Is this an accurate assessment of the US financial situation?

[mikegg]

http://www.youtube.com/watch?v=NZWJ7WPVD_c

The ascent of money explains all.



Kind of important to realize.

China is selling their habitable land and resources to us.

 

[Darwin333]

fundamentally they are all credit bubbles, each one smaller than the last. The tech bubble was a commercial and stock market investment bubble. Massive amount of investment. In terms of loan size, the types of loans to start businesses are the biggest.

Next was the housing bubble, again nothing gets the money flowing like large loans in rapid succession. Money velocity had hit around 2.2 at this time. People making transactions on multiples of their income, like someone who makes 50k buying a house worth 500k. So 10x their income spent in one year. Huge boom.

Housing bubble crashes, we get 2008.

QE restores liquidity and prevents the banking system from seizing up (the lending of credit) you see once the RATE of lending falls off a cliff, defaults SURGE and you would be stupid to lend money in that type of environment, causing a positive feedback loop. QE is meant to get into the hands of the banks, so that they can increase the rate of lending. QE3 is intended to get mortgages off the books, or to inflate the book value of MBS. That type of thing. Thats the reason its not causing inflation.

Current bubble is student loans. The bubbles get smaller you see? First venture capital, then housing, now student loans/automotive. Goes in order of the most expensive things that people own. 1. Businesses 2. Houses 3. Degrees/Cars.

Subprime auto loans are hot right now. Can't even buy a car under MSRP. In order to increase the RATE of lending, they need to make big loans, or make alot of loans to alot of people, or else the economy seizes up. Debt temporarily creates money and if the rate of lending ever decreases the number of defaults surge. Skyrocketing tuition is actually helping the economy (except those going to college of course). If student loan debt ever hits a plateau brace for another financial seizure.

This is one of the big reasons why the Pell Grant stayed on the table despite the deficit, as did the interest rate cut on student loans from 7.2% cut to 3.4%.

Ding ding ding!! We have a winnah

Something of interest that everyone should take note of:

From 1990-2000 GDP advanced by an average of 4.80% annually. Debt advanced by 7.51% annually.

From 2000-2010 GDP advanced by an average of 4.13% annually. Debt advanced by 6.56% annually.

From 2010 onward GDP advanced by 3.93% annually. Debt advanced by 0.93% annually.

 

[werepossum]

fundamentally they are all credit bubbles, each one smaller than the last. The tech bubble was a commercial and stock market investment bubble. Massive amount of investment. In terms of loan size, the types of loans to start businesses are the biggest.

Next was the housing bubble, again nothing gets the money flowing like large loans in rapid succession. Money velocity had hit around 2.2 at this time. People making transactions on multiples of their income, like someone who makes 50k buying a house worth 500k. So 10x their income spent in one year. Huge boom.

Housing bubble crashes, we get 2008.

QE restores liquidity and prevents the banking system from seizing up (the lending of credit) you see once the RATE of lending falls off a cliff, defaults SURGE and you would be stupid to lend money in that type of environment, causing a positive feedback loop. QE is meant to get into the hands of the banks, so that they can increase the rate of lending. QE3 is intended to get mortgages off the books, or to inflate the book value of MBS. That type of thing. Thats the reason its not causing inflation.

Current bubble is student loans. The bubbles get smaller you see? First venture capital, then housing, now student loans/automotive. Goes in order of the most expensive things that people own. 1. Businesses 2. Houses 3. Degrees/Cars.

Subprime auto loans are hot right now. Can't even buy a car under MSRP. In order to increase the RATE of lending, they need to make big loans, or make alot of loans to alot of people, or else the economy seizes up. Debt temporarily creates money and if the rate of lending ever decreases the number of defaults surge. Skyrocketing tuition is actually helping the economy (except those going to college of course). If student loan debt ever hits a plateau brace for another financial seizure.

This is one of the big reasons why the Pell Grant stayed on the table despite the deficit, as did the interest rate cut on student loans from 7.2% cut to 3.4%.

Excellent post, especially the point about the decreasing loan size. I have not seen that point before, but put that way it makes perfect sense. I'd add only that had we not removed the last tattered vestiges of Glass-Steagall, the 2007 crash would have been much less painful and consequently we'd be in much better shape to weather the student loan bubble.

 

[fskimospy]

That is completely beside my actual point but if you want to argue that when the .gov spends deficit money they get more than $1 of GDP out of every dollar they spend yet when they remove that dollar only $1 of GDP is removed that is fine.

The bottom line, and my main point, is still a very simple concept to grasp, when the government removes deficit spending the economy must contract by at least the amount they pulled out.

Not true, actually. Expansionary fiscal policy at full employment can cause inflation as well as interest rate increases that offset the expansionary effects. Similarly, reducing government spending at times like that can cause interest rates to fall, thus offsetting the contraction.

So no, I would not agree at all. That was the whole point of my previous post.

 

[Tom]

On your first point, are you saying that if a hospital performs emergency surgery on someone and that person doesn't make it they shouldn't get paid or are you talking about strictly GPs?

Do you have any clue what end of life healthcare costs us right now? What it costs to keep someone whose body is failing, often due to their own lifestyle choices, alive for just a few more months?

What I'm saying is a system that rewards a healthcare provider per procedure and let's the same healthcare divider make the decision about doing the procedure is going to lead to a lot of unnecessary procedures.

 

[Darwin333]

Not true, actually. Expansionary fiscal policy at full employment can cause inflation as well as interest rate increases that offset the expansionary effects. Similarly, reducing government spending at times like that can cause interest rates to fall, thus offsetting the contraction.

So no, I would not agree at all. That was the whole point of my previous post.

GDP is determined by a rather simple mathematical formula, I would like you to use this very simple mathematical formula and demonstrate exactly what you are talking about.

GDP = C + I + G + (X-M)

or


GDP = private consumption + gross investment + government spending + (exports − imports)

Now, remove a trillion dollars of "G" and what do you get? Add another trillion of additional "G" and what do you get?