Remember when Lucy used to hold the football for Charlie Brown, and he always fell for it?

Cut through all the finance gibberish and economics over-analysis; one thing in this whole boom-bust I don't get:

At the end of the day, it's production and consumption that matters. Lets term this the "BASE ECONOMY".

It used to be a simple story. If we manage to increase production and consumption at the same time, then more and more wants and needs of the world is satisfied and people's lifes in general improves.

We should not forget the role of technology in this, technology can impact production by vastly improving it's output capacity.

Now, what if technology did too much? This is my belief that this is what's happening to our world.

What if the improvements in mass production and industrialization and technologies meant that society can pretty much produce as much goods as we please, and the only limit is our willingness and focus to create such goods?
Even if you don't believe we're "there" in the current world, it's not hard to see the world reaching it at some future time. Imagine societies where robots do majority of the production and the only "work" left is to decide how much to produce and how much to consume.

In such a world, the real limit is consumption! (and maybe the limit of commodities or of the world polluting itself to death, etc; but lets focus on 1 thing at a time...)

Back to the supply/demand problem -- if you make supply unlimited, and are constrained purely on demand; the question to ask is, why is increasing demand a bad thing?

I don't want to torch people's feelings or get into philosophical arguments about "Thou shalt be frugal", etc. That's not my intent. I'm really asking what if the only thing we're limited (at the current level of demand compared to our technology, anyway), is our desire for demand. Then shouldn't the equation be to solve this demand problem?

Let demand run, at least until it hits a Production Possibility Frontier (PPF) ceiling. If PPF is the limit, then based on all current accounts of factories CLOSING and people getting laid off, and new graduates and massive others unemployed, etc; we're sooo not there yet!

What I'm also asking, is whether this whole financial storm is a problem manifistation of the SYSTEM; rather than a fundemental limit being reached.

hc asks "why is increasing demand a bad thing?"

The answer is that then one has to consider a whole other theory than supply side economic policies. And apparently America still isn't ready for something that radical. Wealth trickling up as people actually buy what they want and need, that's radical. America is more into the business of growing regressive taxation and asking poor people to fund the trading deals of rich hedge fund operators. >:o

We used to have citizens. Citizens were people who could fight wars for city-states. Now we have consumers. Consumers enrich the market state by consuming, up until now. Now we are at the point where consumption makes the haves poorer. So what and who will the haves need.

Geithner is going to be one of the Obama Administration's worst fiascos. The longer he stays, the worse it will be.

Nothing he says inspires confidence in anybody.

and to think BO fought for him... he should have taken the Tax evasion opportunity.....soooo disapointing, as i said before, nothing gets more blood boiling than a failed love affair ("Change you can keep" the new slogan???)

In other words, is the problem our financial system, rather than the actual BASE ECONOMY (See above)?

Because if it is, we're needlessly screwing up everyone's lives and standard of living by forcing declines in production and consumption because of the attention given to our financial system.

It's synonymous to:
(perhaps because of fear of loss...) Producers and Consumers stop doing what they're doing, and both start to argue over terms of the contracts they've negotiated -- thereby neglecting production AND demand, and thus causing REAL destruction that both sides feared. It's almost like a self-fulfilling prophecy.

Consider the whole world, how else can you sanely explain: scores of over production, score of excess capacity everywhere -- low demand and low sales!!

"Saving" and "prudent" works for individuals and maybe even for the world where there's a limit of production and some real limit of commodities; or where production capacity have to be redirected for something else (like a War). In an excess scenario, I just don't see how prudent works to right this ship naturally.

(Of course, I see a very "pessimistic" resolution to this by following the "thrift" route: Let enough people starve and die, let enough factories rot and technologies and skills wither, such that our production capacity is permanently dented down, so we'll finally be in "equilibrium" again. Isn't this trying to win a philosophical battle by torturing the answer???)

What? No hat tip?

Rob Dawg says:Today, 10:34:02 AM PDT
Congresscritter: "What's the back-up plan?"
Timmay: "This plan will work."

Pride goeth before the fall is actually:

Pride goeth before destruction, and an haughty spirit before a fall.
Better it is to be of an humble spirit with the lowly, than to divide the spoil with the proud.
-- Proverbs 16: 18-19 (KJV)

Geithner: "It just requires will....We just need to keep at it....and we're going to do what's necessary."

Earth to Icarus: "Mankind is mortal and no amount of will power is going to change that." Oh, what are facts? DONT_KNOW

"Have you ever heard of a gov. plan that didn't work? What kind of f... question is that senator?"

Qtr end coming up where hedgies will be honoring liquidations and credit tightens up. SPY Q1 puts are cheap. Adding here...

What Timmay really means is:

"I probably won't be here much longer to implement the next plan."

Calculated Risk says:Today, 10:50:47 AM PDT
Rob Dawg, sorry, I didn't see your comment.

best wishes

Cr,
My apologies. Your's are not necessary. I was just looking for an excuse to repost in a more topical thread.

ope.. that would be communism then.. ever seen Star Treck??? what do you think they have as society??(cant even belive that was a american series.. so full of commie stuff ...

Didn't Cortez burn his ships after his conquistadors disembarked on their way to conquer the Aztecs? Thought it would steel their resolve. TG gets it.

dryfly from last thread.

Actually, I threw up in my mouth...

Just shoot me now.

Dryfly:

Not having seen the video but getting the gist, what is TG getting that has to do with a dead conquistador?

Not seeing that...

Normally I use a condom, but they I thought when I'm I ever going to be in Thailand again.

Bad Idea Jeans

Man, that pisani is one hell-uva useless stooge. Amazing he even has a job. Disgraceful. Symbol for cnbc's true value.

And yet, he was the man on 9/11. He should have retired on 9/12.

A. E. Housman
LXII
`Terence, this is stupid stuff:
You eat your victuals fast enough;
There's nothing much amiss, 'tis clear,
To see the rate you drink your beer.
But oh, good Lord, the verse you make,
It gives a chap the belly-ache.
The cow, the old cow, she is dead;
It sleeps well, the horned head:
We poor lads, 'tis our turn now
To hear such tunes as killed the cow.
Pretty friendship 'tis to rhyme
Your friends to death before their time
Moping melancholy mad:
Come, pipe a tune to dance to, lad.'

Why, if 'tis dancing you would be,
There's brisker pipes than poetry.
Say, for what were hop-yards meant,
Or why was Burton built on Trent?
Oh many a peer of England brews
Livelier liquor than the Muse,
And malt does more than Milton can
To justify God's ways to man.
Ale, man, ale's the stuff to drink
For fellows whom it hurts to think:
Look into the pewter pot
To see the world as the world's not.
And faith, 'tis pleasant till 'tis past:
The mischief is that 'twill not last.
Oh I have been to Ludlow fair
And left my necktie God knows where,
And carried half way home, or near,
Pints and quarts of Ludlow beer:
Then the world seemed none so bad,
And I myself a sterling lad;
And down in lovely muck I've lain,
Happy till I woke again.
Then I saw the morning sky:
Heigho, the tale was all a lie;
The world, it was the old world yet,
I was I, my things were wet,
And nothing now remained to do
But begin the game anew.

Therefore, since the world has still
Much good, but much less good than ill,
And while the sun and moon endure
Luck's a chance, but trouble's sure,
I'd face it as a wise man would,
And train for ill and not for good.
'Tis true, the stuff I bring for sale
Is not so brisk a brew as ale:
Out of a stem that scored the hand
I wrung it in a weary land.
But take it: if the smack is sour
The better for the embittered hour;
It will do good to heart and head
When your soul is in my soul's stead;
And I will friend you, if I may,
In the dark and cloudy day.

There was a king reigned in the East:
There, when kings will sit to feast,
They get their fill before they think
With poisoned meat and poisoned drink.
He gathered all that sprang to birth
From the many-venomed earth;
First a little, thence to more,
He sampled all her killing store;
And easy, smiling, seasoned sound,
Sate the king when healths went round.
They put arsenic in his meat
And stared aghast to watch him eat;
They poured strychnine in his cup
And shook to see him drink it up:
They shook, they stared as white's their shirt:
Them it was their poison hurt.
-- I tell the tale that I heard told.
Mithridates, he died old.

Not having seen the video but getting the gist, what is TG getting that has to do with a dead conquistador?

Not seeing that...

The ships represented 'option b'... Cortez removed 'option b'. TG is telling congress 'there is no option b, next question'.

"This plan WILL work"

You know, if you just mandate reality the world will fall into place around you. I used to work with a VP who really believed you could just mandate reality, now I've got a job and he hasn't.

Timmah needs to learn some life lessons.

1) That's a myth; the trains in Italy didn't run on time under Mussolini, and
2) From wikipedia: "Fascism is a radical, authoritarian nationalist ideology that aims to create a single-party state with a government led by a dictator who seeks national unity and development by requiring individuals to subordinate self-interest to the collective interest of the nation or race."
This is not how I envision America; I think fascism sucks, and that Goldberg was essentially correct in his conclusions. Liberalism and Fascism arose about the same time, in part due to the power vacuum left in Europe after the fall of the European Aristocracies, and while the US didn't experience that same power vacuum, the writings of the European intelligentsia were influential amongst the liberal elites over here. As such, many of the "new" ideas from fascism were adopted by the New Deal Liberals, and put into action as soon as there became an apparent need, i.e. GDI.

What if the improvements in mass production and industrialization and technologies meant that society can pretty much produce as much goods as we please, and the only limit is our willingness and focus to create such goods?

Even if you don't believe we're "there" in the current world, it's not hard to see the world reaching it at some future time. Imagine societies where robots do majority of the production and the only "work" left is to decide how much to produce and how much to consume.

Your thinking is flawed.

This planet has over 7 billion people. If every one on it was consuming like Americans, there would not be any trees left and we'd need mutiple planets.

Americans used to be productive. They have been living on its past since 1972... net importers of money, net importers of energy.

Wars are fought for energy... it used to be that Americans could afford its energy but not anymore. America has hit a wall.

If you don't write off anything and don't change anything in your system, you will need more oil than you have needed in the past for maintenance AND growth. Not good when you are a net importer of the stuff.

Since the entire world is vying for the American quality of life (material that is), I can not see how America can keep on buying its oil by paying with unasble paper.

It's a scratch my back and I'll scratch yours kind of thing that's been going on now for a while with China and others. But with increasing protectionism and policies to screw foreigners, I really don't see how America will be able to pull this one off.

Werner:
"Dear hc, the problem simply is that the US for more than a decade has lived (consumed) beyond it's means (earnings) by borrowed money. And since you can not live beyond your means for ever (as every little schoolchild knows) it's gonna stop somewhere. That is now. That's all. No need for abstruse theories."

That's because we're measuring progress this way! Our incessant focus in the "problem" is our obsession with trying to "fit" the real world into our narrow "money" viewpoint.

As a result, we're forcing real work to be lost, real factories to be closed and real skills to be wasted. This doesn't benefit neither producers nor consumers!

What if the improvements in mass production and industrialization and technologies meant that society can pretty much produce as much goods as we please, and the only limit is our willingness and focus to create such goods?

entropy is a pretty powerful concept that can applied to almost every single situation.

@hc: "Or in the Native American world, because their population in relation to the land they occupy is so vast; they don't value land at all. "

Actually, the population was much larger before the Europeans introduced them to smallpox and a host of other fatal communicable diseases to which they had no immunity. The land wasn't nearly so vast in relation to the population prior to the European contact.

Also, my understanding is that the land was certainly valued, it just wasn't treated as individual property.

Finally, you seem to have forgotten the global resource shortages last year as the bubble peaked. We are in no way shape or form at a point where we can "produce as much as we want to consume" and get away with it, without endangering the planet's ability to sustain life as we currently enjoy it. (We do have some headroom now, since the bubble burst, but not that much.)

In the final analysis all resources on earth are finite.

Geithner should have been a little more honest and said, "This IS my backup plan. BHO's backup plan is to fire my ass"

Thanks, I was looking for that. I think the guilt by association angle should be exploited to the max. Vested interests in this affair should be taken into consideration and all linkages should be exposed. There is a story to tell here.

@hc:

"Consider the whole world, how else can you sanely explain: scores of over production, score of excess capacity everywhere -- low demand and low sales!!"

Here is how. Too much loose credit gave the wrong signals to business, so we built too many houses and cars. Now, we have overcapacity in some areas of the economy that must be undone. That means layoffs and an adjustment period.

I believe humans have an infinite capacity for demand. The financial system is supposed to help allocate resources efficiently to meet that demand, but it is broken in many ways.

So, yes, there is a problem with the financial system, but I don't think we are too productive.

danm says:Today, 11:13:45 AM PDT
This planet has over 7 billion people. If every one on it was consuming like Americans, there would not be any trees left and we'd need mutiple planets.

Americans used to be productive. They have been living on its past since 1972... net importers of money, net importers of energy.

Used to be that ignorance was bliss but now it appears that ignorance is an excuse to blather on the intertubez.

I'm sure Geithner has a contingency plan for himself, just not the world financial system. So, he'll sleep well tonight.

it was the incas not aztecs

My bad - was too lazy to google & too forgetful to remember. But you got the idea.

BTW - I think TG has an option b just not telling congress... they probably have option c, d, e and option 'AHHH!!! Run Away'... those also aren't gonna be aired [yet].

"Geithner, like the conquistador, is making it impossible for the soldiers (taxpayers) to select any other option than the one he intends for them. He has burned the ships that could have carried them back to a safer world."

Does that mean... when the Spannish Galleons are transporting the gold back to their homeland we'll have to be the privateers reliving them of their ill-gotten riches ?

(donning an eye-patch and immitating Mr.Crabs) Aghhh me hearties I spies a rich banker just ready for the plunderin' !!

One of the biggest defect in human beings is the delusion of knowledge. It allows them to be certain about the future. It also makes them believe they gave power and that they deserve their success, when their fortune is largely due to chance.

It also eventually kills them.. but that is another story.

Today whites suffer from that delusion, in earlier times Asian civilizations suffered from it.

thread music??

YouTube -

dryfly,

No mea culpa, as noted above Cortez:Aztecs as Pizarro:Incas...

The backup plan is more taxes for Americans to pay the remainder of their hard working lives and more Fed and FDIC plenary power.

It's incredible that members of congress, most of them lawyers,
cannot use five minutes wisely. A brief, one sentence, welcome
to the witness would suffice for an "opening statement." The
representative should have prepared two or three questions, with
followups. The chairman should instruct the witness to answer the
question when the witness is evasive. Since there are several members on the committee, they might have held a strategy session to choose questions to ask and take up any necessary followups on behalf of another member out of time.

Amazing lack of organization.
\t

Comrade Coinz:
"Too much loose credit gave the wrong signals to business, so we built too many houses and cars. Now, we have overcapacity in some areas of the economy that must be undone. That means layoffs and an adjustment period."

I agree this is the cause, but now the crisis is much bigger than the initial fire that started it. House and Cars isn't the only industry dying now.

Witness airline industry, hospitals even charity and scientific research!

The engine running the crisis now is pure fear feeding on itself, even if you exclude housing. (Housing has ceased to be a contributor to the economy 2 years back, and MEW has reached zero; so housing-ATM effect has been over for a while.) What we have not is runaway fear more than housing on it's own. That fear is crimping consumption, which causes more fear and more reduction. Redux until everyone's unemployed and starving, then the death spiral migrates to us competing on who can eat the least. If I can eat less than my neighbour, I "win" by outlasting him.

This spiral cannot be allowed to continue. The housing bubble started as a righteous call for reining in excesses, but now is migrating into a chorus of self mutilation. The govt is trying to do the "opposite" to balance, but having 1 party do it solo makes their actions look extreme and stupid. (If 1 entity has to spend to try to put a floor on these, that entity will look extremely reckless no matter if he's Warren Buffet himself.) We're in a reflexive system, and our actions affect the outcome.

Holy crap.
[The Fed announced last Wednesday it would purchase up to $3000 billion in Treasurys over the next six months]

Linky not work: 'this video has been removed by the user.

The Fed announced last Wednesday it would purchase up to $3000 billion in Treasurys over the next six months

http://finance.yahoo.com/echarts?s=^TNX#symbol=^TNX;range=1d

The engine running the crisis now is pure fear feeding on itsel.

Your perception of baseline demand was an unsustainable credit bubble leading to household and gvt debt loads made possibly only by active manipulation of credit supplies. This led to misinvestment everywhere from US consumer demand to subprime sovereign lending.

This was a very long bubble, 8 years at least, maybe more like 30 or 40. You aren't going to be able to lever households back up, because most of them are still levered.

This isn't about banks and credit now, it's about national balance sheets that pointedly make no sense. You're not going to fix that by somehow "unfreezing credit".

The Fed announced last Wednesday it would purchase up to $3000 billion in Treasurys over the next six months

What?

I thought it was 3000000 million in treasuries.

Scone,
Alternate link to the one posted by CR,

YouTube - Geithner On Backup Plan: This Plan Will Work 

response to danm.

To counter example and show you the "reflexive system" I'm trying to say.

Imagine the same couple making 100K a year with safe jobs. Now even if they didn't overspend and planned correctly and stuff; their company is in trouble.

Being a "safe" job, this couple merely received a 10% paycut instead of losing their jobs.

Without any fault of theirs from not planning enough, their finances is now wrecked. To rebalance, they'll cut back more, which like Karma, ripples throughout the economy and comes back to them 3 quarters later, as the company announces another 10% salary cut. So they cut back more...

This is the reflexive system counterexample.

Once we're in a deflationary spiral, cutting back and prudence, which would've worked as a "brake" during the bubble years, is a very BAD thing to encourage at this time. There's no "end", until everyone's unemployed and even that arguable isn't the end. (i.e. 1 winner at the end from the whole human race, the person who can starve the longest. But did that single human "win"? My bet is he dies.)

Only way out of these spirals is to behave similar to PC buyers example I cited:

I know PC prices will get cheaper if I wait, but PC buyers also know the futility of the waiting game, as one can pretty much wait forever. The philosophy change comes from realizing that, and buying it when the need arrives anyway -- not to seek maximum pricing leverage.

We'll need a significant chunk of people who switch to this mindset; who're fed up with the spiral and is willing to do counter movements against it to fix this "reflexive system" deflation. Unfortunately, I'm not as optimistic that we'll find that solution. The Fed/Treasure seem to believe otherwise. (or at least exhibit publicly that that's their vision of the endgame)

Your analogy is wrong. Retirement-savings in modern society doesn't work like squirreling away nuts. That is unless you're physically stockpiling all the wheat, rice, water, etc that you need in your retirement.

What modern retirement savings depends on is to lean on a viable and productive society when the retirement hits. What you "save" as money is simply a claim on some future production of said food, water, services, etc.

The problem is now, this "production" is being threatened. This is not unlike if a plague came by and wiped out enough population to cause Baltic-Dry-Index to drop to today's low.

No matter how much money you have saved, since production is down and going lower, your future claim will be lowered. That's why I said keeping production up is the #1 priority in the society. The current deflation is very bad for everyone, retirees with cash included.

In a traditional system, when you save, you increase capital, which helps investment in tools that increase production.

In an over-savings scenario, the world saves so much, that capital cannot be reasonably absorbed into production-increase projects (there's a limit!), so the rest of it either bubbles; or ends up clinging into financial black holes like UST. Consider this scenario is also reachable, if you saved so much, that you end up impacting consumption; so that you give society the false consumption signal.

(i.e. Thinking I can save a bowl of rice for my future retirement if I eat one bowl less today. The reality is that if you eat one bowl less today, the farmer's economic signal is to produce one bowl less; which makes your one "bowl in future" even more remote)

I've tried to explain this to people, and once they get it, it's suddenly crystal clear that we're all in this together, and trying to plan on a simple "househole frugality" doesn't save the bigger picture. In Math, this is an example of local optimizations leading to global suboptimal solutions.

3 hundred billion, bearly, not 3 thousand billion. Still probably the largest proportional increase in the money supply since the Continental but not the hyperinflation express.

danm:

If you think USA has retirement issues, you have to wake up to other realities.

This is a giant collision of societies timetables; and in the bigger picture; I don't think USA to-be retirees are worse off than the non-USA counterparts. Every country has giant problems similar to us, some have bigger ones due to their socio-economic choices.

Europe has less than replacement birth rate, some countries very severely. Their old will have to depend on external countries to feed. Ditto to Canada, they have to absorb huge amounts of immigrants going forward to maintain their beloved benefit program for their boomers.

China's one-child policy is a huge timebomb. I have brother in law there; they by the time he wants to retire, the country will be facing 6:1 ratio of retiree vs working person. This is partly why that country is such an avid saver -- you save when you have an impending crisis.

Japan is already witnessing their retirement nightmare. 5:1 is the last ratio I heard, and worsening. Two parents on the wife side, two parent on the husband side, 0-1 kid. (if zero, even worse for the country going forward)

USA, in contrast, have a relatively healthy birthrate. Whaever deficit we have now, only seems huge because it's expensive to have and bring up children and we're being compared to everywhere else in the world, with a big chunk of people are living nokid style.

(Lets hope this crisis doesn't change that in the USA. )

Children are our future, not money, nor treasuries. They're the ultimate inflationary guard and deflation stopper. That's true wealth and currency (assuming you educate them well.)

hc:

I realize all this but I have to admit that I am angry with the US because it is the one in power, has done a terrible job at managing its finances and does not give a crap about its impact on others.

I believe that countries around the world were forced into the American model whether they liked it or not and now we're going down with it.

I also realize that any other country with such clout would have probably done the same thing, as empires always over reach. It just goes with the rise and fall of empires.

I guess I'm in the anger stage of grief.

That comment of his is going to come back and bite him in the ass so friggin' hard, it'll sever him in two.