OBAMANOMICS - Voodoo Economics Part II

Originally posted by eljefejesus
If the democrats will push healthcare, I hope they will be open to keeping long-term affordability in mind, keeping the burden on small businesses light, and focusing on preventative care and cost-cutting through other means (pushing the move to electronic documents sounds like a net long-term plus).

Healthcare can be an investment, but there is an u ...[text shortened]... ooner they realize this, the better the markets will react to America's economic direction.

So when is the last time the government worked together in a bipartisan fashion with fiscal conservatism and is not helping to bankrupt America? Sorry to burst your bubble here, but Obama has already proven himself to be overly optimistic in terms of economic outcomes. No doubt his predictions of how little it will cost us and how much coverage we will end up having and how it won't curb our choices for health care will all be way off base. But then once it is all passed, who will give a @@#@? Once it is passed it will become yet another entrinched failing bloated government expenditure that is untouchable in terms of reforming it.

Originally posted by whodey
So when is the last time the government worked together in a bipartisan fashion with fiscal conservatism and is not helping to bankrupt America?....... Once it is passed it will become yet another entrinched failing bloated government expenditure that is untouchable in terms of reforming it.

......mmmm America, the Europe you never knew you could be.......

Originally posted by caissad4
More Republican nonsense !
After 8 years of Bushenomics we went from the greatest surplus to the greatest deficit. Tax breaks for the wealthy and an almost total collapse of the US economy are the hallmarks of the Republican party.
And now the Republicans believe that THEY have the solution. It would be just plain silly to trust a group who has successful ...[text shortened]... just another example of stupidity.
"Mister we could use a man like Herbert Hoover again" 😠

It's not Republicans or Democrats. Both sides of the aisle helped create this mess. Clinton himself admits that not regulating derivatives in the late 90's was a huge error, although he states that the Republicans wouldn't have allowed it if he had tried (probably true). He also admits that derivatives would've remained a niche market. Uhh, wrong. He states that he was concerned, but obviously not concerned enough to do anything about it. Why? Because everyone was making tons of money, both Democrats and Republicans. Remember the roaring 20's? Overspending without accountability in the 20's led to a total economic collapse into the 30's. It was Bill Clinton that stated publicly, "...and if they ask why, tell them to remember the days of Coolidge and Hoover!" and the crowd cheered. This was the late 90's. What a joke. The point I'm trying to make, is that it is not a Republican vs. Democrat thing. The problem is unaccountability with the very creation of money and policy. The problem is that the creation of money and policy is not conducted by Congress and the States, as in accordance to the US Consitution. The problem is the FED, who engineered both the Crash of 1929 and our latest economic woe. (BTW, Wilson signed us over to the FED and was a Democrat. He also remorsefully admitted later, "...I have unwittingly ruined my country."😉 One ought not need an accounting degree in order to understand that when one is able to arbitrarily set interest and borrowing rates, one controls not only currency, but all forms of monetary use and economic policy. The FED has the influence and power to control monetary policy and manipulate the US and global economy at will. Until Congress and the States regain the real and lawful power to control and regulate the printing and flow of money, Republicans and Democrats will continue to argue amongst each other about whom to praise or blame for our economic "triumphs" or woes, while the public joins in the blame/fame game and the FED happily collects the returns on its "investment" regardless of the country's (or world's) economic situation.
Cheers!

Originally posted by SlyArmenian
It's not Republicans or Democrats. Both sides of the aisle helped create this mess. Clinton himself admits that not regulating derivatives in the late 90's was a huge error, although he states that the Republicans wouldn't have allowed it if he had tried (probably true). He also admits that derivatives would've remained a niche market. Uhh, wrong. H ...[text shortened]... stment" regardless of the country's (or world's) economic situation.
Cheers!

Well done! Rec'd

Originally posted by whodey
So when is the last time the government worked together in a bipartisan fashion with fiscal conservatism and in not helping to bankrupt America? Sorry to burst your bubble here, but Obama has already proven himself to be overly optimistic in terms of economic outcomes. No doubt his predictions of how little it will cost us and how much coverage we will end ...[text shortened]... entrinched failing bloated government expenditure that is untouchable in terms of reforming it.

Once upon a time, during the 1990's Clinton administration, the Republican Revolution brought a lot of new Republican politicians into government to oust the old, corrupt Democratic congressmen who knew nothing different than tax and spend.

In those years, the Republican Congress worked hard to slow the growth in spending, reformed welfare, and even Clinton closed millitary bases in California. Those same moves helped American wealth multiply during the 1990's on the back of new growth and investments in information technology.

However, both Bush and Obama seem to lack what Clinton and the Republican Congress had... any motivation to cut costs and an economic environment that would make it easier politically.

There is definitely a risk of health care becoming a big, hard to reform entitlement program, I'm not disagreeing with you there.

However, there is a lot of political will on the left to push for healthcare from Obama and many Democratic politicians... but not all.

The possible outcomes are these:

1) the Democrats will split and fail to agree on something to pass that please both their moderate districts and their liberal districts or even that fails to pass a fillibuster in the Senate

2) the Democrats will push something moderate / tolerable for a filibuster proof vote in the Senate

3) the Democrats will push something to disgustingly full of overspending and with so many votes that you will actually be able to hear Atlas grunt under the weight of such overspending on the world. Even with China's ascent, America's economy still affects the world economy. The US could crush itself under the burden of debt for a decade or multiple decades and become a drag on the rest of the world. How the mighty would then have fallen. New term: granny-apple republic? It is sad to see America starting to follow the economic policies of banana-republics.

Originally posted by SlyArmenian
It's not Republicans or Democrats. Both sides of the aisle helped create this mess. Clinton himself admits that not regulating derivatives in the late 90's was a huge error, although he states that the Republicans wouldn't have allowed it if he had tried (probably true). He also admits that derivatives would've remained a niche market. Uhh, wrong. H ...[text shortened]... stment" regardless of the country's (or world's) economic situation.
Cheers!

Largely disagree, the fed is an important institution that keep some powers independent of Congress as a way to avoid politicizing monetary policy.

Derivatives did not cause the 1990's debt crisis.

The Fed didn't even cause the Great Depression single-handedly, if just didn't know enough on how to best apply its policies to minimize some of its effects.

The Fed back then reacted by keeping tight monetary policy and reducing the money supply, which made economic conditions worse in the short to medium term. Instead it could have lowered interest rates to lessent the severity of the crisis. It was a new situation for the Fed to be faced with and has learned it lessons. It still cannot single-handedly stop post-bubble crashes.

In the roaring 1920's, a bubble grew like in the 1990's. The 1930's and 2009 economy are both understandable economic swings back to an equilibrium from a period of too much spending and borrowing and low interest rates in which over leveraging became de-leveraging.

In other words, you can't blame the Fed for everything.

The bubbles are the drinking-parties, the Fed takes away the punchbowl when the party gets too out of control (or fails to do so), and the crash/crisis is the hangover the next day.

Maybe the Fed should have done something to limit the extent of this bubble, too keep all the over-spending, over-borrowing fools from getting to high a hangover, but traditionally they play a more passive, designated-driver roll. They are not to blame for other people's exuberance and mistakes. All the over-borrowing, over-lending, non-saving, and over-spending fools have to accept some responsibility for their actions.

Originally posted by eljefejesus
Once upon a time, during the 1990's Clinton administration, the Republican Revolution brought a lot of new Republican politicians into government to oust the old, corrupt Democratic congressmen who knew nothing different than tax and spend.

In those years, the Republican Congress worked hard to slow the growth in spending, reformed welfare, and even C ic? It is sad to see America starting to follow the economic policies of banana-republics.

Scenario #2 seems the most likely one

I doubt that any Dem is relishing the prospect of having it all fall apart -- healthcare reform has been one of the top priorities for the Democratic party for many decades. Failing now would be a huge hit to their credibility, and I doubt that any of the Dems are at all eager to sign up for 18 months or more of non-stop GOP gloating.

But I do expect that the "blue dogs" within the party will ensure that at least some fiscal responsibility is involved -- so I doubt that they'll allow scenario #3 to play out.

I predict that the various factions will hold out as long as possible, with a compromise finally being reached at the last minute. The result will probably be watered down and almost everyone will find something in it to not like -- time will tell how well it works.

Originally posted by eljefejesus
Largely disagree, the fed is an important institution that keep some powers independent of Congress as a way to avoid politicizing monetary policy.

Derivatives did not cause the 1990's debt crisis.

The Fed didn't even cause the Great Depression single-handedly, if just didn't know enough on how to best apply its policies to minimize some of its eff on-saving, and over-spending fools have to accept some responsibility for their actions.

I agree -- the Fed's main role is to keep everything stable -- allowing the economy to grow at a steady rate with reasonably low levels of inflation and unemployment.

One problem is that the Fed has done its job "too well" over the last 25 yrs. A whole generation of investors has never gone through a really big downturn or one that wasn't immediately followed by a rapid recovery. As a result, people have become comfortable taking bigger and bigger risks, assuming that the markets will never fall over the long term.

Originally posted by eljefejesus
Largely disagree, the fed is an important institution that keep some powers independent of Congress as a way to avoid politicizing monetary policy.

Derivatives did not cause the 1990's debt crisis.

The Fed didn't even cause the Great Depression single-handedly, if just didn't know enough on how to best apply its policies to minimize some of its eff ...[text shortened]... on-saving, and over-spending fools have to accept some responsibility for their actions.

Actually, derivatives were one of the major causes of our current recession. The specific type of derivative that was the most dangerous was mortgage-backed securites. The collapse of this derivative WAS the trigger to the crash of 2009. Greenspan, the FED, and Treasury Secretary Rubin, vehementaly opposed any and all regulation in derivatives, including mortgage-backed securities. In fact, Greenspan completely undermined the Commodity Future Trading Commission, when the CFTC was pleading for regulation of derivatives. The FED and Treasury obviously didn't listen. In the early-mid 2000's, Greenspan lowered interest rates at approx. 1% per year, as is in accordance with the Austrian School of economics, allowing for "easy" credit-based money to be injected into the financial system, thus creating an unsustainable economic boom. He fell asleep, failed to do anything about the rising inflation, and took way too long to begin raising interests rates in the mid-late 2000's, just as the FED did in the mid-late 20's. My point being, is this is not a passive role at all. This is the most important point in the flow of a nation's monetary policy and borrowing/lending principles. Investors, banks, etc. borrow and base their own lending policies based upon the Federal Reserves' overnight borrowing rate. In simple theory, if it is low, they usually borrow and lend more; if it is higher, then they cut back on borrowing, which in turn, slows down lending. If one is able to manipulate this flux of interest and borrowing rates, then one is able to manipulate the entire economy. This is hardly a passive role, but the most crucial role of our entire economic system. Regardless, of overspending, overinvesting, overlending, etc. the Federal Reserve under Greenspan by keeping interest rates low and waiting until going well past the inflationary point of no return, basically told the entire world to keep borrowing and lending to anyone with a pulse, regardless of the consequence. The damage was already done. My question is this: If we learned about the consequence of not curbing growing inflation/spending by raising interests rates in the 1920's, why did the FED intentionally do the exact opposite of what they KNEW was needed in the 2000's?
BTW, keeping these powers independent of Congress is unconstitutional.
However, this is going off subject.

Originally posted by Melanerpes
Scenario #2 seems the most likely one

I doubt that any Dem is relishing the prospect of having it all fall apart -- healthcare reform has been one of the top priorities for the Democratic party for many decades. Failing now would be a huge hit to their credibility, and I doubt that any of the Dems are at all eager to sign up for 18 months or more of no ...[text shortened]... nd almost everyone will find something in it to not like -- time will tell how well it works.

The holding it together and including fiscal responsibility are only uncertain maybes and there are no guarantees to either of those.

If it does come together, I agree there will be a lot of foot-dragging and last-minute politicking.

I predict a watered down pass through that will add yet another fiscal burden to the US economy... how much is up in the air and is a very important question for the US' long-term financial health.

Originally posted by SlyArmenian
Actually, derivatives were one of the major causes of our current recession. The specific type of derivative that was the most dangerous was mortgage-backed securites. The collapse of this derivative WAS the trigger to the crash of 2009. Greenspan, the FED, and Treasury Secretary Rubin, vehementaly opposed any and all regulation in derivatives, includ ...[text shortened]... wers independent of Congress is unconstitutional.
However, this is going off subject.

Most derivatives were not causes, by your own words. I would even go so far as to say that derivatives helped protect some investors and even profit during times of decline.

If you will modify that to mortgage-backed securities, I will agree that this new instrument was a factor in the extent of the real estate bubble. However, it was not the "trigger." It was just an innovation used in a typical cycle of over-extension of credit. You do point to the decrease in interest rates to 1%, and I agree that it influenced the over-leveraging of the economy. At the same time, it was intended to ameliorate the decline from the September 11, 2001 crash.

The Fed did not force anyone to borrow money, interest rates just make borrowing cheaper. Just cause it's cheaper to borrow doesn't mean you have to borrow more.

What do you believe was needed in the 2000's?

The independent federal reserve sounds better to me than letting the Congress control monetary policy to influence the economy during their elections.

SlyArmenian asked, given what we learned from the 1920's -- "why did the Fed intentionally do the exact opposite of what they KNEW was needed in the 2000s?"

Greenspan admitted last October that he made a couple of big mistakes -- essentially failing to recognize the "irrational exurberance" that was going on within the banking and housing industries. If he had a do-over, he undoubtedly would've acted very differently.

So the answer is that Greenspan screwed up - and he had the courage to admit it without blaming others or making lame excuses. You almost never get that from high-ranking officials.

Being that Greenspan's overall track record at the Fed was extremely good, it shows that even highly competent people can get it wrong.



http://www.msnbc.msn.com/id/27335454/ -- from Oct 23, 2008

Greenspan, 82, acknowledged under questioning that he had made a “mistake” in believing that banks, operating in their own self-interest, would do what was necessary to protect their shareholders and institutions. Greenspan called that “a flaw in the model ... that defines how the world works.

He acknowledged that he had also been wrong in rejecting fears that the five-year housing boom was turning into an unsustainable speculative bubble that could harm the economy when it burst. Greenspan maintained during that period that home prices were unlikely to post a significant decline nationally because housing was a local market.

Originally posted by eljefejesus
Most derivatives were not causes, by your own words. I would even go so far as to say that derivatives helped protect some investors and even profit during times of decline.

If you will modify that to mortgage-backed securities, I will agree that this new instrument was a factor in the extent of the real estate bubble. However, it was not the "trigg ...[text shortened]... tting the Congress control monetary policy to influence the economy during their elections.

I'm not sure why I'm debating this.
I'm not sure what you mean "by your own word."
A mortgage-backed security is a derivative, so are credit-default swaps. Practically every journal and report I have read within context, attributes the collapsing of these two derivatives to the housing bubble burst, and the initial triggers to the late-2000's recession. In addition, the stock market was full of people using futures and options trading as their staple investment, shorting against the stock market instead of using it as a hedge against their primary investment, which is to promote growth not the destruction of the market and the economy. All the while, Clinton, the FED, much of Congress, and the Treasury all called for deregulation of derivatives instead of the regulation of them. I really don't think I need to argue this as there are tons of resources to glean this from.
Here's an interesting graph showing the increase:
http://www.zealllc.com/c2002/Zeal010402B.gif

Actually, Greenspan was lowering interest rates before 9/11/01, in order to combatant the moderate recession of the late-90's dotcom bubble. However, he himself admits that he lowered interest rates too much and waited too long to increase them. If you're in this market, which I am, this action is unexplainable. Most of my colleagues agreed with me back in 2002-2003, that Greenspan seemed to be intentionally overinflating the economy. He now admits his "error." With all his understanding, it doesn't make sense to me that it was an error. It was blatant and obvious that his actions in continuing to lower interest rates was setting us up for world-record inflation levels. What happened? World-record inflation levels reported by Reuters in February of 2007. Now the federal & state governments, privately held banks & corporations are getting "bailed out" by the FED. I've been in this business too long not to see it as a hostile takeover orchestrated by a fraudulent corporation with power beyond that of the federal government. I can't speak as to what my employer did with the "assistance", but most who refused it were strong-armed into accepting it later, even if they didn't need or want it. Why? Because when the FED wants you to owe them, you will owe them whether you like it or not...and when you owe someone, they OWN you.

You said: "The Fed did not force anyone to borrow money, interest rates just make borrowing cheaper. Just cause it's cheaper to borrow doesn't mean you have to borrow more."

This tells me that you simply don't understand the time-value of money. If you can borrow with a low cost of funds now, then you borrow as much as you are fiscally able...hedging that interest rates will eventually go up, so that you will have a surplus of money borrowed at a low rate, without the need to borrow as much in the future at a higher rate. Doing this, obviously, gives you a higher rate of return for your future investments. This is all very basic stuff.

BTW, the reason why the constitution prescribed the power to coin money as a power of Congress and put limitations on the States to only accept Gold and/or Silver as legal tender was to keep the power of REAL valueable money as close to the PEOPLE as possible. Giving this power from Congress to an independent corporation is not only unconstitutional, but dangerous. Consider that Congress cannot even audit the Federal Reserve. This means "WE THE PEOPLE" have no idea what the Federal Reserve is doing with money that we collectively now owe them. Maybe read the Federalist Papers (No. 44 is a good one to start with). As to your fear that Congress might "influence the economy during their elections[.]" I would assert that the FED does quite a bit of that during and around presidential elections, as well as when we're waging war. The good thing about Gold and Silver tender is that it can't be manipulated like that. No interest rates on currency (except credit), and little to no flux when it is the staple currency. An interesting note is that a nation, historically, cannot be on the Gold standard when at war. When the US was on the Gold standard, we would have to get off of it, temporarily, when we went to war, mainly because we couldn't afford to spend exuberant amounts of money with little to no immediate gain. Now, when we go to war, we borrow from the FED or Treasury to pay for it. Gold standard means NO war. Interesting, isn't it? The founders of the US understood that quite well.

You probably don't want to know what I believe was needed in the 2000's. 😉
Cheers!

Originally posted by SlyArmenian
I'm not sure why I'm debating this.
I'm not sure what you mean "by your own word."
A mortgage-backed security is a derivative, so are credit-default swaps. Practically every journal and report I have read within context, attributes the collapsing of these two derivatives to the housing bubble burst, and the initial triggers to the late-2000's recessio ...[text shortened]... to know what I believe was needed in the 2000's. 😉
Cheers!

So you believe that Greenspan deliberately pursued a policy that would lead to a major economic crisis? That it was all part of a plot so that the Fed could take over the world?

And what's the deal with a "world record inflation level" in 2007? I wasn't able to find any mention of such a thing --- the most relevant thing I could find was a Reuters article stating that "Inflation pressures fell in February (2007): ECRI"

http://www.reuters.com/article/businessNews/idUSNAT00250520070309

I do remember that in the 1970's, inflation was really bad, but nothing remotely like this has happened since. Or are you referring to an inflation within the housing sector?

As to Greenspan and the FED, I'm saying I smell a stinky fish. Interpret as you may. Are you an officer of a bank or financial institution? Banks like it when people owe them money, lots of money is best. Banks like collecting assets and property. Banks like lots and lots of money. This is what banks do. You think they lend for the good of humanity or for some good and moral obligation to society? They lend to make money. The more and larger scale the better. If it weren't a question of ethics, then why won't the Federal Reserve allow Congress to see any of their books? If they were an honorable establishment, then why the secrecy? If they weren't crooked, then what's to hide? There are numerous quotes by Congressmen, Supreme Court Justices, Presidents, industrialists, international bankers, founders of the Federal Reserve, etc that are in complete agreeance with me that I could list here, but I'll let you do your own research.

As to "world-record inflation":
Correction: I was referring to record breaking global inflation levels, not the US inflation being at world record levels to which the context implies. Of course, the US didn't have the highest inflation ever had in the world, far from it. Sorry for the confusion, I seemed to have skipped a train of thought or two. I wasn't really making a point with it. I felt he was setting us up to match the growing inflationary levels that the rest of the world eventually peaked at in early 2008, by weakening the dollar by lowering interest rates and pouring to much capital into a market with dwindling opportunities. Luckily for the US relative to the global economy, the weak dollar wasn't as weak as other major currencies. The rest of the world was much worse, some countries inflation as high as 30%, which the US hasn't seen since 1947 (which is the highest the US has ever seen). US national inflation only peaked at about 5.6% in July of 2008, with a yearly average of 3.85%. The real danger came with the disinflation in November 2008 and the inability of many banks, investors, & corporations to decrease high debt loads. Again, I wasn't really make a point with this. Regardless of its impact here, inflation isn't necessarily an indicator of [*EDIT: the strength of] a nation's economy, although inflation in a state of flux most definitely is.

Couldn't find the article I was thinking about, but here's one, but again...wasn't really making a point of discussion:
http://www.nytimes.com/2008/02/12/business/worldbusiness/12iht-inflate.1.9963291.html