I agree that we're fighting deflation. The correct answer to deflation would be a much more expansionary fiscal policy, and the Fed agrees. The Fed is basically on record saying that better fiscal policy is the real answer but because Congress refuses to act they are left with no choice but to pursue things like QE.
I agree that we're fighting deflation. The correct answer to deflation would be a much more expansionary fiscal policy, and the Fed agrees. The Fed is basically on record saying that better fiscal policy is the real answer but because Congress refuses to act they are left with no choice but to pursue things like QE.
Why would you use the Great Depression as an example? War basically ended that depression.
And what fiscal policy is going to help bring the economy back to life when the government is already in so much debt? There needs to be a correction and that is usually structural.
And what happened during the war that ended the depression? Lots and lots of government spending.
Right. And look at when the UK stopped paying the debt it owed the United States? 2011 or 2012. Like 60/70 years later. Is that what you want? Also, considering that it was a war of no choice pacified their decision-making. But, things are not the same today. The wars of the past decade (of which you are personally opposed to one of them) were wars of choices. And the spending that has been happening has been piled onto existing debt. When WWII started the United States was a creditor nation. Your logic of more spending makes little sense in this climate.
I think you and some of the police makers learned the wrong lessons from the GD.
Actually my logic of spending makes perfect sense in this environment. It's the only right choice. Austerity has already been quite clearly shown to not only be ineffective, but frequently it makes debt burdens worse by shrinking the economy.
As for the debt that the UK ran up, their real GDP quadrupled from 1945 to 2009. Sounds pretty okay to me. I am not advocating a new war, I'm advocating more spending. A LOT more spending. The US increased its debt/GDP ratio to something like 140% of GDP during WW2, and following that was the greatest period of economic growth our country has ever seen.
The lesson to be learned from the Great Depression is looser monetary policy and expansionary fiscal policy should be used aggressively to combat financial crises.
Sorry but I think that's stupid. Austerity may not be the answer but neither is the opposite extreme. You're just building up more and more debt. What happens when people stop buying your debt? What happens when they stop taking it?
Or, let me ask you a simpler question. What would you do when the economy start expanding? Will you respond with increased revenue to lower the debt or do debts not matter?
No, spending more is very likely the answer. What happens when people stop buying US debt? There's no reason to believe they would.
When the economy returns to full employment (or near it), you then implement austerity measures. As Keynes himself said, it is the boom, not the slump, that is the time for austerity.
Cutting spending is the way for the economy to recover and Janet Yellen will continue the policies of Bernanke. Also WWII spending didn't end the Great Depression.
http://reason.com/archives/2013/01/27/world-war-ii-spending-did-not-end-the-gr
http://mises.org/daily/5069
http://www.forbes.com/sites/timwors...-really-end-the-great-depression-perhaps-not/
http://reason.com/archives/2013/01/27/world-war-ii-spending-did-not-end-the-gr
http://mises.org/daily/5069
http://www.forbes.com/sites/timwors...-really-end-the-great-depression-perhaps-not/
There is a theory it didn't end it. Two of those links are libertopian tripe that, again, relies solely upon "free market" theory that is devoid of any human behavior or reality. This country doesn't exist in a vacuum.
So you resort to name calling and got nothing, Why am I not surprised. Did you even bother to read the articles or did you just ignore them once you realized that your precious FDR was wrong.
Spungo
Diamond Member
- Jul 22, 2012
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That has never stopped
1 - California becomes most business-unfriendly state in the union.
2 - Businesses move from California to Texas and Arizona.
3 - California government is totally baffled. Where did they go? Isn't California the only place in the universe???
Japan recently made this same simple mistake. They saw how well American QE was working to create the biggest stock bubbles in history, so they decided to do their own version of QE. Coming as a surprise to absolutely nobody, the Japanese took their QE money and put it into the American stock market instead of the Japanese stock market. Other countries exist?? You mean people are not forced to invest in the Nikkei? Shocker!
Similar retardedness happened with our own QE. The intended goal of QE, aside from destroying the middle class, was that banks would lend this money out. This would fix the economy because borrowing up to your eyeballs at a low interest rate then seeing the interest rates rise when the economy starts recovering has never caused a crash before.... Of course that's not what happened. If interest rates are super low, why the hell would you lend money? You'll get much better returns by putting that money into the stock market, and that's exactly what they did. This is how companies are able to do gigantic share repurchasing.
But it gets better! Now that AAA debt has real returns that are close to 0 or maybe even negative depending on who you ask, baby boomers are forced to take on much bigger risks with their retirement funds. As a result, you see a gigantic stock bubble and the return of subprime (high interest) lending. Good job, fed. The fed has done more damage than the soviets ever could.
I'm just pointing out that logic, common sense, and compassion rarely factor into policy decisions. I jokingly wrote on my facebook wall that I think the federal reserve is run by Chinese spies, but that's starting to look like a real possibility.
Britain's currency was, at one time, the world's reserve currency. It can happen to us. QE may not lead to hyperinflation but it isn't helping our debt problem and that may be the bigger issue...
As for your second answer, that is correct. I'm glad someone here has read his papers and books.
I could refute it point by point but you wouldn't have anything to reply to since all you do is read your side and not even think about counterpoints, it's why you just rubberstamp theory as truth and move on with your libertopian schtick.
Saying that personal consumption fell in war, thus there was no recovery, is moronic. Of course personal consumption (and thus GDP) fell. A huge portion of the country was deployed overseas. Saying that the depression didn't end because of that is utterly moronic.
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But then GB has its own problems, like limited IP, limited natural resources, limited land mass....etc. They could never hold onto it. Just like Japan can't hold onto their status no matter what, at least unless they re-embrace nuclear power. Otherwise they are screwed.
Which really hits at your post above, Japan's problem is the problem China will find itself in. It got greedy and grew through 100% exports for too long. As their foreign reserves skyrocketed the ran out of time.
Spungo
Diamond Member
- Jul 22, 2012
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Japan and Hong Kong are shining examples of why you don't need resources to be strong. They take raw materials, do the service of assembling it, then sell it as a finished product. This is also what made America strong. It helps that we started with resources, but we can't pretend manufacturing had no role in building the world's strongest economy. We can see the same thing happening in Europe. Germany, a country that makes things, is the only country in Europe that doesn't suck. They have record low unemployment right now. Does Germany have more resources per capita or per square mile than Spain, France, or Italy? Probably not enough to explain why their economy is so much stronger. I think Japan's problem has very little to do with resources and a lot to do with demographics. Japan is very top heavy. It has far more old people than young people. Adult diapers outsell baby diapers. The birth rate is extremely low, and they're not fans of immigration because the country already has too many people. It's ironic that the huge baby boomer population is responsible for Japan's rise and will likely be responsible for its decline. Not crash, but decline. Japan still makes things.
As for the status of reserve currency, we need to ask ourselves why a currency would be a reserve currency. Suppose I'm a country like Britain and the year is 1950. My country is totally destroyed and needs to be rebuilt. Most machinery and raw materials are coming from Americans who like to be paid in US dollars, so I sell my British money and buy American money. This makes British currency worth less and American currency worth more. The Americans end of having a lot of money after selling all of this stuff to me and my friends, so I start selling things to Americans. Since most of the stuff I'm buying is from the US and is priced in US dollars, I accept US dollars as payment for my British goods. This works great for everyone. I take in US dollars when I sell to the US, I pay out US dollars when I buy from the US. Over the years, the Americans start producing fewer things. I'm sitting on a lot of US dollars, but I can't use them to buy US goods because the Americans don't make anything anymore. I find myself using US dollars to buy oil from OPEC and products from China. If I'm not trading with Americans, why am I holding American money? Wouldn't it work better if I was holding Chinese money since most of my trade is with China? I don't want to dump all of my American money at one time since that would make it worthless, and other countries still accept US dollars at face value. Over the years, I slow my purchasing of US dollars and start purchasing other currencies as well as gold. I start to hold even fewer dollars when my trade partners work out deals so we can trade without using US dollars (this is happening right now). Since my biggest trade partner is China, I start thinking about holding Chinese money. The OPEC countries and Russia start accepting oil payments in Chinese money because China is the #1 importer of oil. if I can buy oil with Chinese money and my biggest trade partner is China, wouldn't it make sense to start holding Chinese money in reserve instead of US dollars?
This is how a reserve currency dies. We won't turn into a Mad Max type of world, but you can expect the price of everything to go up quite a bit when large amounts of US dollars find their way home. You probably don't need to panic if you have a job and your wealth is held in equities. The people who should be worried are pensioners and people with fixed incomes.
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Except you are forgetting one thing. Germany has used the Euro as a defacto reserve currency to bludgeon the peripheral euro states. Furthermore, they are extremely protectionist, both of their companies and of their employees. They are much, much, further away from a shining example of libertopian dreams.
The problem is that the Yuan cannot become the reserve currency without destroying its economy. That's the difference, the creditor nation is beholden to the debtor nation, thus your process falls apart.
Spungo
Diamond Member
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Are you referring to the relative strength of currencies? Guys on TV always say that China needs to have a weak currency in order to export things and that our strong dollar is why we can't export anything.
I think many countries around the world have conclusively proven this assumption to be wrong. The money used in Germany is actually more valuable than the US dollar, yet they have a huge trade surplus. It gets even crazier when you look at their surplus per capita. Let's take some rough numbers from CIA factbook for trade balance and google for populations.
China: 214B surplus, 1.35B people, $159 surplus per person
Germany: 208B surplus, 0.082B people, $2,637 surplus per person
So what's the deal here? The Euro is worth 35% more than the US dollar, but it doesn't seem to be slowing Germany down. Having a strong currency does not destroy your economy. Our economy was doing fine when we had a strong dollar in the past. A weak currency doesn't really destroy an economy either; example: Japan. It's unstable currency that destroys economies because unstable currency cannot effectively be used for trade. People in Argentina and Venezuela often hold dollars or Euros because they are more stable than the local currency. People in India are desperately trying to buy gold because they don't trust the rupee.
Going back to that CIA list on wiki, you'll notice that there doesn't seem to be any pattern when it comes to how well a country is doing vs what their currency is worth.
China - $1 US is worth 6 yuan.
Germany - $1 US is worth 0.74 Euro
Japan - $1 US is worth 101 yen
Russia - $1 US is worth 33 rubles
Switzerland - $1 US is worth 0.91 francs
Netherlands - same as Germany
Singapore - $1 US is worth 1.25 Singapore dollars
Your entire thesis behind Germany falls apart when you realize that their entire economy is built upon trade finance to the peripheral states and sovereign debt held by german banks. They have sucked wealth out of the periphery for the good of their own people. How are they doing this? The Euro.
You think the Euro is strong because of Germany but in reality, Germany is only strong because of the Euro and they have destroyed every Euro economy in the process. That isn't something to cheer, nor is it actually good for germany because, in the end, they are on the hook for their own failings to balance the economy.
This is the same for China. They cannot become a self-sustaining economy since ~20-30% of their GDP is in the form of US consumption. If they destroyed the USD they would not only lose 20-30% of their exports (nobody else is going to buy them at the same price, supply vs demand) but they will also destroy their own foreign currency reserves which means they will have massive upheaval in their own country.
This is also why Germany cannot leave the Euro. If they did they would render their economy worthless overnight. How? Because all of the peripheral country's currencies would depreciate (inflate) vs Germany and German goods would become too expensive, resulting in those countries either going to China (or wherever) or them starting their own domestic production.
Both Germany and China are just as trapped as Japan was. This is the problem with export-heavy economies, the imbalances eventually come home to roost and the creditor nation will always lose worse than the debtor one.
Its laughable that you think this whole scheme falls to currency stability. The Yuan has one of the most stable currencies in the world, because it's effectively pegged to the dollar within a narrow channel. Notice the correlation between that and China's raise in GDP? It's not coincidental. However, this pegging has not only caused the problem above but has resulted in massive inflation inside of China.
Effectively China has tried to boostrap their economy up to US levels very quickly in order to outrun the fact that the world won't have enough energy to let them catch up to the US on a per-capita level before that energy becomes too expensive. The problem is that they have come too far, too fast. Look at what happened when they cut off liquidity inside of China, pandemonium.
Imagine what would happen if Germany left the Euro, or Japan sold US bonds, pandemonium.
World trade must balance. Fucking with that too long will crush export nations.
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Spungo
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- Jul 22, 2012
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I believe this to be incorrect. Right now Germany is doing vendor financing with its neighbors, and we both agree on that. I think your position is that its neighbors would simply stop buying goods if vendor financing ended. My position is that the neighboring countries would still buy things from Germany, but they would need to sell things in return instead of borrowing the money. Germany would take a hit for a couple years, but I think they would ultimately benefit from this because they would get stuff from their neighbors instead of worthless promises.
I'll try to explain what I mean. Suppose I have no job. I walk into a grocery store called Germany and it has lots of things for sale. I can't buy any of this stuff, but the store's owner says he'll lend me the money to buy things. I agree to the terms and I buy lots of stuff on credit. So far we're both happy. I get the stuff, and he has a customer that will presumably pay him at some point. A few months pass and he starts asking about the money. I tell him that I don't have any money. He needs to lend me more money so I can pay the interest on the debt I already have (Obama actually said this :awe: ). Here is where our approaches differ.
What I think you are saying: he should lend the money so I can keep buying goods from his store even though I'll probably never pay that money back (Greece).
What I'm saying: he should offer me a job. Instead of promising to pay him back, I'll help stock the shelves, sweep the floor, and keep an eye out for shoplifters.
Initially, giving me a job instead of a loan would cause his sales to drop because I don't have the money right away. It might take a few weeks or maybe a few months before I can buy things again because I still need to cover some of my other bills. In the long run, I think the store owner benefits by giving me a job instead of giving me a loan. That way he's selling things to me and getting something in return as opposed to getting nothing in return. Debt is worthless if there's no way to pay it back. Would a car company give out car loans that will never be paid back just so the car company's employees can make things? They shouldn't make things just for the sake of making things. They should make things because they expect to get paid.
I think our country will head in this direction. Vendor countries will slowly stop financing us as they look for customers who can actually pay them, our currency will slowly but steadily go down in value, people holding cash or bonds will be hurt the most, and this relative poverty will force us to start making things again. People say our exports are not competitive when workers make $20 per hour at the current value of the US dollar, but we'll be competitive when $20 US is really more like $5 in today's dollars. We'll export things, dollar goes up in value, and the cycle repeats.
I think our dollar is already losing value. Here's a chart of what a Canadian dollar is worth. Is Canada's economy exploding or is our dollar going down as it should?
What I find interesting about this chart is where the lowest point is. I remember posting a graph in another thread showing that US labor participation peaked around 2000 and has been steadily declining since then. This graph shows that exact same thing but in reverse. I'm not sure what Canada's participation looks like.
Other currencies show a similar trend over the long term.
New Zealand dollar
Australian dollar
Euro
Swiss franc
Sweet, more spending. It has been plenty of time now: When do the first $5k sellout Spender checks arrive? Christmas is coming up, lets kick 2014 off right!
Most countries did that after WWII. Bretton Woods pegged the currencies and our allies used beggar thy neighbor policies to grow their economies. For obvious reasons, we let this happen (Cold War). Nixon re-worked it in the early 1970s but he did not change it entirely. The one main advantage the United States has is finance to stay competitive. The only other thing we have going for us is our culture (willingness to fail, experimentation, IP). The finance thing can move easily and financial firms remind politicians of that everyday. So, other countries may have their problems but we have ours as well and it's no different from any other empire in history (policing the world at our own cost while those we protect benefit cheaply). That bill always comes due. Always.
There is a huge difference between BW and what China is doing now, especially since nobody is fighting against them and the imbalances are so huge. They are able to get away with this because they are a monolithic command economy under the rule of a select few.
I believe this to be incorrect. Right now Germany is doing vendor financing with its neighbors, and we both agree on that. I think your position is that its neighbors would simply stop buying goods if vendor financing ended. My position is that the neighboring countries would still buy things from Germany, but they would need to sell things in return instead of borrowing the money. Germany would take a hit for a couple years, but I think they would ultimately benefit from this because they would get stuff from their neighbors instead of worthless promises.
I'll try to explain what I mean. Suppose I have no job. I walk into a grocery store called Germany and it has lots of things for sale. I can't buy any of this stuff, but the store's owner says he'll lend me the money to buy things. I agree to the terms and I buy lots of stuff on credit. So far we're both happy. I get the stuff, and he has a customer that will presumably pay him at some point. A few months pass and he starts asking about the money. I tell him that I don't have any money. He needs to lend me more money so I can pay the interest on the debt I already have (Obama actually said this :awe: ). Here is where our approaches differ.
What I think you are saying: he should lend the money so I can keep buying goods from his store even though I'll probably never pay that money back (Greece).
What I'm saying: he should offer me a job. Instead of promising to pay him back, I'll help stock the shelves, sweep the floor, and keep an eye out for shoplifters.
Initially, giving me a job instead of a loan would cause his sales to drop because I don't have the money right away. It might take a few weeks or maybe a few months before I can buy things again because I still need to cover some of my other bills. In the long run, I think the store owner benefits by giving me a job instead of giving me a loan. That way he's selling things to me and getting something in return as opposed to getting nothing in return. Debt is worthless if there's no way to pay it back. Would a car company give out car loans that will never be paid back just so the car company's employees can make things? They shouldn't make things just for the sake of making things. They should make things because they expect to get paid.
I think our country will head in this direction. Vendor countries will slowly stop financing us as they look for customers who can actually pay them, our currency will slowly but steadily go down in value, people holding cash or bonds will be hurt the most, and this relative poverty will force us to start making things again. People say our exports are not competitive when workers make $20 per hour at the current value of the US dollar, but we'll be competitive when $20 US is really more like $5 in today's dollars. We'll export things, dollar goes up in value, and the cycle repeats.
I think our dollar is already losing value. Here's a chart of what a Canadian dollar is worth. Is Canada's economy exploding or is our dollar going down as it should?
What I find interesting about this chart is where the lowest point is. I remember posting a graph in another thread showing that US labor participation peaked around 2000 and has been steadily declining since then. This graph shows that exact same thing but in reverse. I'm not sure what Canada's participation looks like.
Other currencies show a similar trend over the long term.
New Zealand dollar
Australian dollar
Euro
Swiss franc
Quite frankly, I don't care what you "believe" because you obviously are believing in the wrong thing. I worked for the Germans for 5 years in banking, I know exactly what's going on there. I know how their economy works and how protectionist it is. I know how policies like Mittelstand and massive unionization has created a Germany First policy which is capped off by the Euro. I know how German banks are loading up on peripheral sovereign debt because they have to do something with the Euros flooding into the German system without leading to massive inflation in Germany. Why do you think that so many German Landes banks had so much money to invest? Why do you think that some of them were the worst hit in the crisis?
The "hit" Germany would take would be staggering, in fact, it would practically be a Greater Depression. The trade imbalances are so huge that bringing it back into balance would result in German unemployment far greater than what Spain's is currently. The problem is that the Euro prevents this from happening, it locks the periphery into a death spiral while keeping Germany heated up.
Everybody knows this. Anybody who knows anything deep about European finance knows that this is one of the greatest sovereign robberies in history.
This is what people like you don't understand. Germany cannot stop without shooting themselves in the dick, same thing with China. China cannot decouple from the US easily, they are like a heroin addict and they don't want to go to methadone because it doesn't have them the same high and it would mean that they would have to face the fact that they are not that exceptional, that they have gamed the international system and they have to give back their gains. The longer they stay addicted the worse the withdrawal will be.
Above all I think China is pissed. Pissed because they cannot hope to get to the same GDP per capita of the US without consuming almost all of the planet's energy production and they don't have the wealth to pay for that, nor the resources. This is why they are trying to go into Africa but that is fraught with danger. It's now why they are trying to push Japan and neighbors around, but that will fail because of the US. They cannot use the Yuan much longer because it leads to too much of a warp in their own country (unlike the Euro). So they just try to hang on as long as they can.
I find your lack of understanding curious. Mainly because you love to prattle on about high level statistics and simplistic ideas. Ohh boy, you can call the fact that a very overheated stock (TSLA) is going to fall, but you can't explain why outside of PE or some other elementary idea. Further, you cannot say why you might be wrong. Ohhh boy, you can say that the USD will fall, but you don't understand why it might not fall. What would replace it? How could that be not possible?
You have a lot to learn.
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Spungo
Diamond Member
- Jul 22, 2012
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Stop thinking of wealth as being a pie where the sum is zero. Building things in France and selling them to Germans in order to balance trade does not mean Germany gets weaker. It means both countries end up having more wealth overall. I can give a real world example of how this works. 1980's: cellular phones were extremely rare, extremely expensive, and it was a niche market. Suppose we start with 1 company making cellular phones in Germany. Someone like me comes along and say "Hey, this trade balance is messed up. France is producing zero phones while Germany is producing every phone." A person like you would say that France getting into the market of building cell phones would destroy the German economy because it cannibalizes Germany's market share. Of course, this turns out to be completely wrong because the market never works like that. With both France and Germany making cellular phones, the price of cellular phones starts to drop while the quality of them increases. The price of a modern cell phone is maybe 1/100th the price of Gordon Gekko's phone, but the user base is a million times larger.
It seems like these debates always come back to the assumption that wealth is a zero sum game. If I make and sell a bottle of wine, it somehow means a guy who makes cars loses his job. The logic is completely mind boggling. Why would a person making cars get fired if I make wine? Why would a German vacuum cleaner company disappear when an American company starts building computers? It's so retarded that I can't even draw a picture of how this could theoretically happen. People in France start chopping down trees and selling them to Britain, therefore Germany's wind power industry collapses.
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