage. Thank you for your time"
"Good Morning, I am in desperate need of finding myseof a used but reliable vehicle. I really don't want an expensive car, at least nothing over $7,000. I've been looking on your website and there were a couple of cars i have my eyes on. They are the 2000 Cadillac Catera and the 2002 Chevrolet Impala. I pray that you all can get me financed for my very own vehicle. Thank you."
" my co- application and myself dont have good credit but we are trying to built our credit with good standers with someone who will give us both the chance "
"WOULD LIKE TO SCHEDULE A TEST DRIVE AND SEE WHAT I CAN DO... JUST LANDED A NEW JOB... MY 95 MAXIMA IS NOT GOING TO MAKE IT"
"I would like for my monthly payments to be as low as possible as well as my down payment I would like to start out with 500.00 down if I can."
What everyone fails to address is credit score destruction..
The only way they get people to buy homes, cars and other big ticket items will be a one time jubilee on credit scores. They will have to re-calculate fica in some form or manner to boost scores or we are dead in water....
if u need some applicant credit score avging..let me know..
That said, I see no easy outs here. None. My main hope is that we stamp out all the perverse incentives in our eCONomy. Prudence, work and ingenuity should be rewarded rather than leverage and speculation.
One more thought. Long run inflation should be zero or negative. We need a new monetary system. One that allows for growth, but that doesn't require growth (especially exponential growth).
Yes. Let's not take on more debt, when our only hope of "repaying" that debt is via currency devaluation or debt forgiveness. We should be calling the "stimulus package" a "debt package."
If there was 25% unemployment in 1933, as we've all heard, that means that 75% of the people were still working, right? Deflation punishes the greedy speculators, the gamblers, the hucksters, and those who made silly business decision
Things were proceeding downward during the deflation and stopped and headed up as soon as it ended. Just like every other country. Deflation was a big problem based on how much things improved once it ended.
Deflation punishes the greedy speculators, the gamblers, the hucksters, and those who made silly business decision
No, deflation primarily punishes investors - people who have made good investment purchases and now find their purchases declining in value until they face bankruptcy. Speculators, etc., don't care - they're bankrupt anyway.
There was another deflation after the Panic of 1873, and its principal effect was raising the standard of living of workers, artisans, and craftsmen. Their wages could buy more.
Apart from the minor detail that their wages had declined as much or more than the prices and so they were worse off.
In the context of strong overall growth, a little deflation is OK because nominal interest rates stay above zero and you don't go into the liquidity trap. I'm pretty confident we won't see real growth next year so we can't tolerate deflation now.
Does anyone know of indicators of current car sales, other than visiting some car lots (see below)?
The numbers int the article were dramatic but the second half of 2008 was dramatic in general and these numbers may have been the public's reactions to them. I would be interested to know whether car sales have already recovered or are static or getting worse.
I just bought a car in Australia and the discounts were good but well short of desperate. The Australian car market is much smaller than the USA car market and the smaller supply of cars may be helping prices here.
If there was 25% unemployment in 1933, as we've all heard, that means that 75% of the people were still working, right? Deflation punishes the greedy speculators, the gamblers, the hucksters, and those who made silly business decisions. It wipes them out, as it should. El Cliffo | Homepage | 01.05.09 - 4:01 pm | #
And the 25% who weren't working - they got wiped out too - makes for a nice social mix to have a quarter of your population idle and getting hungry.
And as for the point the about the 75% - they did work for less. My grandfather took a 50% pay cut then another cut a few years later but considered themselves lucky to be working... moved from a ~1500 sqft house (seven people) to a ~600 sqft house with NINE people [homeless family moved in]. That is what deflation does.
[basic safety net (now including healthcare) - is the way out of the current problems. I don't see why continuing any of that indefinitely is a particular problem.
Fair Economist]
Oh, I do.
Problems
1) is paying for it, in the context of the already unfunded liabilities and global competitiveness of USA.
2) Quality. I assume you have no first hand experience with socialized medicine. It's catastrophic insurance with long waits for service, rationed by the government. Only the rich get decent care and they pay cash.
We already have unfunded mandated emergency care at county hospitals.
More ivory tower hoping & wishful thinking. Let's fix SS & Medicare first before assuming more liabilities.
Oops, sorry, hope I didn't come off too sharp. I enjoy your comments too.
That said, I see no easy outs here. None. My main hope is that we stamp out all the perverse incentives in our eCONomy. Prudence, work and ingenuity should be rewarded rather than leverage and speculation.
Amen to all that.
One more thought. Long run inflation should be zero or negative. We need a new monetary system. One that allows for growth, but that doesn't require growth (especially exponential growth).
I think inflation should be as low as possible without going into liquidity traps. (Occasional short traps are OK - nothing's perfect). I don't have any problem with inflation forever as long as it's mild. I would say that a zero-growth economy actually requires higher base inflation because real interest rates will be lower with zero growth and so you need more inflation so nominal rates stay above zero with inevitable fluctuations.
Deflation is a cure. Commerce doesn't stop at all. If there was 25% unemployment in 1933, as we've all heard, that means that 75% of the people were still working, right? El Cliffo | Homepage | 01.05.09 - 4:01 pm | #
In high school they taught us that, at the time of the Revolutionary War, only 25 percent of American colonists were in favor of independence from England. 25 percent, if that's all it was, is a more-than-formidable amount of the population for ... anything.
Problems
1) is paying for it, in the context of the already unfunded liabilities and global competitiveness of USA.
Ooh, yes, it's just ruined Germany and Japan's competitiveness! Look how we're beating the pants off them in industrial productions and exports!
2) Quality. I assume you have no first hand experience with socialized medicine. It's catastrophic insurance with long waits for service, rationed by the government. Only the rich get decent care and they pay cash.
Healthcare outcomes are consistently better in all other industrialized countries than in the US. Our life expectancy barely beats Cuba. Average waits for treatment in the US are actually similar to abroad - and that's not including the (much larger) group that never gets treatment here!
We then went into a new depression when FDR tried to stop the eeeevil librul programs, and that depression was ended by WWII since FDR lost his working majority in 1938.
Gov't expenditures increased signficantly in both 1938 and 1939, just as they had increased significantly in 1930 and 1931.
This will be posted on Zacks.com in a few minutes, along with the graph referenced:
In general, there are two things you can do with your money, spend it or save it. Money that is saved is generally channeled into investment, either directly as in the individual buying stocks, or indirectly through banks and other financial intermediaries. The Graph below shows the personal savings data for the U.S. as far back as the monthly data is available. From the late 1950s through the mid 1980s U.S consumers would generally put away between 8 and 10% of what came in (mostly pay checks, but the data is based on all disposable income). During boom times, it would be towards the low side of that, and would spike higher during recessions, occasionally going as high as 12% or so. We then went into an extended decline, until the savings rate actually briefly went negative a few years ago. Since the start of 2005, the savings rate was almost always below 1.0%. Keep in mind that the absolute dollar savings data are not adjusted for inflation.
In 2008 it looks like that started to change. The big spike in May to 4.8% was due to the stimulus checks (remember those?), but even after that effect wore off the savings rate has started to rise. This is of course the flip side of the slowdown in spending we have been seeing, a point driven home yet again today with another month worth of dismal auto sales numbers. However, even with the rather dramatic slowdown in spending, the savings rate in November was still only 2.8%, which was about the normal rate from 1999 through most of 2003. Since most peoples wealth has been destroyed through the decline of housing and stock market values, people are going to need to save much more if they hope to retire or send their kids to college. That we will sell the house and move to a smaller place and live off the proceeds plan is just not going to fly anymore. The 401k that you were relying on is now much more like a 201k. People are going to have to save the old fashioned way, by spending less than they make. That means a new car every seven years, not every three years. Clothes should properly reclassified into durable goods from non durable. I know I have stuff in my closet that probably dates from the Reagan administration, and it is likely that others will see the wisdom of that as well. All the pain of this slowdown in consumer spending has only really moved the needle by about 2.0% points so far. It strikes me as likely that we will eventually have to return to savings rates like we saw in the 1960s and 1970s. That is not going to be an easy process, since as everyone starts to save more, it means that everyone consumes less. That means fewer jobs and hence less income, and with less income it is harder to save. With a higher marginal propensity to save, the multiplier effect from the stimulus package will be much weaker.
The process has MUCH further to run. Avoid Retailers like Macys (M), Kohls (KSS), Home Depot (HD), Sears (SHLD) and J.C. Penny (JCP) along with those who make the goods that those retailers sell.
In high school they taught us that, at the time of the Revolutionary War, only 25 percent of American colonists were in favor of independence from England. 25 percent, if that's all it was, is a more-than-formidable amount of the population for ... anything. Bob Dobbs | Homepage | 01.05.09 - 4:25 pm | #
Lenin did it with far less (but very angry) support.
I would say that a zero-growth economy actually requires higher base inflation
Couple of points. Actual growth does not occur in accordance with a tidy and neat exponnential function.
Money is only the medium of exchange. Not the engine.
Over hundreds of years, excess money over and above underlying growth (inflation) has never led to increased or higher levels of growth. Arguably, just the opposite occurs- booms & busts disrupt & distort growth.
Of course, a small minority always benefit immensely from inflation. If some are getting more for less, others are getting less for more. I just don't see how something that immoral can lead to higher growth.
Why not start a war with China, bomb all their cities into rubble, then loan them (their) money back to rebuild. Would this not increase American economic growth?
I can haz bailouts? | 01.05.09 - 3:45 pm | #
China has nukes too, but then again, a total rebuild of NY, LA, Chicago, SF, DC and StL might be stimulative, and the radioactivity would stimulate the medical sector.
Does anyone know how this is affecting Honda and Toyota's respective turn and earn programs. A Toyota lot I drove by seemed to have an awful lot of new sitting in the back lot. I wonder if the sales numbers are starting to reflect a number of dealers saying, "Forget it, I don't need to earn more Priuses, etc."
With all of these politicians and economists around, I wonder why I haven't seen anyone explaining the problem this way.
The prices of a great number of long term assets has dropped considerably over the past year. This is partly a result of deleveraging, partly a result of a flight to shorter term, higher quality, and more liquid assets. It's also partly a result of lower earnings and higher default expectations.
As the Federal Govt has been learning, if you want to raise the price of an asset (or equivalently lower cost of capital), have the Federal Govt buy it or guarantee it. Guaranteeing consumes far less money than purchasing outright.
If the Federal Govt wants to help state budgets, reviving or recapitalizing the bond insurers could help quite a bit. Don't let any of that recapitalization spill over to the MBS/CDO guarantees and away you go.
Here's my simple formula for how to do this. The Federal Govt (or more likely a newly created entity) would reinsure municipal debt where bond insurance was originally purchased by collecting all of the remaining unearned bond insurance premiums. Any bond with an underlying rating of A or better would be eligible.
For auction rate bonds, the Federal Govt could provide a liquidity facility which leaves such bonds with the same maximum rates, but allows people to sell their bonds at any point. Thus, much more liquidity. The cost of financing would start dropping immediately.
My point above was that 25% unemployment is not 100% unemployment, which is what Fair K. Economist implied @3:50 PM by stating, "Once serious deflation sets in economic activity halts." It does not halt--it contracts.
I think this should be the baseline against which alternate strategies are evaluated.
I also think that we should discuss efficient vs inefficient defaults in a macro sense. Inefficient defaults result in crime, dead landscaping, stripped houses, high borrowing costs for many others.
Efficient defaults do less physical and financial damage.
In other words, how do you get people who clearly can't afford their homes out in a fairly efficient manner? There's a reason Fannie Mae is encouraging short sales instead of foreclosures.
I think this would be a fine goal for the new administration. Where there is little doubt about affordability in a particular case, get those people into somewhere they can afford. And, try to get someone else into that house or condo they are vacating with minimal mess.
cd writes:
You folks need some car buying lessons...
My question is, why go through all of the shenanigans when you arrive with your price in mind and simply tell them ... this is my offer, take it or I leave. Knowing what one can afford before going in the door sounds simpler than show time buying and selling. It saves both time and money.
Oh what a feeling
Oooohhh Toyota!
Mildly O/T
Willem Buiter's piece this morning has set off quite a bit of discussion in the economoblogosphere. I like Arnold Kling's take.
Probably too late to matter, though.
money.cnn had the screaming headline in red: GM only down 31% beating all forecasts. To the moon Alice.
Ok, I made that last part up.
Forget cars, Apple is ok and Jobs just fine:
What can I tell you? I'm so proud of this company right now. So proud. I'm going to call Jony and tell him about it and see if he wants to go for a walk together and maybe have a smoothie with me.
The Secret Diary of Steve Jobs: We are so friggin gay it's not funny
Why are all the articles on this so vague as to % drop relative to what?
I understand its % drop from December 2008, but articles usually bury that fact. Its interesting to note that sales are basically unchanged from November.
Isnt that the more important story?
I feel like the authors of the MSM articles just parrot want its reported by the companies without any critical thought whatsoever
December 2007 not 2008
Bloomberg.com
Thank goodness.
mustard seeds, baby.
worst year in 8 years? thats it?! And they need a bailout after just that? lol they're fooooked
Ferrari sales are up:
Video - Breaking News Videos from CNN.com
So this tells us that 50%-off discounts for cars sold by US car makers really can have a negative impact on properly run companies. So when do we start bail-out-bail-outs for companies that were well run but need a bail-out to withstand the hammering they're taking from bailed-out companies? That's a bail-out I can support.
Really stupid question -- is that a 32% decline from November 2008, or from December 2007? IOW, is that month-to-month, or year-to-year?
Sorry for the elementary Q.
How this from bloomberg:
U.S. December Auto Sales Dive 36%, Drag Industry to 16-Year Low - Bloomberg.com
GM sales drop to 49 year low.
snip/
Thanks to bigger declines throughout 2008, the U.S. automakers will likely mark the first calendar year where their combined market share was less than 50 percent, based on results through November, when they held 47 percent.
end snip/
Both sales and market value down...
It can only go up from here!
DISCLAIMER: UP IS DOWN.
Nevermind. I see the answer in the post below
/facepalm
RhodesianGreenbackinAZ(Unrated) writes:
\thttp://www.bloomberg.com/apps/ne...Alhk& refer=home
Thank goodness.
RhodesianGreenbackinAZ | 01.05.09 - 2:35 pm | #
the market strategist cited in the article is named 'Blinky Chadha" and he/she (???) predicted a 12% SP500 rise in 2008 and is now calling for a 26% rise in 2009. Aside form the stunning ineptitude of the predictions....i just won't listen to an adult that still goes by "Blinky". I just won't.
Probably too late to matter, though.
Nemo | Homepage | 01.05.09 - 2:31 pm | #
Too late to change the immediate actions - those are in the works, have been even before the election regardless who would have won - but not too late to redirect efforts & discussions AFTERWARD.
BTW - I agree w/ the article that classical Keynesian approaches will NOT work if 'work' is defined as returning America to 'full employment' AND simultaneously produce a wealthier America. We are going to be - in aggregate - poorer with or without the stimulus. Either working near full employment [for a lot less in purchasing power] or high unemployment but those working making better money [stronger dollar]. All the stimulus does is effect the distribution (who gets hurt the worst) and the timing (when do the wheels fall off and how long). The dollar crashing is the wild card - I still think it is possible that happens later not sooner IF the merchantilists continue to fund regardless of their economic interests - some times political interests trump. I'd bett hey don't give up as easy as the FT suggests.
But if the auto industry falls apart totally - a major area where the merchantilists were making headway recently [parts biz - not whole vehicles so much]... then they might throw in the towel & quit manipulating much sooner than I initially expect. If so the dollar tanks damn soon & violently. CR's last two posts show auto biz is reeling as bad as ever.
IMHO.
Doofus: YoY
Very interesting move by Hyundai:
Laid Off? Dead? Hyundai Will Let You Get Out of Your Loan - Auto Industry Tracker - WSJ
Wonder how many other automakers or homebuilders will follow suit?
How long do we have to wait before car prices are 50% lower than today's prices?
I say one month. Maybe two.
second that analysis dryfly.
...the fact that policy makers appear to believe that getting back on track involves getting money to americans to buy crap--well the wheels on that intellectual bus have yet to fall off.
that's what I'm waiting for. that's my bottom-sort-of litmus test--when policy makers believe we have to make something productive, where productive is defined as--productive verses consumptive.
--bh
and I do mean consumptive--
How long do we have to wait before car prices are 50% lower than today's prices?
If the inventory is held by a security interest, then you'll probably have to wait till a BK unless the holder agrees to a short sale.
blackhat writes:
and I do mean consumptive--
blackhat | 01.05.09 - 2:51 pm | #
As in the old fashioned term for TB?
worst year in 8 years? thats it?! And they need a bailout after just that? lol they're fooooked
dafox | 01.05.09 - 2:39 pm | #
Morons have been selling at a 'real' loss for a long time - now they have few reserves and very high fixed cost. Foooooked hardly describes it...
buy one get on free.
Weren't Oldsmobiles merry, at one time?
Willem Buiter's piece this morning...
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
How about that Home builder rally today...bad news is good news....
Builder stocks rally after construction data - MarketWatch
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
Little blue pills come to mind...
the high and the mighty have farther to fall
"........withstand the hammering they're taking from bailed-out companies?"
Duh.....The BAIL-OUTS are in effect weakening the whole industry. the free $$$ is put into the weakest member to compete with the member that has been running his business responsibly - thereby weakening BOTH.
Sorry, I'm a slow learner..........
How long do we have to wait before car prices are 50% lower than today's prices?
I say one month. Maybe two. - Hawley Smoot
Used cars always* trade at a discount to new. Used wholesale inventory is unbelievable. Watching some of my customers "bidding" over the net on some cherry vehicles the new wholesale price is not to be comprehended. 20 seconds is an extended bidding war. Reserve pricing draws no bids, why waste time? Generic vehicles open at 10-20¢ on the dollar and sometimes languish.
No, the auto sector correction is just starting. I related earlier how last week the paper had an ad for brand new 2007 Dodge Durangos.
Yet another hit to consumer gross equity balance sheets.
*Always. In this context ignore specialty/exotic or classics. This is about 0-12 year old vehicles of roughly similar model type.
My sales are off 100% this year. I expect TARP to land in my mailbox anytime now.
Mock,
If the spx holds in 915, shorts have greater worries than the longs. ....course that's a short term take on stuff....
"How about that Home builder rally today...bad news is good news...."
It is when it's expected.
Hawley Smoot writes:
How long do we have to wait before car prices are 50% lower than today's prices?
right round the time wages fall by as much
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
Apparatchik ZackAttack | Homepage | 01.05.09 - 2:59 pm | #
WWII.
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
Apparatchik ZackAttack | Homepage | 01.05.09 - 2:59 pm | #
WWII
Dirk and Dry are channeling right now...
Persecuted, are you in?
Wonderwing whether you felt EEM had hit your metric for buying back into EEV. Note EEM tested 26.46 earlier today, but is now hovering at that price.
Regards,
FWIW: A week ago, I went to a Honda dealership to test drive a new 2009 model (near Silicon Valley). The first model the salesperson picked wouldnt start-dead battery. Same for the second. Same for the third. I think he got the fourth (fifth?) going and we finally took the test drive. The other funny thing was that the although the lot and showroom floor were virtually empty (1 or 2 other customers) it took the sales guy a couple of minutes to walk over to us and when he did, he talked about how busy he was and how has been besieged by customers. Not sure how well I did, but I got 9% off MSRP.
Mildly O/T
Willem Buiter's piece this morning has set off quite a bit of discussion in the economoblogosphere. I like Arnold Kling's take.
Probably too late to matter, though.
Nemo | Homepage | 01.05.09 - 2:31 pm |
I think what the stimulus argument comes down to is whether the potential damage done to our credibility as a borrower and our future ability to borrow outweighs the potential benefits of BigTime Stimulus. For example, does BigTime Stimulus mean $250 oil in 2011 vs. $50 oil?
I think at the rate negative sentiment towards the United State's abuse of money and debt is building, the further perception of such abuses could lead to a dramatic and potentially excessive response by the markets that in effect act to punish the US for future attempts to borrow (this might manifest as a surge in oil prices every time some domestic spending program is announced, for example).
Personally I think the single-minded focus on enacting BigTime Stimulus without consideration of the long-term consequences comes across as exactly the same sort of politically motivated short-sightedness and desire for instant gratification that got us here, whether or not that's really the case here or not.
Increasingly I think the US is developing a credibility problem that could lead to disaster down the road if it causes capital and credit flight. I think BigTime Stimulus compounds this problem to a degree that may have very grim consequences down the road.
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
====
NASA space race
war in vietnam
lyndon johnsons great society
Dirk and Dry are channeling right now...
cd | 01.05.09 - 3:07 pm | #
Poor Dirk...
Dry
LOL, great minds think alike
....worst in 49-years........That would be a 1960 model Chevy......give me one of those with the 327 (did they have the 409 in '60?) and I'll behave....
can I haz global trade warz ?
Blackstar
mood music
YouTube - MY 409
When kia comes in -39% you know it's tough selling cars.......
Personally I think the single-minded focus on enacting BigTime Stimulus without consideration of the long-term consequences comes across as exactly the same sort of politically motivated short-sightedness and desire for instant gratification that got us here, whether or not that's really the case here or not.
An alternate conclusion - one that does not require assuming mass stupidity - is that they're focusing on the short-term because if we don't survive that - the long term becomes rather irrelevant.
Put another way - perhaps the explanation is that they understand better than you just how bad things really are.
I'm using "you" in the generic sense - not pointed at, you know, you.
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
Apparatchik ZackAttack | Homepage | 01.05.09 - 2:59 pm | #
WWII.
dryfly | 01.05.09 - 3:05 pm |
I like that Buiter actually takes the time to address this observation and distinguishes it from the current situation based on a) the credibility of the US at the time and b) the credibility of the cause of defeating the Nazi and the Japanese threat.
I think even Krugman has addressed this more abstractly in recent posts by addressing the political will to spend.
But given how the United States has used the money it's borrowed during the past couple of decades I can see how that political will wouldn't and maybe in fact shouldn't be there.
Personally I don't believe in giving a gun to somebody who accidentally shot three people dead while cleaning the last one they had.
I think what the stimulus argument comes down to is whether the potential damage done to our credibility as a borrower and our future ability to borrow outweighs the potential benefits of BigTime Stimulus. For example, does BigTime Stimulus mean $250 oil in 2011 vs. $50 oil?
ac | 01.05.09 - 3:07 pm | #
To know if that is a good deal or not you have to know the other side of the coin... say:
30%UE with $50 oil and median income of those still working at $40K/yr
or
4%UE with $250 oil and median income of those working at say $60K/yr
Neither would look pretty - full employment but work for less or risk a whole lot not working and then what?
Of course nothing says we couldn't royally screw up - 30%UE w/ $250 oil AND median income <$40K/yr.
I doubt we walk the elephant backward though (low UE, high median income, low commodity prices, low interest rates)... THAT is what everyone is trying to do and I think it is undoable. IMHO.
it took the sales guy a couple of minutes to walk over to us ...
Dave of SV
Similar experience at a local Infinity lot. I was the ONLY person there, dressed nicely (even showered!) etc. Spent 20 minutes looking around and was not approached by anyone.
How long until Toll Brothers becomes First National Bank of Toll Brothers and collects $2.3 bill in TARP scratch?
"If the spx holds in 915, shorts have greater worries than the longs"
Blah, blah, blah. Please bring some analysis to the table.
Obama must have established an impressive Euphamisms department.
"Recovery & Reinvestment Bill"
Oh Yeah!
cd writes:
When kia comes in -39% you know it's tough selling cars.......
Either that or people with crap credit are having a tough time getting loans.
Hankly, I expected the results to be worse than this...so this is positive news to me. I take this to mean we're on our way to recovery.
An interesting article about the value of the US dollar inversely correlating with the price of oil.
Econbrowser: Oil and the dollar
In my humble opinion, the analysts on the site are getting it wrong --- ridiculing the idea that the correlation exists or that the dollar will plunge in value.
The commenters take a contrary position.
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
====
NASA space race
war in vietnam
lyndon johnsons great society
mock turtle | 01.05.09 - 3:08 pm |
Let's not forget the inflationary crises down the road that seems to have resulted from this spending.
Personally I really think the key is in understanding that the crisis doesn't fundamentally come from the inflation or deflation, but the separation of the financial system from the economy as the money supply changes at a slower or faster rate than real wealth, in addition to actual economic abuses that may be compounding that.
The conclusion that this leads to, though, is if the deflation is an accurate representation of economic circumstances, then preventing monetary deflation is just focusing on treating the symptom rather than the disease, and ultimately leads to an even greater separation between the financial system and the economy, and even more crises down the road.
cd writes:
When kia comes in -39% you know it's tough selling cars.......
Either that or people with crap credit are having a tough time getting loans.
Zoom Zoom | 01.05.09 - 3:19 pm | #
Bingo. Those who once bought Kia's now fail to qualify. This could have been true for GM's retail sales, arguably, if the Fed hadn't tossed them $5B for sub-prime loans.
Personally I really think the key is in understanding that the crisis doesn't fundamentally come from the inflation or deflation, but the separation of the financial system from the economy as the money supply changes at a slower or faster rate than real wealth, in addition to actual economic abuses that may be compounding that.
The conclusion that this leads to, though, is if the deflation is an accurate representation of economic circumstances, then preventing monetary deflation is just focusing on treating the symptom rather than the disease, and ultimately leads to an even greater separation between the financial system and the economy, and even more crises down the road.
ac | 01.05.09 - 3:21 pm | #
I think there is a lot of merit in that argument and I don't typically hear it in the I/D debate. Good point.
You folks need some car buying lessons...
1-Use internet first-they have more ability to negotiate based off of avg. cost to sale vehicle. Thier overhead and advertising is less than showroom and if you price shop 3 local dealers at same time and tell them you are..Your in position to let them beat each other up and you get better price.....
2-Always shop at end of month and if possible on wed-thurs....
3-Work with fleet manager if not the internet manager or directly with sales manager...
4 always walk out the door after negotiations..they will run to lot before you pull out (if thier good)
and say they might have a better deal after some # crunching..
You don't walk, your playing thier poker game..call their bluff...
slightly used is looking great this year...
If your credit score is above 700, you own them....
"Recovery & Reinvestment Bill"
Can we abbreviate that Rembi?
Chrysler off 53% per Marketwatch.
The Deutsche Bank analyst who is predicting a 26% increase in the S&P 500 this year is named "Binky".
Methinks she'll be sucking a binky and getting her diaper changed.
How long until Toll Brothers becomes First National Bank of Toll Brothers and collects $2.3 bill in TARP scratch?
Doofus
They got good cookies
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
Apparatchik ZackAttack | Homepage | 01.05.09 - 2:59 pm | #
(Dryfly) WWII.
The Depression deflation was ended in 1933 by a combination of devaluation and stimulus. Similar policies ended the Great Depression deflation (which wasn't Great in most countries) almost everywhere. WWII stopped a second liquidity trap in the late 1930's.
I think the solution to deflation, a monetary problem, should be monetary - inflating the money supply. Fiscal stimulus should be for solving "real economy" problems like unemployment. I leave it as an exercise for the reader to decide whether the proposed stimulus will produce benefits worth its cost.
who needs cars, i am going old skool and buying a horse. i think we will see a real resurgence in horse travel.
slightly used is looking great this year...
cd | 01.05.09 - 3:24 pm | #
Amen. All points were good but the last was the best.
Kia off 39.2%
IIS 7.5 Detailed Error - 404.0 - Not Found....
SAN FRANCISCO (MarketWatch) -- Kia Motors America said Monday that U.S. December sales fell 39.2% to 14,644 vehicles from 24,068 a year ago. U.S. December sales of the company's Spectra dropped to 2,720 units from 6,688 last year, and sales of Kia's Sportage fell to 2,182 vehicles from 5,109 a year ago. Kia is an affiliate of Hyundai Motor America and the sales and marketing arm of Kia Motors Corp.
ac
i agree that overshoot from the stimulus package is likely to give us inflation
and i think "they" are counting on it
what other way to wipe out debt than to pay it back in dollars worth, say, half as much (50cent dollars!)
there is no course of action here that doesnt result in great harm being done somewhere to some constituency
however, my belief (guess) is that to let it go "a la treas secretary mellon" would be to have social disorder of a magnitude that would bring fear into the hearts of even those who have well stocked bunkers
Chrysler off 53% per Marketwatch.
If you're dyslexic, that's actually in line with the others.
Man, if only Y2K wasn't a once-in-a-lifetime event, we could spend lots of money upgrading computers.
The Depression deflation was ended in 1933 by a combination of devaluation and stimulus.
1938 and 1939 were also both deflationary.
1960 - 63 wasn't anything like deflationary. There was a 1-year recession in '61 that is listed as ending in Feb, 1962.
If the SPX holds @ 915, the SPX will have held @ 915.Give me your investment dollars
--
Just finished watching Obamas news conference on economy.
It hit me that everything in American governance is tailored to fit dopes, especially the born-and-bred variety. This includes the President, the Fed Chairman, the Treasury Secretary and on and on. Anyone not suitable for dopes would have no chance. One example would suffice. Bernanke was about to write a book in 2002 titiled, How Politicians and Policymakers Caused the Great Depression. Well, who all are in-charge now?
We are screwed. No?
Jas
Jas,
You need to familiarize yourself with the concept of the slumbering giant and how that worked out for those that ignored it.
This is more than a recession. That needs to be said, because it is continually being compared to past events. This is different. The sentiment is that after a lull, things will continue as they always have. That is not a safe assumption.
Let's not forget the inflationary crises down the road that seems to have resulted from this spending.
Or perhaps it was spending on the rather unnecessary Vietnam War. OPEC lent a helping hand as well.
http://bigpicture.typepad.com/comments/files/gdppricecpi.jpg
however, my belief (guess) is that to let it go "a la treas secretary mellon" would be to have social disorder of a magnitude that would bring fear into the hearts of even those who have well stocked bunkers
mock turtle
Maybe. And maybe we get that anyhow if real credit is withdrawn from the US (the Fed can always provide nominal credit).
One thing I think it's worth keeping in mind though, is that Hoover didn't really take Mellon's advice. At best you can argue that the Depression was perhaps caused by a failure to do enough, not that we sat back and did nothing.
This really kind of underscores the fundamental problem facing economics today - not enough experimental data in industrialized economies to make compelling empirical conclusions either way.
Fair Economist [I think the solution to deflation, a monetary problem, should be monetary]
You need to distinguish the problem from the symptom in order to arrive at a viable solution. Deflation is a symptom of a structural Problem - insolvency and too much debt to service.
The solution is Default.
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
Apparatchik ZackAttack | Homepage | 01.05.09 - 2:59 pm | #
WWII.
dryfly | 01.05.09 - 3:05 pm | #
LOL!!!!
What kind of stimulus is it where you are drafted into the service and if you aren't you are subject to rationing?
I suppose having a car battery connected to your balls is a "stimulus" but the recovery only happens when the stimulation STOPS.
"I suppose having a car battery connected to your balls is a "stimulus" but the recovery only happens when the stimulation STOPS.
Charles Kiting"
Ask Broward.
The solution is Default.
bearly
Now
having a car battery connected to your balls is a "stimulus" but the recovery only happens when the stimulation STOPS
Speak for yourself, bud!
.
We are screwed. No?
Jas, look on the bright side. The worse things get economically, the more they lower taxes. Just think of the prosperity a real meltdown will bring. Whoohoo!
OT: (For the record, as if anyone really cares)
Bought DUG & EEV a moment ago (both look like they've turned). Shorted SPY as well.
"Let's not forget the inflationary crises down the road that seems to have resulted from this spending."
Or perhaps it was spending on the rather unnecessary Vietnam War. OPEC lent a helping hand as well.
Vietnam was actually mostly what I was referring to. I would tend to think the other spending would play a far less significant role in terms of contributing to inflation.
But as people pointed out earlier, it is wartime spending that really seems to be able to generate inflationary pressures. I'm just pointing out that those pressures may come with a cost.
In the case of Vietnam that cost may have ultimately been the "Great Recession" and the double digit employment of the early 80s, though it's hard to know for sure.
" mock turtle writes:
Is there a single example in history of a stimulus package that succeeded in ending a deflation?
NASA space race
war in vietnam
lyndon johnsons great society
mock turtle | 01.05.09 - 3:08 pm | # "
First, if these programs did "stimulate", they stimulated an economy that was already experiencing creeping inflation under Eisenhower.
Second, it's probably more accurate to say that the economy was stimulated by Kennedy's tax cuts.
It is my understanding that WW2 can only be described as effective "stimulus" considering so much productive capacity was destroyed in Europe and Asia.
dryfly,
In early December I heard an econ prof say that inflation rates depend a lot on expectations. He thought most people are worried about their deflating assets, so he expected inflation to remain low over the next year at least. However, he also said that he was worried about deflation "a little".
It is my understanding that WW2 can only be described as effective "stimulus" considering so much productive capacity was destroyed in Europe and Asia.
That would seem consistent with WW2 producing a multi-decade boom and Vietnam producing stagflation - in one you wiped out Krups and Mr. Toyota's grandfather, in the other you torched a bunch of straw huts.
I think the solution to deflation, a monetary problem, should be monetary--inflating the money supply.
Deflation is not a problem, it's a cure.
Fiscal stimulus should be for solving "real economy" problems like unemployment.
Fiscal stimulus solves nothing. Once it's used up, the same people are unemployed again.
The solution is Default.
That's the solution to excess debt. However, the methods the Fed has used to deal with recessionary pressures so far have also created an additional problem with a liquidity trap/deflation. Now we get to deal with that too.
isn't it nice we gave chrysler all that money....-53% will be the norm this year....
The Depression deflation was ended in 1933 by a combination of devaluation and stimulus.
Awesome. I guess that means we can look forward to at least 15 years of stimulus and a world war.
Why not start a war with China, bomb all their cities into rubble, then loan them (their) money back to rebuild. Would this not increase American economic growth?
cd writes:
isn't it nice we gave chrysler all that money....-53% will be the norm this year....
think they'll be found 'viable' in 3 months? Or do we not have the balls to call back their "loan"?
Here's my two cents. There is no "solution."
Many, many people are going to get screwed.
Sadly, it won't just be the dingbats that caused this mess.
Channelling Yellen...
What is our exit strategy for the economic stimulus?
Regarding WWII as stimulus...
Federal spending per capita has increased steadily since 1947. Per capita fed spending is now HIGHER than it was at its WWII height.
"Why not start a war with China, bomb all their cities into rubble, then loan them (their) money back to rebuild."
At that point it would be our cockroaches making loans to their cockroaches; nuclear winter and all that, you know...
Cerberus was hoping for worse numbers. They will pull the plug on that pig soon.
PCA,
Thanks for the update - my OT contribution - did DX fill the gap today and if it turns down from here put potentially put a head and shoulders in play?
Deflation is not a problem, it's a cure.
Deflation is a HUGE problem. Once serious deflation sets in economic activity halts. Nobody lends, because the mattress pays better and nobody buys because it's cheaper next month. Deflation also worsens the underlying problems because it increases the value of already excessive debt burdens.
Fiscal stimulus solves nothing. Once it's used up, the same people are unemployed again.
A lot of unemployment in a recession is frictional - it's not that the people can't work and not that there's nothing for them to do, it's that they don't know what they can do that's useful for other people. Temporary employment gives time for the market to adjust and find new/expanded services to fill.
"Recovery & Reinvestment Bill"
Perfect. A 2 year depression with lots of R&R.
I doubt we walk the elephant backward though (low UE, high median income, low commodity prices, low interest rates)... THAT is what everyone is trying to do and I think it is undoable. IMHO.
dryfly | 01.05.09 - 3:15 pm | #
Yes, that needs a game-changer, a deus ex machina. Such things do happen technologically, and can happen in the real world if a certain amount of resources are thrown in their direction. We have a lot of technologies that could be developed to help achieve that effect; as with everything else, it needs political will and a big club to beat back the people who make too much money off things as they are.
I just printed out the forecasts and added my own (650 S&P) at the bottom. Pinning up in my office and hoping to laugh in 12 months ... of course, that assumes I still have an office in 12 months (that's probably a 50/50). Better odds than I give these f-tards who are forecasting.
the man from nantucket writes:
the market strategist cited in the article is named 'Blinky Chadha" and he/she (???) predicted a 12% SP500 rise in 2008 and is now calling for a 26% rise in 2009. Aside form the stunning ineptitude of the predictions....i just won't listen to an adult that still goes by "Blinky". I just won't.
the man from nantucket | 01.05.09 - 2:46 pm | #
citizen energyecon,
If you're referring to Dynex Capital (DX), I don't make anything of that very illiquid stock. Sorry.
Sorry, no DX the dollar index (measured against 16 major currencies)...
INO Equities Stocks Indexes - U.S $ INDEX (NYBOT:DX) Price Chart and Quote
Jas Jain writes:
Just finished watching Obamas news conference on economy.
It hit me that everything in American governance is tailored to fit dopes
Reading your material over the past year or so, I find it hard to believe that that thought just hit you
What effect will this have on prices, oil up and gold down?
Accordingly, JP Morgan see the most significant change coming in the DJ-AIGCI rebalance. Here the market weight of crude oil is expected to increase from 9.6 per cent to 13.8 per cent, gold from 10.8 per cent to 7.9 per cent, copper (COMEX) from 4.5 per cent to 7.3 per cent, live cattle from 6.4 per cent to 4.3 per cent and sugar from 4.7 per cent to 3.0 per cent. Meanwhile, S&P GSCI crude oil weight will go from 32 per cent to 33.8 per cent. Their analysis:
In financial terms, we expect the rebalancing to have the greatest impact in gold, COMEX copper, crude oil, gold, and live cattle. We estimate that the rebalancing of the two indices is expected to result in $877 million of selling in gold, $699 million of buying in COMEX copper, $528 million of selling in live cattle, and $523 million of buying in crude oil.
Obama pretty downbeat... probably has advance info on jobs report.
The Depression deflation was ended in 1933 by a combination of devaluation and stimulus.
Awesome. I guess that means we can look forward to at least 15 years of stimulus and a world war.
No, the deflation ended right away and the economy took off like a rocket from 1933-36 with growth rates exceeding any other 3 year period in American history. We then went into a new depression when FDR tried to stop the eeeevil librul programs, and that depression was ended by WWII since FDR lost his working majority in 1938.
I think an updated version of FDR's programs - mild inflation, cleaning up bad banks, labor-intensive conservation and infrastructure, and a basic safety net (now including healthcare) - is the way out of the current problems. I don't see why continuing any of that indefinitely is a particular problem.
PCA gave the kiss of death to EEV
Fair Economist, in the interests of full disclosure, you should always use your middle name, Keynesian. As in, "Fair Keynesian Economist."
Deflation is a cure. Commerce doesn't stop at all. If there was 25% unemployment in 1933, as we've all heard, that means that 75% of the people were still working, right? Deflation punishes the greedy speculators, the gamblers, the hucksters, and those who made silly business decisions. It wipes them out, as it should. There was another deflation after the Panic of 1873, and its principal effect was raising the standard of living of workers, artisans, and craftsmen. Their wages could buy more.
Anyone have any idea how bad the numbers have to be for December to put Bush in Hoover's league for job creation?
Wonder if she did something bad?
Expired
RhodesianGreenbackinAZ,
Would you believe the guy's economic forecast if he changed his name to Nictitate Chadha?
Persecuted Comrade Anonymouse writes:
"OT: (For the record, as if anyone really cares)"
Don't worry, I'm keeping a record. Followed your lead on EEV, but will be careful with stops as these devils are slippery.
Dunno about DUG. Is this for short term (how short?); I'm holding DXO as long term I believe in Rich's posture. But I'll protect with stops
there as well.
Good luck!
OT-
some quotes from customers trying to get a car loan thru my companies software at large dallas dealership-Import...
"We have been approved at several dealerships, but with stipulations. Such as way too much money down or a co-signer. We have very long term job stabilty and a great income we just need a chance to get approved on our terms!"
"I am looking for $0 down"
"If it makes a difference, my parents own the company that i work at. Me getting fired isn't a possibility. I don't have a car right now, but the $49 down $149 monthly was something i could do. I'm interested in any kind of car that gets good gas mileage. Thank you for your time"
"Good Morning, I am in desperate need of finding myseof a used but reliable vehicle. I really don't want an expensive car, at least nothing over $7,000. I've been looking on your website and there were a couple of cars i have my eyes on. They are the 2000 Cadillac Catera and the 2002 Chevrolet Impala. I pray that you all can get me financed for my very own vehicle. Thank you."
" my co- application and myself dont have good credit but we are trying to built our credit with good standers with someone who will give us both the chance "
"WOULD LIKE TO SCHEDULE A TEST DRIVE AND SEE WHAT I CAN DO... JUST LANDED A NEW JOB... MY 95 MAXIMA IS NOT GOING TO MAKE IT"
"I would like for my monthly payments to be as low as possible as well as my down payment I would like to start out with 500.00 down if I can."
What everyone fails to address is credit score destruction..
The only way they get people to buy homes, cars and other big ticket items will be a one time jubilee on credit scores. They will have to re-calculate fica in some form or manner to boost scores or we are dead in water....
if u need some applicant credit score avging..let me know..
but I can tell you it's ugly...
75% of the people were still working, right?
Less.
They were working less.
25% less, to be roughly exact.
.
Oops, 16% less.
Fair Economist,
I enjoy your comments. I was just being ironical.
That said, I see no easy outs here. None. My main hope is that we stamp out all the perverse incentives in our eCONomy. Prudence, work and ingenuity should be rewarded rather than leverage and speculation.
One more thought. Long run inflation should be zero or negative. We need a new monetary system. One that allows for growth, but that doesn't require growth (especially exponential growth).
"isn't it nice we gave chrysler all that money....-53% will be the norm this year....
cd | 01.05.09 - 3:44 pm "
We gave it to Sec. Snow and VP Quayle. Both are very deserving chaps.
Here's my two cents. There is no "solution."
Many, many people are going to get screwed.
Sadly, it won't just be the dingbats that caused this mess.
Angry Saver | 01.05.09 - 3:46 pm | #
Amen.
Persecuted Comrade Anonymouse writes:
"OT: (For the record, as if anyone really cares)"
Also bought in SRS today at @ $52.50.
The solution is Default.
Yes. Let's not take on more debt, when our only hope of "repaying" that debt is via currency devaluation or debt forgiveness. We should be calling the "stimulus package" a "debt package."
If there was 25% unemployment in 1933, as we've all heard, that means that 75% of the people were still working, right? Deflation punishes the greedy speculators, the gamblers, the hucksters, and those who made silly business decision
Things were proceeding downward during the deflation and stopped and headed up as soon as it ended. Just like every other country. Deflation was a big problem based on how much things improved once it ended.
Deflation punishes the greedy speculators, the gamblers, the hucksters, and those who made silly business decision
No, deflation primarily punishes investors - people who have made good investment purchases and now find their purchases declining in value until they face bankruptcy. Speculators, etc., don't care - they're bankrupt anyway.
There was another deflation after the Panic of 1873, and its principal effect was raising the standard of living of workers, artisans, and craftsmen. Their wages could buy more.
Apart from the minor detail that their wages had declined as much or more than the prices and so they were worse off.
In the context of strong overall growth, a little deflation is OK because nominal interest rates stay above zero and you don't go into the liquidity trap. I'm pretty confident we won't see real growth next year so we can't tolerate deflation now.
Does anyone know of indicators of current car sales, other than visiting some car lots (see below)?
The numbers int the article were dramatic but the second half of 2008 was dramatic in general and these numbers may have been the public's reactions to them. I would be interested to know whether car sales have already recovered or are static or getting worse.
I just bought a car in Australia and the discounts were good but well short of desperate. The Australian car market is much smaller than the USA car market and the smaller supply of cars may be helping prices here.
Peter,
Cars are not selling. I work with 1200 dealers here...sure their are numbers..but they are ugly....
they pre-sold vehicles out 3 years at least........
If there was 25% unemployment in 1933, as we've all heard, that means that 75% of the people were still working, right? Deflation punishes the greedy speculators, the gamblers, the hucksters, and those who made silly business decisions. It wipes them out, as it should.
El Cliffo | Homepage | 01.05.09 - 4:01 pm | #
And the 25% who weren't working - they got wiped out too - makes for a nice social mix to have a quarter of your population idle and getting hungry.
And as for the point the about the 75% - they did work for less. My grandfather took a 50% pay cut then another cut a few years later but considered themselves lucky to be working... moved from a ~1500 sqft house (seven people) to a ~600 sqft house with NINE people [homeless family moved in]. That is what deflation does.
Ya that would go over well...
[basic safety net (now including healthcare) - is the way out of the current problems. I don't see why continuing any of that indefinitely is a particular problem.
Fair Economist]
Oh, I do.
Problems
1) is paying for it, in the context of the already unfunded liabilities and global competitiveness of USA.
2) Quality. I assume you have no first hand experience with socialized medicine. It's catastrophic insurance with long waits for service, rationed by the government. Only the rich get decent care and they pay cash.
We already have unfunded mandated emergency care at county hospitals.
More ivory tower hoping & wishful thinking. Let's fix SS & Medicare first before assuming more liabilities.
I enjoy your comments. I was just being ironical.
Oops, sorry, hope I didn't come off too sharp. I enjoy your comments too.
That said, I see no easy outs here. None. My main hope is that we stamp out all the perverse incentives in our eCONomy. Prudence, work and ingenuity should be rewarded rather than leverage and speculation.
Amen to all that.
One more thought. Long run inflation should be zero or negative. We need a new monetary system. One that allows for growth, but that doesn't require growth (especially exponential growth).
I think inflation should be as low as possible without going into liquidity traps. (Occasional short traps are OK - nothing's perfect). I don't have any problem with inflation forever as long as it's mild. I would say that a zero-growth economy actually requires higher base inflation because real interest rates will be lower with zero growth and so you need more inflation so nominal rates stay above zero with inevitable fluctuations.
Deflation is a cure. Commerce doesn't stop at all. If there was 25% unemployment in 1933, as we've all heard, that means that 75% of the people were still working, right?
El Cliffo | Homepage | 01.05.09 - 4:01 pm | #
In high school they taught us that, at the time of the Revolutionary War, only 25 percent of American colonists were in favor of independence from England. 25 percent, if that's all it was, is a more-than-formidable amount of the population for ... anything.
Problems
1) is paying for it, in the context of the already unfunded liabilities and global competitiveness of USA.
Ooh, yes, it's just ruined Germany and Japan's competitiveness! Look how we're beating the pants off them in industrial productions and exports!
2) Quality. I assume you have no first hand experience with socialized medicine. It's catastrophic insurance with long waits for service, rationed by the government. Only the rich get decent care and they pay cash.
Healthcare outcomes are consistently better in all other industrialized countries than in the US. Our life expectancy barely beats Cuba. Average waits for treatment in the US are actually similar to abroad - and that's not including the (much larger) group that never gets treatment here!
We then went into a new depression when FDR tried to stop the eeeevil librul programs, and that depression was ended by WWII since FDR lost his working majority in 1938.
Gov't expenditures increased signficantly in both 1938 and 1939, just as they had increased significantly in 1930 and 1931.
This will be posted on Zacks.com in a few minutes, along with the graph referenced:
In general, there are two things you can do with your money, spend it or save it. Money that is saved is generally channeled into investment, either directly as in the individual buying stocks, or indirectly through banks and other financial intermediaries. The Graph below shows the personal savings data for the U.S. as far back as the monthly data is available. From the late 1950s through the mid 1980s U.S consumers would generally put away between 8 and 10% of what came in (mostly pay checks, but the data is based on all disposable income). During boom times, it would be towards the low side of that, and would spike higher during recessions, occasionally going as high as 12% or so. We then went into an extended decline, until the savings rate actually briefly went negative a few years ago. Since the start of 2005, the savings rate was almost always below 1.0%. Keep in mind that the absolute dollar savings data are not adjusted for inflation.
In 2008 it looks like that started to change. The big spike in May to 4.8% was due to the stimulus checks (remember those?), but even after that effect wore off the savings rate has started to rise. This is of course the flip side of the slowdown in spending we have been seeing, a point driven home yet again today with another month worth of dismal auto sales numbers. However, even with the rather dramatic slowdown in spending, the savings rate in November was still only 2.8%, which was about the normal rate from 1999 through most of 2003. Since most peoples wealth has been destroyed through the decline of housing and stock market values, people are going to need to save much more if they hope to retire or send their kids to college. That we will sell the house and move to a smaller place and live off the proceeds plan is just not going to fly anymore. The 401k that you were relying on is now much more like a 201k. People are going to have to save the old fashioned way, by spending less than they make. That means a new car every seven years, not every three years. Clothes should properly reclassified into durable goods from non durable. I know I have stuff in my closet that probably dates from the Reagan administration, and it is likely that others will see the wisdom of that as well. All the pain of this slowdown in consumer spending has only really moved the needle by about 2.0% points so far. It strikes me as likely that we will eventually have to return to savings rates like we saw in the 1960s and 1970s. That is not going to be an easy process, since as everyone starts to save more, it means that everyone consumes less. That means fewer jobs and hence less income, and with less income it is harder to save. With a higher marginal propensity to save, the multiplier effect from the stimulus package will be much weaker.
The process has MUCH further to run. Avoid Retailers like Macys (M), Kohls (KSS), Home Depot (HD), Sears (SHLD) and J.C. Penny (JCP) along with those who make the goods that those retailers sell.
In high school they taught us that, at the time of the Revolutionary War, only 25 percent of American colonists were in favor of independence from England. 25 percent, if that's all it was, is a more-than-formidable amount of the population for ... anything.
Bob Dobbs | Homepage | 01.05.09 - 4:25 pm | #
Lenin did it with far less (but very angry) support.
I would say that a zero-growth economy actually requires higher base inflation
Couple of points. Actual growth does not occur in accordance with a tidy and neat exponnential function.
Money is only the medium of exchange. Not the engine.
Over hundreds of years, excess money over and above underlying growth (inflation) has never led to increased or higher levels of growth. Arguably, just the opposite occurs- booms & busts disrupt & distort growth.
Of course, a small minority always benefit immensely from inflation. If some are getting more for less, others are getting less for more. I just don't see how something that immoral can lead to higher growth.
Why not start a war with China, bomb all their cities into rubble, then loan them (their) money back to rebuild. Would this not increase American economic growth?
I can haz bailouts? | 01.05.09 - 3:45 pm | #
China has nukes too, but then again, a total rebuild of NY, LA, Chicago, SF, DC and StL might be stimulative, and the radioactivity would stimulate the medical sector.
Does anyone know how this is affecting Honda and Toyota's respective turn and earn programs. A Toyota lot I drove by seemed to have an awful lot of new sitting in the back lot. I wonder if the sales numbers are starting to reflect a number of dealers saying, "Forget it, I don't need to earn more Priuses, etc."
With all of these politicians and economists around, I wonder why I haven't seen anyone explaining the problem this way.
Here's my simple formula for how to do this. The Federal Govt (or more likely a newly created entity) would reinsure municipal debt where bond insurance was originally purchased by collecting all of the remaining unearned bond insurance premiums. Any bond with an underlying rating of A or better would be eligible.
For auction rate bonds, the Federal Govt could provide a liquidity facility which leaves such bonds with the same maximum rates, but allows people to sell their bonds at any point. Thus, much more liquidity. The cost of financing would start dropping immediately.
My point above was that 25% unemployment is not 100% unemployment, which is what Fair K. Economist implied @3:50 PM by stating, "Once serious deflation sets in economic activity halts." It does not halt--it contracts.
My point above was that 25% unemployment is not 100%
It is if you divide it in half enough times.
.
"The solution is Default.
bearly"
I think this should be the baseline against which alternate strategies are evaluated.
I also think that we should discuss efficient vs inefficient defaults in a macro sense. Inefficient defaults result in crime, dead landscaping, stripped houses, high borrowing costs for many others.
Efficient defaults do less physical and financial damage.
In other words, how do you get people who clearly can't afford their homes out in a fairly efficient manner? There's a reason Fannie Mae is encouraging short sales instead of foreclosures.
I think this would be a fine goal for the new administration. Where there is little doubt about affordability in a particular case, get those people into somewhere they can afford. And, try to get someone else into that house or condo they are vacating with minimal mess.
cd writes:
You folks need some car buying lessons...
My question is, why go through all of the shenanigans when you arrive with your price in mind and simply tell them ... this is my offer, take it or I leave. Knowing what one can afford before going in the door sounds simpler than show time buying and selling. It saves both time and money.