Global financial meltdown #2

[Andriy Czarchenko]

And now hot tea is all over my monitor (and I'm not just using the expression in this case; lucky to have paper towels).

Now why would someone have paper towels near his computer... <_<

:leaving:

[Tormund Ukrainesbane]

And back down we gooooo.........

It took all of a few hours to realize that the Fed can't help. QE3 announcement coming soon!

[karaddin]

Yay for the awesome rollercoaster! Now they just need to figure out how to make it do loops.

[Shryke]

Isn't most of the sink due to worries about France? That's what everything I've been looking at has been saying.

[Tormund Ukrainesbane]

Isn't most of the sink due to worries about France? That's what everything I've been looking at has been saying.

There are rumors that France is going to get downgraded. Fannie Mae just did a $500 million back-door bailout of Bank of America (that Chase and Citi will probably need next), and the Fed's announcement yesterday makes it look really impotent (everyone calm down we're gonna do....the same thing we've been doing for 3 years!) The Fed might as well have said "Hey, we're in for a lost decade, it's gonna be awesome."

[Shryke]

There are rumors that France is going to get downgraded. Fannie Mae just did a $500 million back-door bailout of Bank of America (that Chase and Citi will probably need next), and the Fed's announcement yesterday makes it look really impotent (everyone calm down we're gonna do....the same thing we've been doing for 3 years!) The Fed might as well have said "Hey, we're in for a lost decade, it's gonna be awesome."

Not like the Fed can do much about that. It's Congress' hand on that mess.

[Relic]

They should drag the entire FOMC into the street so we can put them in the stocks.

Let's do congress, too. A little humiliation and rotten produce never hurt anyone, unless they're allergic to pears.

Haha, i think my angry gchat rants are rubbing off on you Coco. Stocks indeed.

[Shryke]

They should drag the entire FOMC into the street so we can put them in the stocks.

Let's do congress, too. A little humiliation and rotten produce never hurt anyone, unless they're allergic to pears.

That's the worst thing possible. The last thing we all need is the Fed to be more in fear of the reaction of a public that doesn't know anything about economics.

[Centrist Simon Steele]

Is the meltdown a blessing in disguise for humanity? We keep getting bigger and bigger, but we haven't abandoned the highly toxic fuels that keep this global economy going, we haven't even made serious moves (aside from a few countries that are exceptions to the rule) to study new methods of cleaner, more efficient fuel. I think that companies with money have been blocking these new studies for fear of what it will do to their business models.

But if we collapse financially before we pollute the world into death, maybe the rebound from financial distress will be a renaissance of new ideas, better methods to leave less of an imprint of the earth so we can all keep our ipads and 360s.

[Former Lord of Winterfell]

Crowding out is debatable in good times. There's plenty of arguments to be made either way.

That's my point. There certainly is an argument that tossing out money is "stimulative". But that, and the amount of any multiplier, are rather hotly debated.

More important than that general proposition, though, is whether any stimulative effect and multiplier remain constant in all economic conditions. It cannot be that just handing out lots and lots of money to people is good regardless of economic conditions. So I think before rotely assuming -- as you seem to do -- that massive additional "stimulus" would be good because, well, because it just is, the reason for the current economic conditions need to be looked at a bit more closely.

When the economy is already not utilizing all it's resources (like, you know, now), it's non-existent. There is no spending to crowd out because the whole problem is there isn't enough spending.

Okay, the economy is non-existent, and there is no spending going on. Got it.

Goddamn FLOW, learn some fucking economics, please.

You know, accepting as gospel everything a certain professor tells you isn't the best way to actually learn a subject, particularly one such as economics where disagreements among highly educated people are common.

You continue to assert the (oh, might as well) juvenile view that consumer demand is the only variable that matters when in comes to economic performance. While consumer demand is very important, it is not the only variable that matters. If you had any practical knowledge as to what factors businesses actually consider when making decisions, you'd know that. Demand is essential, but not sufficient, to spur additional economic activity. But I think you're stuck singing your one note because that's where your actual knowledge ends. So I suppose it's really not your fault.

Which again comes back to you, despite your statements, not actually getting the parable of the broken window. Breaking the window does "stimulate" the economy. It employs a glazier after all. But the point is, that money could potentially be better spent elsewhere to better effect.

Have you actually read anything of Bastiat? The guy is almost the patron saint of the Austrian school of economics, and considered the bane of Keynesians precisely because he thinks the concept of stimulus is bogus. The point of Bastiat's window parable is that the goal of economic activity is to create wealth, not just to move money around. When you destroyed the window, it's not that the money could have been spent on something better. It's that the activity of breaking and then repairing the window created no wealth. Just read a bit, and follow the links given that it's wikipedia. Anyone citing to Bastiat is support of Keynesian economics is completely missing the boat. What he'd say is you are only considering the seen, but not the unseen.

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

Really, Bastiat's parable is directed towards those who think demand is the only thing that matters in an economy, in that the boy who breaks the window is creating demand for the services of the brazier.

[Shryke]

That's my point. There certainly is an argument that tossing out money is "stimulative". But that, and the amount of any multiplier, are rather hotly debated.

More important than that general proposition, though, is whether any stimulative effect and multiplier remain constant in all economic conditions. It cannot be that just handing out lots and lots of money to people is good regardless of economic conditions. So I think before rotely assuming -- as you seem to do -- that massive additional "stimulus" would be good because, well, because it just is, the reason for the current economic conditions need to be looked at a bit more closely.

Okay, the economy is non-existent, and there is no spending going on. Got it.

I see your "not reading"schtick extend to posts themselves.

As I said, crowding out could be debatable in a good economy. In the current economy, it's non-existent. There's a large underutilization of resources going on (hence, a recession). There's nothing to crowd out. That you interpret this as "there is no spending going on" just further showcases how little you know about what you are talking about.

You know, accepting as gospel everything a certain professor tells you isn't the best way to actually learn a subject, particularly one such as economics where disagreements among highly educated people are common.

:lol: "OMG, one of the blogs he reads is by a nobel-prize winning economist who follows the model that's both well accepted and pretty much called the entirety of this crisis. How uncouth!"

Please FLOW, is there a point to this bullshit of yours? I read many things on economics, not just Krugman. Your posts, on the other hand, indicate a serious lack of knowledge in the area.

You continue to assert the (oh, might as well) juvenile view that consumer demand is the only variable that matters when in comes to economic performance. While consumer demand is very important, it is not the only variable that matters. If you had any practical knowledge as to what factors businesses actually consider when making decisions, you'd know that. Demand is essential, but not sufficient, to spur additional economic activity. But I think you're stuck singing your one note because that's where your actual knowledge ends. So I suppose it's really not your fault.

"juvenile"? That doesn't even make any sense FLOW. At least get insults that mean something please.

And yes FLOW, there's all those other major factors businesses worry about. That's why they keep talking about how the big problem right now is ... lack of demand.

For a guy who keeps pretending like you understand what businesses really think about, you sure seem to ignore what they are saying they really think about.

Have you actually read anything of Bastiat? The guy is almost the patron saint of the Austrian school of economics, and considered the bane of Keynesians precisely because he thinks the concept of stimulus is bogus. The point of Bastiat's window parable is that the goal of economic activity is to create wealth, not just to move money around. When you destroyed the window, it's not that the money could have been spent on something better. It's that the activity of breaking and then repairing the window created no wealth. Just read a bit, and follow the links given that it's wikipedia. Anyone citing to Bastiat is support of Keynesian economics is completely missing the boat. What he'd say is you are only considering the seen, but not the unseen.

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

Really, Bastiat's parable is directed towards those who think demand is the only thing that matters in an economy, in that the boy who breaks the window is creating demand for the services of the brazier.

There's actually several interpretations of the story by later groups. The interpretation of the Broken Window story by Austrians is rather moot considering that school is basically bunk and has been more or less left to rot out in the dark these days, even by the fresh-water schools.

What the story talks about is that destruction to create economic activity is not a net gain since the money spent on repair could have been spent elsewhere. Which is a discussion of opportunity cost. The basis of the idea of opportunity cost being that the cost of doing X is not doing Y. And unless we hold that X and Y are always equal, we come to the idea that there is a benefit to X over Y (or Y over X).

Or, more simply, all spending is not equal. Which is the whole point here. The baker spending that six francs on a second oven rather then repairing his window could be a net growth for the economy.

[Former Lord of Winterfell]

I see your "not reading"schtick extend to posts themselves.

As I said, crowding out could be debatable in a good economy. In the current economy, it's non-existent.

No, it isn't. You are looking at demand as simply a short-term issue, and it isn't. People looking at making capital investments consider demand in the long term as well. And if they believe that current deficit expenditures that increase debt are going to hurt long-term demand, which is far from an unreasonable proposition, then justifying deficit spending based solely on levels of demand today is flawed.

There's a large underutilization of resources going on (hence, a recession).

You still don't get it. You seem to equate "demand" to "profits". Businesses are not going to make capital investments in response to increased demand unless they believe that will halp them make long-term profits. You simply ignore that additional step, and equate more demand to more profits. While it might actually help create what amount to monopoly profits, it may not increase profits through increased production.

There's nothing to crowd out. That you interpret this as "there is no spending going on" just further showcases how little you know about what you are talking about.

If you can only look one day ahead, you're right. Businesses don't do that.

Please FLOW, is there a point to this bullshit of yours? I read many things on economics, not just Krugman. Your posts, on the other hand, indicate a serious lack of knowledge in the area.

Funny. I didn't even mention Krugman.

"juvenile"? That doesn't even make any sense FLOW. At least get insults that mean something please.

Okay, I should have said "simplistic". My apologies.

There's actually several interpretations of the story by later groups. The interpretation of the Broken Window story by Austrians is rather moot considering that school is basically bunk and has been more or less left to rot out in the dark these days, even by the fresh-water schools.

Forget everyone else. Just read Bastiat -- it was his parallel. Anyone who thinks Bastiat would have supported Keynesian stimulus theory is...not a serious person.

Krugman is on record as saying that World War 2 was great for the U.S. economy. He also said that 9/11 might do us some economic good. Both statements, based on the theory that deficit spending is stimulative with all its multipliers, fly right in the face of Bastiat, and specifically, the window analogy. You can't find a more direct clash of economic viewpoints.

It's one thing to defend Keynesian economics and Krugman. And it's certainly possible to agree with Bastiat. But their economic philosphies are completely incompatible, even in areas we haven't touched upon. Using Bastiat to justify a Keynesian worldview, and then claiming that anyone who doesn't agree "clearly doesn't understand" the parable, is just plain wacked.

What the story talks about is that destruction to create economic activity is not a net gain since the money spent on repair could have been spent elsewhere.

That's only half of it. The key point is "seen" versus "unseen" effects. Even if the government takes money and spend it on something smarter than just breaking and replacing windows, Bastiat argues you are still all fucked up because you are ignoring the unseen effects of taking that money from whatever source it came from initially, either taxes, borrowing, or whatever. It's not just what you spend it on, but where you got the money from in the first place. You just don't see the negative effects of the borrowing or taxation because they are more diffuse, but that doesn't make those negative effects any less than the more visible "positive" effects of more focused spending.

It is an argument against government, or anyone else, artificially stimulating demand, based on the belief that there are unseen costs to that stimulation. Good god, the guy was a king of laissez-faire economics who believed very strongly that nobody could tell you how to spend your money any more wisely than you could yourself. Krugman would likely burst a vein in his presence.

So circling back around to your business people, maybe some of them have this feeling that the government can't effectively create real demand in this economy through "stimulus", because that stimulus spending will actually suppress demand from other sources. Now, I understand you don't agree with that, but Bastiat certainly would.

[Tormund Ukrainesbane]

That's the worst thing possible. The last thing we all need is the Fed to be more in fear of the reaction of a public that doesn't know anything about economics.

Yeah, we can't have the people who want to legalize cannabis, legalize gay marriage, end the wars, and increase taxes on the wealthy calling the shots. That would be disaster.

The Federal Reserve has not shown any ability to mitigate much less end this crisis. But of course the only answer to a failure of government is more government amirite? Bah.

[Iskaral Pust]

Bizarre debate. FLOW - do a little research - none of the conservative bugbears like crowding out apply to a situation like this where we have huge idle capacity and low aggregate demand. Companies are hoarding cash because they don't see customers waiting to buy more products (i.e. the see weak demand), so they sit on their resources until it is profitable to deploy.

Welcome to 1937, or the 6th year of a Japanese lost decade. We need a large fiscal stimulus, financed by incredibly cheap debt. And instead of wasteful stimulus like the 2009 mish-mash of pet boondoggles, and throwing money into pointless wars, the stimulus should be spent on things that increase our future productivity without committing us to onerous long term costs, e.g. electrical grid, ports, airports/runways, fix the freight rail bottlenecks (Chicago for starters), urban light rail where it would have critical mass usage, flood levees (bring the entire army home to build those), etc

And the Fed should run the printing press again because persistent low inflation is a real threat (especially for such an indebted nation). But we're at the limit of what monetary policy can do. Why are people expecting QE3? Bond yields are already incredibly low -- what's the point in the Fed buying more to drive yields down any further? No-one will borrow money to invest in anything because consumer demand is too weak.

[Shryke]

Yeah, we can't have the people who want to legalize cannabis, legalize gay marriage, end the wars, and increase taxes on the wealthy calling the shots. That would be disaster.

The Federal Reserve has not shown any ability to mitigate much less end this crisis. But of course the only answer to a failure of government is more government amirite? Bah.

You are seriously confusing different parts of the government here.

The Fed has, more or less, reached the limit of what it can do. You are in a liquidity trap, monetary policy (which is what the Fed does) cannot fix this. The Fed is also not something you want blowing with the winds of public or legislative pressure.

What you are referring to is the Legislature. The people who are actually capable of doing all that shit you mention. And who are, more then that, capable of actually doing something about the crisis but persist in avoiding that responsibility to talk about things that are, at the most generous, utterly irrelevant in the short term.

[Shryke]

FLOW,

Oh dear God.

1) Crowding out is not occurring right now. Low demand, businesses sitting on hordes of cash, ridiculous low interest rates, etc, etc. It pretty much can't occur. I don't know wtf you are even trying to say with this "demand and profits" or whatever bullshit. It makes no fucking sense.

2) As I said, it doesn't matter how Austrians interpret the Broken Window parable. Bastiat can interpret it however the fuck he wanted, others can and have done so differently (including the Austrians that followed him). The situation itself isn't a bad thought experiment.

Austrians like to see it as an argument against government doing shit (as they are wont to do for just about everything), but the situation is, at it's base, about whether the baker spends 6 francs on the window or on something else and how spending it on something else, with that something else potentially being of more use. It's an argument about opportunity cost made before that idea was formally developed. The "seen" vs "unseen" he's talking about is what the baker can obviously spend it on (the "seen" action of fixing the window) vs what else he could have spent the money on (the "unseen" action of ... doing something else with it).

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.

The bolded is like literally the definition of opportunity cost.

[Dinsdale!]

Austrians like to see it as an argument against government doing shit (as they are wont to do for just about everything), but the situation is, at it's base, about whether the baker spends 6 francs on the window or on something else and how spending it on something else, with that something else potentially being of more use. It's an argument about opportunity cost made before that idea was formally developed. The "seen" vs "unseen" he's talking about is what the baker can obviously spend it on (the "seen" action of fixing the window) vs what else he could have spent the money on (the "unseen" action of ... doing something else with it).

The bolded is like literally the definition of opportunity cost.

Or to echo Shryke's point, sometimes the baker doesn't spend his money, so much as sock it under the bed at a negative real rate of return. And that ain't helping anybody.

[Relic]

CNN now has a headline that reads "No Rationale For Market Drop". Apparently they forget that they have been busy fear mongering with giant headlines that read "Dow PLUMMETS/PLUNGES X Hundred Points Due to S&P Downgrade". Fucking idiots.

[Shryke]

CNN now has a headline that reads "No Rationale For Market Drop". Apparently they forget that they have been busy fear mongering with giant headlines that read "Dow PLUMMETS/PLUNGES X Hundred Points Due to S&P Downgrade". Fucking idiots.

It's like Randy said Relic. We can't hope to understand the economy. We can only hope to appease it with sacrificed goats and golden parachutes.

[ThinkerX]

Something I've been wondering about a bit here lately. Maybe if I went step by step:

1) A deal on the deficit ceiling was reached here recently. This means that the 'national credit card' of the US had its limit raised. However, even so, that money *has* to come from somewhere, or at least have the appearance of doing so; otherwise the results are likely to be catastrophic (Weimar Germany or Zimbobwe as prominent examples).

2) This money is normally raised by the selling of Treasuries: the government needs X amount of money, so X amount of Treasuries are sold (yes, yes, vast oversimplification here). Something on the order of 40% - 4 dollars out of every ten - the US spends must be raised this way. That is a *lot* of Treasuries.

3) Since the crash of 2008, the yeilds on Treasuries have been...manipulated...to put matters kindly. Manipulated to the point where the chinese, who used to gobble the things down by the truck load are balking and (according to the wilder rumors) having some very sharp words behind closed doors. The chinese own (or perhaps owned) more Treasuries than most of the other groups that buy such combined. Now they are not into Treasuries quite as much as they were, so other buyers are needed.

4) Question is - What other buyers? Normally, this would be really big banks, foriegn governments, and an assortment of others. However (gotta break this down a bit more) :

4.1) A lot of the really big banks are hurting real, real bad. BOA, despite its 'too big to fail' status, might actually go under anyhow: the lawsuits it is facing and the issues associated with those lawsuits might make it 'too big to save'. And there are other mega banks, in and out of the US, in similiar straits. Kinda hard to see these outfits leaping into Treasuries, at least in the quantities required.

4.2) Foriegn governments, like the US government, are, by and large hurting as well. The Euro-zone is in danger of collapse, and anarchy is threatening the realms of the middle east. Might be some governments with money to spare in South America or some such - but probably not enough to make up the slack.

4.3) Other buyers? The smaller banks in the US have been getting shut down one by one lately: there are a lot fewer of them than there once were; the number of small banks closing is reaching Great Depression levels (though they are mostly re-opened in a new way - and yes, this is a vast oversimplification again). Still, hard to see the survivors having all that much to spare for Treasuries. How about ordinary citizens then...don't think so: You take every US citizen with cash to spare and have them buy say...a grand worth of Treasuries....well, it still wouldn't be a drop in the bucket compared to the sums needed. Even ten grand per employed US citizen wouldn't help all that much.

5) For the past few years, the Fed and Treasury have been playing a sort of 'round robin' game to make the Treasury sales look much, much better than they actually are. Not sure how much longer they can keep on doing this - ESPECIALLY with the situations outlined in point 4.

6) So...Given the situation in point 4, what happens if point 5 becomes untenable for whatever reason? Seems to me, the Treasury might have to fess up to not being able to raise the money the government is asking for, which would mean raising taxes (republicans fight to the death on this one) or reducing spending (both parties oppose this, depending on the pet program). But now...

7) We have this fancy new 'super committee' or whatever its called that is supposed to help fix this problem - except the appointees to this committee are the most committed to their respective party positions. No compromise, which would normally mean gridlock, except...

8) There is that provision for if the 'super committee' cannot reach a decision on its own, automatic spending cuts of a hard variety start cutting into government sacred cows.

9) And meanwhile, most of the state governments are already hurting very badly...

So...potentially a situation on a national scale where neither Feds nor States have any significant money to spare, all are cutting budgets (meaning programs once deemed untouchable) and...

...Default Libertarianism on the national scale? Because nothing else is affordable?