Quote: Original post by trzy
What about the all the panics prior to the establishment of the current reserve banking system?

Small panics > Big panic

Quote: Original post by Dreddnafious Maelstrom

Quote: Original post by Zahlman
Meanwhile, in a large civilized country such as the US, if you don't have a job, a tax cut can't help you buy the necessities of life.

Tax cuts creates disposable income, you can follow what logically happens after assuming you're actually trying.

Only if you had taxable income to begin with. If you don't have a job, you don't have income besides what the government gives you, which is presumably not itself taxed (since there would be no point to giving out extra and then taking some away, except to create more bureaucracy), which means you weren't paying taxes, which means your previous taxation of zero is reduced by X% to still zero, while you still don't have enough income to support yourself, because what the government is giving you isn't enough (unless this is the point you want to argue, in which case why didn't you just say so) to sustain food and shelter as a single parent.

What is so hard about this?

I am following what logically happens. I don't see you trying to do the same. I only see you repeating your economic policy talking points.

Quote: Original post by Dreddnafious Maelstrom

Quote: Original post by Zahlman
Meanwhile, in a large civilized country such as the US, if you don't have a job, a tax cut can't help you buy the necessities of life.

Tax cuts creates disposable income, you can follow what logically happens after assuming you're actually trying.

Yeah, you invest the money in the housing market. Or in unregulated financial instruments. Or with Bernie Madoff.

Quote: Original post by nobodynews
Yeah, you invest the money in the housing market. Or in unregulated financial instruments. Or with Bernie Madoff.

Oh, burn! 'E mad off with how much now? :D

Quote: Original post by LessBread

Quote: Original post by capn_midnight
The efforts of Congress and the Executive to create "stimulus" plans out of magic and pixie dust in an expectation of saving the country from a massive depression are fairy tale fantasies. Mark my words, the country is going into a depression and the efforts of the government will do nothing to stop it. The only question that remains is how long the depression will last.

It's not magic, it's economics.

If you would like to quote the economic school of thought that has prescribed this plan, please go ahead and do so now. Without a study of economics behind the plan, it is not much more than a useless, thrashing action performed to make those watching feel good that "something, anything" is being done.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
These stimulus plans are paradoxes on their very face. A stimulus is by definition an external influence having an effect on the system. You can't just double the number of dollars in circulation from inside and call that a stimulus plan. You might as well have told everyone to cut their dollars in half and call each piece whole. It doesn't change anything, it just destroys the savings of the people who actually acted responsibly during this whole mess.

It seems to me that the savings of the people who acted responsibly during this whole mess was destroyed by the whole mess.

So, by this arguing, you would save car accident victims by intentionally ramming an ambulance into them?

Quote: Original post by LessBread

Quote: Original post by capn_midnight
The current "stimulus" plans are not executions of Keynesian economics because Keynesian economics is confiscation of savings through taxation to enact direct investment in the economy. TARP and the Auto Bailout are are expansions of the monetary base to give funds to 3rd parties with the hope that they will use the funds to invest in the economy, i.e. indirect investment. The reason the name "Keynesian" is tacked on to this plan comes from the popular understanding that Keynesian economics is the "right" system for recession economics. However, even Keynes himself admitted that it was best suited for totalitarian states and did not work very well for democratic systems with too much personal freedom.

TARP and the auto-bailout weren't about stimulating the economy but preventing it from collapsing. They aren't part of the current plans, which include direct investment in the economy. But don't despair just yet, the banks may still be nationalized.

Po-tay-to, po-tah-to, they're all invented money for invented solutions with no real connection to reality. And exactly how much direct investment in the economy does Obama's plan entail? Do you have links, can you quantify it? I fail to see how putting money into national parks is going to create the jobs, infrastructure, and capital we need to get out of this mess. As for nationalizing the banks, oh sure, correct the corruption and collusion in the banks, SEC, and Fed by putting the banks under the control of an organization known to be corrupt!

Quote: Original post by LessBread

Quote: Original post by capn_midnight
Keynes' fundamental flaw was failing to remember that wealth and the health of the economy are based in capital creation, i.e. savings, the very thing he was hell-bent on confiscating. We can give everyone a million dollars and it won't mean a lick if nobody has any real goods with real value to show for it. He thought that the savings of the rich were wasted moneys, which is a ridiculous concept in even the pre-Fed banking system. Keynesian economics is forcefully taking the value out of investments to put try to put into investments. Would anyone please try to explain to me how that is supposed to make any sense?

To frame things using a biological metaphor, a heart that hoards blood soon stops pumping it.

Do you not understand how savings and investments work? The only way to "hoard" money is to put it under your mattress. If it's in a bank somewhere, it's being used as an investment somewhere.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
Without savings, there are no funds to loan, period. We have a liquidity crisis because savings are at an all time low. That spike at the end there is from TARP funds being held in reserve by the banks that received them, instead of being used to make loans. People don't have enough money to put in the bank, and their houses are being appraised at lower and lower values due to market saturation (1, 2, 3). There's nothing propping up the deck of cards anymore. In order to maintain the flow of money, the Fed had to reduce the reserve limits to completely irresponsible levels to make sure the money supply was available and then slash interest rates to entice people into racking up debt so that the money supply would get used.

First you say there are no funds to loan, then you say that the banks are hoarding the money the government gave them to loan.

Nobody knows what the banks are using the TARP funds for, congress never stipulated any accountability for it. Look at that, you cried for action "NOW NOW NOW" and you ended up with a piece of shit in response. But they certainly don't have it anywhere they can use to make loans. As far as I can tell, the banks are holding on to the money in Fed Excessive Reserve accounts to keep it out of their books so they can use it to buy back their mortgage packages when it looks like they might start to be gaining in value again. We, you and I, get footed with all the losses thanks to a government with delusions of grandeure.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
The only way to get out of this problem is to correct the root cause, lack of savings.

In that case, the root cause was crumbling wages. People didn't save because they had nothing left over to save because their wages had been falling for thirty years.

Real wages are up. It's been the monetary policies of the government that have caused inflation in the economy to turn that uprise in real wages into a drop in spending power. You're not helping your case that government control is any friend of the consumer.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
1.) We have to let interest rates be set by market forces, allow the feedback in the system to do its work. This will probably make base interest rates jump to 15-20%. At those rates, nobody is going to want to take a loan and everyone is going to want to be putting money into savings accounts.

You think we should drink more market fundamentalist kool-aid? Really? If everyone puts their money in the bank, the economy will collapse. Seriously. It seems to me that you're tracing the economic policy of the Hoover administration.

Ah, treat me as a cultist and dismiss my arguments on their face. If everyone puts their money in the banks, then funds will be available to lend to people who really, really need a loan.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
2.) We need to increase the reserve requirements, being able to loan out $3000 for every $100 you take in is ludicrous and is exactly how fluctuations in one portion of the market end up getting spread to the rest of the market.

Regulations? Really? Now you're sounding like me.

Do not for a minute labor under the assumption that we have had a deregulated system. Banks shouldn't have the ability to invent money out of thin air in the first place. What's wrong with calling an investment an investment? Why do banks have to take people's money, use it to make loans, and still tell the original account holder that their money is completely untouched and unavailable? Why do we make up this fairy tale for bank accounts? The money is being used in the exact same way as if you had invested in whomever got the loan in the first place, yet if you did that directly you wouldn't expect the money to just be available at any time. In a deregulated system, I doubt anyone would stand for a bank that played shell games with their money.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
3.) We have to stop the government spending money like a Beverly Hills Suburban Queen and get back to fiscally responsible activities (which neither party has done for the last 20 years), like closing a Department of Education that has allowed 50% of the population to be so illiterate that they earn below the poverty level and removing the military occupation of literally the majority of countries in the entire world.

Actually, the fiscal irresponsibility began with Ronald Reagan. It began to turn around with Bush 41, but he "lied" about taxes and lost favor with his party. Clinton picked up the ball to institute "Pay-Go" and managed at least to balance the budget on paper. Then Bush 43 took over and ran the country into a ditch. Closing the Dept of Education is a terrible approach to improving literacy rates, but don't let that get in the way of promoting your ideological agenda.

By this arguing, we shouldn't have voted the Republicans out of Congress, we should have voted in MORE of them.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
Finally admitting that Social Security is a giant Ponzi scheme that was never meant for the general populace anyway would help, too. (">link)

If you want to see what a giant Ponzi scheme looks like, check out Bernie Madoff, who made off with $50 billion. And don't kid yourself, Social Security was always about the general populace.

Mentioning Madoff is a strawman argument. The SEC investigated Madoff 6 times and "found nothing wrong". Was he paying them off? Why didn't they find any indication that he was running a scam? Regardless, none of this changes the fact that Social Security is still a Ponzi scheme.

And please, read up on your history a bit. It was meant for the "poor, widowed, and fatherless children". It's going to end up as a net burden for the middle class. Social Security is not a retirement fund for everyone, it's a transfer payment to the lower class.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
4.) Finally, we have to cut the income tax drastically (preferably completely as it was an unconstitutional enactment that was promised to end after WWII), so that everyone has more money, real money, to save. Income taxes are taxes on the poor and middle class anyway, the rich can easily use investment vehicles to skirt it. We would be operating at 55% of 2007's income, which wouldn't be too bad if we get around to reigning in spending.

Pour on the kool-aid! When all you've got in your tool kit is tax cuts, every problem calls for more tax cuts!! And where did you come up with that half baked notion that income tax promised to end after WWII? You're right that income taxes are taxes on the poor and middle class. They're part of the mechanism for redistributing wealth upwards to those that don't need it.

Again with the cult talk! I seem to see three other items in my list other than tax cuts. I was mistaken on the changes in tax law during the period of WWII, the instance in my mind was the increase of the top tax rate to 94%, and was not reduced again until 1964. However, people have the right to their property and it should not be confiscated from them unless by their consent for the benefit of all citizens. The power of the federal government to tax personal citizens' property has only come about through wordplay and tomfoolery with the Constitution.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
It is going to hurt, but hopefully it will only hurt for a few years while the system heals from the steroids its been on for the last 15 to 20 years. If the government continues to enact policies that destroy savings they are only going to prolong the problem.

Your plans would wreck the country and the globe for that matter.

I'm glad you have a crystal ball. "Wreck the globe" indeed. It's that sort of talk that leads to totalitarian states.

Quote: Original post by capn_midnight

Quote: Original post by LessBread

Quote: Original post by capn_midnight
The efforts of Congress and the Executive to create "stimulus" plans out of magic and pixie dust in an expectation of saving the country from a massive depression are fairy tale fantasies. Mark my words, the country is going into a depression and the efforts of the government will do nothing to stop it. The only question that remains is how long the depression will last.

It's not magic, it's economics.

If you would like to quote the economic school of thought that has prescribed this plan, please go ahead and do so now. Without a study of economics behind the plan, it is not much more than a useless, thrashing action performed to make those watching feel good that "something, anything" is being done.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
These stimulus plans are paradoxes on their very face. A stimulus is by definition an external influence having an effect on the system. You can't just double the number of dollars in circulation from inside and call that a stimulus plan. You might as well have told everyone to cut their dollars in half and call each piece whole. It doesn't change anything, it just destroys the savings of the people who actually acted responsibly during this whole mess.

It seems to me that the savings of the people who acted responsibly during this whole mess was destroyed by the whole mess.

So, by this arguing, you would save car accident victims by intentionally ramming an ambulance into them?

Quote: Original post by LessBread

Quote: Original post by capn_midnight
The current "stimulus" plans are not executions of Keynesian economics because Keynesian economics is confiscation of savings through taxation to enact direct investment in the economy. TARP and the Auto Bailout are are expansions of the monetary base to give funds to 3rd parties with the hope that they will use the funds to invest in the economy, i.e. indirect investment. The reason the name "Keynesian" is tacked on to this plan comes from the popular understanding that Keynesian economics is the "right" system for recession economics. However, even Keynes himself admitted that it was best suited for totalitarian states and did not work very well for democratic systems with too much personal freedom.

TARP and the auto-bailout weren't about stimulating the economy but preventing it from collapsing. They aren't part of the current plans, which include direct investment in the economy. But don't despair just yet, the banks may still be nationalized.

Po-tay-to, po-tah-to, they're all invented money for invented solutions with no real connection to reality. And exactly how much direct investment in the economy does Obama's plan entail? Do you have links, can you quantify it? I fail to see how putting money into national parks is going to create the jobs, infrastructure, and capital we need to get out of this mess. As for nationalizing the banks, oh sure, correct the corruption and collusion in the banks, SEC, and Fed by putting the banks under the control of an organization known to be corrupt!

Quote: Original post by LessBread

Quote: Original post by capn_midnight
Keynes' fundamental flaw was failing to remember that wealth and the health of the economy are based in capital creation, i.e. savings, the very thing he was hell-bent on confiscating. We can give everyone a million dollars and it won't mean a lick if nobody has any real goods with real value to show for it. He thought that the savings of the rich were wasted moneys, which is a ridiculous concept in even the pre-Fed banking system. Keynesian economics is forcefully taking the value out of investments to put try to put into investments. Would anyone please try to explain to me how that is supposed to make any sense?

To frame things using a biological metaphor, a heart that hoards blood soon stops pumping it.

Do you not understand how savings and investments work? The only way to "hoard" money is to put it under your mattress. If it's in a bank somewhere, it's being used as an investment somewhere.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
Without savings, there are no funds to loan, period. We have a liquidity crisis because savings are at an all time low. That spike at the end there is from TARP funds being held in reserve by the banks that received them, instead of being used to make loans. People don't have enough money to put in the bank, and their houses are being appraised at lower and lower values due to market saturation (1, 2, 3). There's nothing propping up the deck of cards anymore. In order to maintain the flow of money, the Fed had to reduce the reserve limits to completely irresponsible levels to make sure the money supply was available and then slash interest rates to entice people into racking up debt so that the money supply would get used.

First you say there are no funds to loan, then you say that the banks are hoarding the money the government gave them to loan.

Nobody knows what the banks are using the TARP funds for, congress never stipulated any accountability for it. Look at that, you cried for action "NOW NOW NOW" and you ended up with a piece of shit in response. But they certainly don't have it anywhere they can use to make loans. As far as I can tell, the banks are holding on to the money in Fed Excessive Reserve accounts to keep it out of their books so they can use it to buy back their mortgage packages when it looks like they might start to be gaining in value again. We, you and I, get footed with all the losses thanks to a government with delusions of grandeure.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
The only way to get out of this problem is to correct the root cause, lack of savings.

In that case, the root cause was crumbling wages. People didn't save because they had nothing left over to save because their wages had been falling for thirty years.

Real wages are up. It's been the monetary policies of the government that have caused inflation in the economy to turn that uprise in real wages into a drop in spending power. You're not helping your case that government control is any friend of the consumer.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
1.) We have to let interest rates be set by market forces, allow the feedback in the system to do its work. This will probably make base interest rates jump to 15-20%. At those rates, nobody is going to want to take a loan and everyone is going to want to be putting money into savings accounts.

You think we should drink more market fundamentalist kool-aid? Really? If everyone puts their money in the bank, the economy will collapse. Seriously. It seems to me that you're tracing the economic policy of the Hoover administration.

Ah, treat me as a cultist and dismiss my arguments on their face. If everyone puts their money in the banks, then funds will be available to lend to people who really, really need a loan.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
2.) We need to increase the reserve requirements, being able to loan out $3000 for every $100 you take in is ludicrous and is exactly how fluctuations in one portion of the market end up getting spread to the rest of the market.

Regulations? Really? Now you're sounding like me.

Do not for a minute labor under the assumption that we have had a deregulated system. Banks shouldn't have the ability to invent money out of thin air in the first place. What's wrong with calling an investment an investment? Why do banks have to take people's money, use it to make loans, and still tell the original account holder that their money is completely untouched and unavailable? Why do we make up this fairy tale for bank accounts? The money is being used in the exact same way as if you had invested in whomever got the loan in the first place, yet if you did that directly you wouldn't expect the money to just be available at any time. In a deregulated system, I doubt anyone would stand for a bank that played shell games with their money.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
3.) We have to stop the government spending money like a Beverly Hills Suburban Queen and get back to fiscally responsible activities (which neither party has done for the last 20 years), like closing a Department of Education that has allowed 50% of the population to be so illiterate that they earn below the poverty level and removing the military occupation of literally the majority of countries in the entire world.

Actually, the fiscal irresponsibility began with Ronald Reagan. It began to turn around with Bush 41, but he "lied" about taxes and lost favor with his party. Clinton picked up the ball to institute "Pay-Go" and managed at least to balance the budget on paper. Then Bush 43 took over and ran the country into a ditch. Closing the Dept of Education is a terrible approach to improving literacy rates, but don't let that get in the way of promoting your ideological agenda.

By this arguing, we shouldn't have voted the Republicans out of Congress, we should have voted in MORE of them.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
Finally admitting that Social Security is a giant Ponzi scheme that was never meant for the general populace anyway would help, too. (">link)

If you want to see what a giant Ponzi scheme looks like, check out Bernie Madoff, who made off with $50 billion. And don't kid yourself, Social Security was always about the general populace.

Mentioning Madoff is a strawman argument. The SEC investigated Madoff 6 times and "found nothing wrong". Was he paying them off? Why didn't they find any indication that he was running a scam? Regardless, none of this changes the fact that Social Security is still a Ponzi scheme.

And please, read up on your history a bit. It was meant for the "poor, widowed, and fatherless children". It's going to end up as a net burden for the middle class. Social Security is not a retirement fund for everyone, it's a transfer payment to the lower class.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
4.) Finally, we have to cut the income tax drastically (preferably completely as it was an unconstitutional enactment that was promised to end after WWII), so that everyone has more money, real money, to save. Income taxes are taxes on the poor and middle class anyway, the rich can easily use investment vehicles to skirt it. We would be operating at 55% of 2007's income, which wouldn't be too bad if we get around to reigning in spending.

Pour on the kool-aid! When all you've got in your tool kit is tax cuts, every problem calls for more tax cuts!! And where did you come up with that half baked notion that income tax promised to end after WWII? You're right that income taxes are taxes on the poor and middle class. They're part of the mechanism for redistributing wealth upwards to those that don't need it.

Again with the cult talk! I seem to see three other items in my list other than tax cuts. I was mistaken on the changes in tax law during the period of WWII, the instance in my mind was the increase of the top tax rate to 94%, and was not reduced again until 1964. However, people have the right to their property and it should not be confiscated from them unless by their consent for the benefit of all citizens. The power of the federal government to tax personal citizens' property has only come about through wordplay and tomfoolery with the Constitution.

Quote: Original post by LessBread

Quote: Original post by capn_midnight
It is going to hurt, but hopefully it will only hurt for a few years while the system heals from the steroids its been on for the last 15 to 20 years. If the government continues to enact policies that destroy savings they are only going to prolong the problem.

Your plans would wreck the country and the globe for that matter.

I'm glad you have a crystal ball. "Wreck the globe" indeed. It's that sort of talk that leads to totalitarian states.

This post prompted my piqued a bit, enough to want to post a few follow up questions to captn_midnight.

My first question, is why do you imagine that in an unregulated system, banks would decide to come back to a full reserve requirement, or otherwise become fully deleveraged? This doesnt seem in keeping with historical precedent, since the fractional reserve system of banking initially developed in an unregulated economy. It also doesnt seem in keeping with recent examples of unregulated banks. Look for instance, at investment banks. Much less regulation then the garden variety of banks, but they used this freedom to increase thier leverage by a phenomenal amount. Its not clear from any of these examples why banks would suddenly display good sense, if the entire system were completly deregulated.

You go on to post that in a deregulated system, people would be ok with banks not having money on hand to pay them back thier deposits, since it would be fully tied up in investments. Its not clear why people would want to continue to use banks at all then, nor is it clear that this is in keeping with historical precendent(pretty sure there hasnt been a time in history when this type of "bank" was popular).

You also state, that contrary to the belief of Kenyes, large deposits sitting in the bank are some of the best type of economic activty. This seems to run counter to current examples. Tthe Japanese for instance, have huge deposits on hand, and by many accounts this extremely high level has been counter productive. Why would you assume that a bank, operating under the constraints is does, will be the best way to channel deposits into investments, esp. in economic conditions where banks perfer not to lend at all?

As far as I can see you have a deep skeptisim of deficit spending(and inflation in general), which is fine, but it seems like you are implying it never works to the benifit of the economy. Again, this seems counterfactual. What about Post WW2, both in the United States and Western German? What about the german economic recovery prior to ww2 under Hitler? Thats not to imply that it will work this time, but saying it never works seems like flying in the face of history.

I'm also at a loss with the claim that income tax is unconstitional. Since there was an amendment passed specifically to allow income taxation, this seems odd..can you explain further what you mean?

Finally, I doubt lessbread has a crystal ball, but from reading his posts, I believe he is thinking of Hoover's policies, which were in many ways similar to what you suggest. Why do you think they were unsucessful then, but would be appropriate now?

IIRC the amendment for income tax was either not ratified by the correct number of states or can be read two different ways. TBH I don't care.. I think the constitution is worthless.

My guess with the banks is that, if they were unregulated people would learn how they worked better. The people that lose their money because the bank was lending out 10000000000000x the amount of cash they had on lose it because it's their own fault. People weigh the risk vs. reward of putting money in a riskier bank or a more secure bank. There have been banks in the past that operated purely on service charges and didn't loan out any money. Never had any problems with 'runs'.

Quote: Original post by curtmax_0
IIRC the amendment for income tax was either not ratified by the correct number of states or can be read two different ways. TBH I don't care.. I think the constitution is worthless.

My guess with the banks is that, if they were unregulated people would learn how they worked better. The people that lose their money because the bank was lending out 10000000000000x the amount of cash they had on lose it because it's their own fault. People weigh the risk vs. reward of putting money in a riskier bank or a more secure bank. There have been banks in the past that operated purely on service charges and didn't loan out any money. Never had any problems with 'runs'.

If the banks dont loan out any money though, then captn_midnight's theory that large amounts of bank deposits always constitutes desirable economic activity is even less true.

The only part I agree with capn_midnight is that minimum reserve requirements are too low and that banks are given too much freedom to invent new money. However, lowering this is a form of regulation, Lessbread's point.

The other points: flaws of Obama's stimulus plan and Tarp - although I have qualms with it as well they are for different reasons. As for no regulation and increasing savings rate as cure all, those I flat out find flawed premises.

First, Keynesian economics failed to save the economy in the 70s. Government spent and spent and grew the debt to little avail. Leading to the notion of fiscal policy becoming less popular. Although there is a good chance that DC can spend the US out of a recession there is also a fair chance the pendulum will swing sharply the other way into rampant inflation in a defunct economy - stagfaltion. However it is clear that the cost of inaction far out weighs anything else and there seem little other productive actions.

That is why some economist call for bridge to nowhere programs over useful bridges because once the things start picking up, the amount of capital will simply explode. With bridges to nowhere the resulting effects would contribute less since the feedback effects into the economy would be less. Otherwise there is a risk that the sudden increase in capital will out pace the supply - the country's productive capacity leading to run away inflation.

The same goes to all the money being injected to prop up the banks. Although alot of money has been doled out, the amount of bad assets and losses on the balance sheets are still enough to keep the banks insolvent. In fact a key reason things got this bad was due to the near absent regulations on the shadow banking system of investment banks. With little regulation they were able to create obscene amount of leverage. Indeed the purpose of the TARP has been unclear and not very well regulated, leading to it not performing its proper purpose in increasing loan rates of banks (once this happens, in addition to all the bailouts and stimulus packages risk of rampant inflation in a shrinking economy is pronounced, there is always a delay before such measure have an impact and not to mention, simple human psychology - people are not gonna suddenly switch to spending sprees from thriftiness).

Lack of regulation has always been a problem, whether it be debasement by royal mints or goldsmiths writing false receipts (or jewelers in ancient china), it is human nature to fall under the temptations of greed. Regulation would not be needed in an imperfect world of rational humans competing perfectly. But such is not the case.

As for deposits*, again the current crisis was greatly exacerbated by non-bank holding 'investment banks'. Saving too much or lack thereof is not the problem, it is merely a byproduct of the current problem of too much leverage and use of impenetrable financial instruments to cloak the baseline. The increased leverage allowed people to make riskier loans, bombard people with marketing and the dream to take unreasonable loans and to not save, allowing the creation of a super credit bubble. Cut the credit and people are forced to use their money more reasonably. To save it, to invest it in business with good fundamentals in a clear way. However cut the credit too much and then you have a slower growing economy. Sure people will save more but the purchasing power will be reduced despite increasing in real value leading to more rigid class systems as people struggle to get enough leverage to gamble their way out. Which in turn could lead to more complacent citizens and less creative endeavors and breakthroughs.

The value of money is in its movement, save too much or too little and you destroy the economy. However in the current economy of fractional reserves and exponential growth being striven for saving too much would bring the global economy to its knees. Even china with its high savings rate is hurt because it can no longer foist its products on the now non-buying west. The current system of exponential economic growth is unsustainable and plain bad for the environment. Some balance of the current credit based one checked for inflation while maintaining reasonable growth is what is needed. A bit more regulation will be required for this but not enought to destroy the market's 'invisble hand'.

*It is not the job of the bank to invest people's deposits, in fact unregulated banks investing people's money in addition to their promises to give money in illiquid assets which is close to what you prescribe is exactly what caused this whole mess.

Originally hat we call banks used to have their function separated and handled by money lenders who would loan their own money with interest and safe-keepers who would store money since it used to be based on heavy metals. The loaners would lend their own money and receive interest due to the risk involved. This allowed the money in circulation to remain a closed system. Always however in history, due to human greed, the storage industry would evolve into lenders despite not being entitled to the money. Since few actually came to reclaim their deposits and instead traded using the claim checks themselves they could print false claim checks against money they did not have. The first run resulted these people paying interest to those who stored in their vaults. Government looked away since this allowed for the funding of their rampage across the world.

[Edited by - Daerax on February 3, 2009 9:46:37 PM]

Quote: Original post by capn_midnight

Quote: Original post by LessBread

Quote: Original post by capn_midnight
The efforts of Congress and the Executive to create "stimulus" plans out of magic and pixie dust in an expectation of saving the country from a massive depression are fairy tale fantasies. Mark my words, the country is going into a depression and the efforts of the government will do nothing to stop it. The only question that remains is how long the depression will last.

It's not magic, it's economics.

If you would like to quote the economic school of thought that has prescribed this plan, please go ahead and do so now. Without a study of economics behind the plan, it is not much more than a useless, thrashing action performed to make those watching feel good that "something, anything" is being done.

If you need a label for the economics behind plan, so that you could file it away in a box or bad mouth it in some new manner, you could probably get away with attaching Krugman's name to it, otherwise, it's based on Keynes.

Quote: Original post by capn_midnight

Quote: Original post by LessBread

Quote: Original post by capn_midnight
These stimulus plans are paradoxes on their very face. A stimulus is by definition an external influence having an effect on the system. You can't just double the number of dollars in circulation from inside and call that a stimulus plan. You might as well have told everyone to cut their dollars in half and call each piece whole. It doesn't change anything, it just destroys the savings of the people who actually acted responsibly during this whole mess.

It seems to me that the savings of the people who acted responsibly during this whole mess was destroyed by the whole mess.

So, by this arguing, you would save car accident victims by intentionally ramming an ambulance into them?

That's a huge leap there.

Quote: Original post by capn_midnight

Quote: Original post by LessBread

Quote: Original post by capn_midnight
The current "stimulus" plans are not executions of Keynesian economics because Keynesian economics is confiscation of savings through taxation to enact direct investment in the economy. TARP and the Auto Bailout are are expansions of the monetary base to give funds to 3rd parties with the hope that they will use the funds to invest in the economy, i.e. indirect investment. The reason the name "Keynesian" is tacked on to this plan comes from the popular understanding that Keynesian economics is the "right" system for recession economics. However, even Keynes himself admitted that it was best suited for totalitarian states and did not work very well for democratic systems with too much personal freedom.

TARP and the auto-bailout weren't about stimulating the economy but preventing it from collapsing. They aren't part of the current plans, which include direct investment in the economy. But don't despair just yet, the banks may still be nationalized.

Po-tay-to, po-tah-to, they're all invented money for invented solutions with no real connection to reality. And exactly how much direct investment in the economy does Obama's plan entail? Do you have links, can you quantify it? I fail to see how putting money into national parks is going to create the jobs, infrastructure, and capital we need to get out of this mess. As for nationalizing the banks, oh sure, correct the corruption and collusion in the banks, SEC, and Fed by putting the banks under the control of an organization known to be corrupt!

Organizations corrupted by years of Republican misrule.

Quote: Original post by capn_midnight

Quote: Original post by LessBread

Quote: Original post by capn_midnight
Keynes' fundamental flaw was failing to remember that wealth and the health of the economy are based in capital creation, i.e. savings, the very thing he was hell-bent on confiscating. We can give everyone a million dollars and it won't mean a lick if nobody has any real goods with real value to show for it. He thought that the savings of the rich were wasted moneys, which is a ridiculous concept in even the pre-Fed banking system. Keynesian economics is forcefully taking the value out of investments to put try to put into investments. Would anyone please try to explain to me how that is supposed to make any sense?

To frame things using a biological metaphor, a heart that hoards blood soon stops pumping it.

Do you not understand how savings and investments work? The only way to "hoard" money is to put it under your mattress. If it's in a bank somewhere, it's being used as an investment somewhere.

Do you not understand that money only has value because everyone agrees that it has value? From the things you've been writing, it appears that you don't. You cracked wise about tearing dollars in two, but what's the difference in value between a one dollar bill and a hundred dollar bill? They're both made with the same amount of paper and the same amount of ink. The larger denomination only has greater value because we all agree that it does. Keynesian economics is about stimulating demand in order to get money circulating through the economy again. Money sitting in a bank doesn't circulate. And after the utter failure of Wall Street, how you can trumpet investments in the general sense is beyond me. // edit - it's about trust, trusting that money has value and so forth.

Quote: Original post by capn_midnight

Quote: Original post by LessBread

Quote: Original post by capn_midnight
Without savings, there are no funds to loan, period. We have a liquidity crisis because savings are at an all time low. That spike at the end there is from TARP funds being held in reserve by the banks that received them, instead of being used to make loans. People don't have enough money to put in the bank, and their houses are being appraised at lower and lower values due to market saturation (1, 2, 3). There's nothing propping up the deck of cards anymore. In order to maintain the flow of money, the Fed had to reduce the reserve limits to completely irresponsible levels to make sure the money supply was available and then slash interest rates to entice people into racking up debt so that the money supply would get used.

First you say there are no funds to loan, then you say that the banks are hoarding the money the government gave them to loan.

Nobody knows what the banks are using the TARP funds for, congress never stipulated any accountability for it. Look at that, you cried for action "NOW NOW NOW" and you ended up with a piece of shit in response. But they certainly don't have it anywhere they can use to make loans. As far as I can tell, the banks are holding on to the money in Fed Excessive Reserve accounts to keep it out of their books so they can use it to buy back their mortgage packages when it looks like they might start to be gaining in value again. We, you and I, get footed with all the losses thanks to a government with delusions of grandeure.

I called for action, I didn't call for stupid action, but with George Bush running the show at the time, stupid action is what we got. TARP was the last great theft of tax dollars courtesy of the war criminal White House, that reportedly threatened Congress with martial law if they didn't pass the TARP (yes I realize that sounds crazy but google "TARP+martial+law" and you'll find plenty of reports from people from across the political spectrum alarmed by that). You won't find a government with greater delusions of grandeur than what we had under George Bush.

Quote: Original post by capn_midnight

Quote: Original post by LessBread

Quote: Original post by capn_midnight
The only way to get out of this problem is to correct the root cause, lack of savings.

In that case, the root cause was crumbling wages. People didn't save because they had nothing left over to save because their wages had been falling for thirty years.

Real wages are up. It's been the monetary policies of the government that have caused inflation in the economy to turn that uprise in real wages into a drop in spending power. You're not helping your case that government control is any friend of the consumer.

Real wages are up because the consumer price index fell as the economy contracted last year. Real Wages Up by Near Record--Good News? In other words, they didn't go up because working people got raises, they went up because fewer people had money so fewer people were buying so demand fell and prices fell. Monetary policies have long been geared to keeping inflation down. You're turning Greenspan's legacy on it's head.

Quote: Original post by capn_midnight

Quote: Original post by LessBread

Quote: Original post by capn_midnight
1.) We have to let interest rates be set by market forces, allow the feedback in the system to do its work. This will probably make base interest rates jump to 15-20%. At those rates, nobody is going to want to take a loan and everyone is going to want to be putting money into savings accounts.

You think we should drink more market fundamentalist kool-aid? Really? If everyone puts their money in the bank, the economy will collapse. Seriously. It seems to me that you're tracing the economic policy of the Hoover administration.

Ah, treat me as a cultist and dismiss my arguments on their face. If everyone puts their money in the banks, then funds will be available to lend to people who really, really need a loan.

Sorry but trotting out market solutions when the markets are on life support marks you as a cultist. If everyone puts their money in the bank, the circulation of money in the economy will grind to a halt, leading towards collapse. That's what happened during the Great Depression before the banks collapsed.

Quote: Original post by capn_midnight

Quote: Original post by LessBread

Quote: Original post by capn_midnight
2.) We need to increase the reserve requirements, being able to loan out $3000 for every $100 you take in is ludicrous and is exactly how fluctuations in one portion of the market end up getting spread to the rest of the market.

Regulations? Really? Now you're sounding like me.

Do not for a minute labor under the assumption that we have had a deregulated system. Banks shouldn't have the ability to invent money out of thin air in the first place. What's wrong with calling an investment an investment? Why do banks have to take people's money, use it to make loans, and still tell the original account holder that their money is completely untouched and unavailable? Why do we make up this fairy tale for bank accounts? The money is being used in the exact same way as if you had invested in whomever got the loan in the first place, yet if you did that directly you wouldn't expect the money to just be available at any time. In a deregulated system, I doubt anyone would stand for a bank that played shell games with their money.

Strictly speaking the system isn't fully deregulated, but as far as the labels go, it's been deregulated. Whatever. The system is extremely under-regulated, the foxes were left to guard the hen house and we have the worst recession since the Great Depression to show for it. Another swig of kool aid won't make things better. Welcome to the Bush Recession!

Quote: Original post by capn_midnight

Quote: Original post by LessBread

Quote: Original post by capn_midnight
3.) We have to stop the government spending money like a Beverly Hills Suburban Queen and get back to fiscally responsible activities (which neither party has done for the last 20 years), like closing a Department of Education that has allowed 50% of the population to be so illiterate that they earn below the poverty level and removing the military occupation of literally the majority of countries in the entire world.

Actually, the fiscal irresponsibility began with Ronald Reagan. It began to turn around with Bush 41, but he "lied" about taxes and lost favor with his party. Clinton picked up the ball to institute "Pay-Go" and managed at least to balance the budget on paper. Then Bush 43 took over and ran the country into a ditch. Closing the Dept of Education is a terrible approach to improving literacy rates, but don't let that get in the way of promoting your ideological agenda.

By this arguing, we shouldn't have voted the Republicans out of Congress, we should have voted in MORE of them.

Only in your bizarro world. They had their chance under the war criminal administration, but they failed in their responsibility to hold him to account. Welcome to the Bush Recession!

Quote: Original post by capn_midnight

Quote: Original post by LessBread

Quote: Original post by capn_midnight
Finally admitting that Social Security is a giant Ponzi scheme that was never meant for the general populace anyway would help, too. (">link)

If you want to see what a giant Ponzi scheme looks like, check out Bernie Madoff, who made off with $50 billion. And don't kid yourself, Social Security was always about the general populace.

Mentioning Madoff is a strawman argument. The SEC investigated Madoff 6 times and "found nothing wrong". Was he paying them off? Why didn't they find any indication that he was running a scam? Regardless, none of this changes the fact that Social Security is still a Ponzi scheme.

If Social Security is a Ponzi scheme, then so is insurance. Car insurance, health insurance, house insurance and so on. All you're doing is trotting out a tired slogan from a tired and failed political movement.

Quote: Original post by capn_midnight
And please, read up on your history a bit. It was meant for the "poor, widowed, and fatherless children". It's going to end up as a net burden for the middle class. Social Security is not a retirement fund for everyone, it's a transfer payment to the lower class.

Social Security isn't a pension and was never meant to be one. Stop spreading the same old disinformation.

Quote: Original post by capn_midnight

Quote: Original post by LessBread

Quote: Original post by capn_midnight
4.) Finally, we have to cut the income tax drastically (preferably completely as it was an unconstitutional enactment that was promised to end after WWII), so that everyone has more money, real money, to save. Income taxes are taxes on the poor and middle class anyway, the rich can easily use investment vehicles to skirt it. We would be operating at 55% of 2007's income, which wouldn't be too bad if we get around to reigning in spending.

Pour on the kool-aid! When all you've got in your tool kit is tax cuts, every problem calls for more tax cuts!! And where did you come up with that half baked notion that income tax promised to end after WWII? You're right that income taxes are taxes on the poor and middle class. They're part of the mechanism for redistributing wealth upwards to those that don't need it.

Again with the cult talk! I seem to see three other items in my list other than tax cuts. I was mistaken on the changes in tax law during the period of WWII, the instance in my mind was the increase of the top tax rate to 94%, and was not reduced again until 1964. However, people have the right to their property and it should not be confiscated from them unless by their consent for the benefit of all citizens. The power of the federal government to tax personal citizens' property has only come about through wordplay and tomfoolery with the Constitution.

Sorry but trotting out tax cuts after years of tax cuts failed to produce the results they were claimed to produce marks you as a cultist. As I pointed out earlier, tax cuts don't stimulate the economy as well as other actions.

Quote: Original post by capn_midnight

Quote: Original post by LessBread

Quote: Original post by capn_midnight
It is going to hurt, but hopefully it will only hurt for a few years while the system heals from the steroids its been on for the last 15 to 20 years. If the government continues to enact policies that destroy savings they are only going to prolong the problem.

Your plans would wreck the country and the globe for that matter.

I'm glad you have a crystal ball. "Wreck the globe" indeed. It's that sort of talk that leads to totalitarian states.

Crystal ball? Hah! Let's see... "Mark my words, the country is going into a depression and the efforts of the government will do nothing to stop it."

As for wrecking the globe, that's no stretch, the recession is global. Turn it into a depression with ideological fixes based on the same faith based delusions that wrecked the economy in the first place and it will spread everywhere. Pointing that out won't lead to totalitarianism. If we fall into another Great Depression as you think will happen, that's when the totalitarians will make their move. They raised their heads during the war criminal administration but they haven't gone away just yet. The fear mongers are still out there, mostly dressed as elephants, but many wear donkey tails.

// edit - Here's a peek at our totalitarian future: It’s Not Going to Be OK. The extent to which young people have been drawn away from public concerns and given this extraordinary range of diversions makes it very likely they could then rally to a demagogue.


[Edited by - LessBread on February 4, 2009 3:00:59 AM]