Economic Crisis; Solutions

[charles brough]

How about we start looking at the fundamentals. Do we still need money at all? Is there an alternative..?

 

I say.. yes there is!

 

Sure there's an alternative. Stone age man did fine without money for tens of thousands of years. After the inflation and debasement of the currency in Ancient Rome, they went back to barter which persisted into Feudal times. We could use shells perhaps. What do you suggest? LOL:hyper:

[belovelife]

how about doing a nation wide instillation of solar pannels on trains, trolleys, and that sort

then work would be spread across the nation, we start working on that peskie global warming issue

and we power our transportation for free

 

the only thing is that the best solar pannels are probly top secret because it would cloak a ship in space, basiclly a defence issue

[freeztar]

the only thing is that the best solar pannels are probly top secret because it would cloak a ship in space, basiclly a defence issue

 

Besides being off-topic, you have not supported this claim. Please stay on-topic and support your claims..

[wufwugy]

I am very pleased with the Obama administration. He has decided to listen to experts who have learned much from the Great Depression, Japan's Lost Decade, Keynesianism, etc

 

IMO, it would only be looking better if Obama thought it were more politically viable to pursue more.

[freeztar]

Some have been saying that Obama is making the same mistakes that FDR made during the Great Depression. I'd be interested to hear people's opinions on this. Is the "new new-deal" a poor decision for a solution?

[Zythryn]

I am no expert on the FDR administration.

My understanding is that the banks actually closed down to prevent a run on the banks. This turned out to be a large mistake.

This time around, both administrations (Bush and Obama) are doing their best to make sure credit continues to flow and the population doesn't loose confidence in the banks.

 

We also have a number of 'safety nets' in place now that were not in place then.

 

Anyone more familiar with the history?

[wufwugy]

Some have been saying that Obama is making the same mistakes that FDR made during the Great Depression. I'd be interested to hear people's opinions on this. Is the "new new-deal" a poor decision for a solution?

 

Those who say this need to touch up on a little history. Here's a nifty and interesting outline of the Great Depression timeline. Timeline of the Great Depression

 

FDR did make some mistakes, but they are far overshadowed by all the awesome stuff he did. Really the only mistake he made that most people know about is cutting back spending in fear of budget deficit during '37, despite warnings from economists including Keynes whom I believe FDR claimed to not fully understand, and this causing another recession in midst of the recovery.

 

But those who say FDR screwed up are not necessarily talking about that. They're basically either highly uninformed or purposely misleading. They're confusing FDR for Hoover. They're confusing sound economic policies that came with FDR and governmental regulations that did amazing things for the economy with the disastrous economic policies of Hoover and lassaiz-faire which turned a mild recession into the Great Depression.

 

What we are seeing now is a repeat of FDR approach, but better due to greater economic understanding, but also worse due to political opposition from Republicans and wannabe Republican conservadems because they havent had their ideologies *** kicked by 24% unemployment. We are extremely lucky that we are not pursuing Hoover policies for the first four years of the recession, and we will not even get remotely close to a depression because of it.

[charles brough]

Some have been saying that Obama is making the same mistakes that FDR made during the Great Depression. I'd be interested to hear people's opinions on this. Is the "new new-deal" a poor decision for a solution?

 

What I read is that FDR tried too hard to keep the budget balanced and that if he had inflated the money supply like the Fed and Treasury just did, the recovery would have been faster and would not have turned down again in 1937 like it did.

 

Incidentally, I also read that Herbert Hoover let the economy collapse because he was so disgusted with the big financial interests for causing the crash that he refused to help them in any way. That set the course for a steady collapse in prices, the general deflation.

[freeztar]

I asked my father the same question I asked above. His response is below:

 

To be fair to FDR, he did not deficit spend as much as economists wanted him to.

 

The Great Depression could and should have been just another recession, even if a severe one. The single largest mistake was committed by the Fed. Faced with deflation, it tightened monetary policy which, as we now know, is the exact opposite of what should have been done. We currently have deflation and Bernanke is injecting liquidity like mad. He may make some mistakes but he will not repeat the mistakes of the Fed in the 1930's. He is an ardent student of the GD btw.

 

FDR's mistakes included the following:

 

1. deficit spending;

2. increased taxes;

3. trade barriers;

4. anti-business regulations.

 

Thus far, Obama has engaged in all of the above except trade barriers but he did include language in the stimulus package that encouraged Americans buying American goods. I agree that we should buy American every opportunity we get but it should not be the result of policy rather a collective consciouslness.

 

What's wrong with deficit spending? Okay, we currently have a trillion dollar annual budget deficit and we have federal debt of $11 trillion? Solution: spend more money and increase the deficit and debt. Don't think so. This approach goes back to the leading economist of the day, John Maynard Keynes. Followers, like Obama's advisors and Paul Krugman, are called Keynesians. A couple of Keynes' tenets were proven false in the seventies but its adherents were nonetheless undeterred.

 

The key economic theory in opposition to Keynesians are the Monetarists. This movement is based on the theories of Milton Friedman. Friedman asserted that government spending is perceived to be temporary thus does not have the multiplier effect of private investment. For example, private capital ripples thru the economy five to six times; government spending only two times on average. We witnessed this phenenom last year with Bush's stimulus checks. Instead of spending the money, most people paid off debt or saved the money. Moreover, government spending, particulary deficit government spending, increases the private investment hurdle rate by raising interest rates.

 

To put it in personal household terms consider this: you make $35,000 annually but spend $45,000 annually. You owe $110,000 in credit card debt. To solve your problem, you decide to spend $50,000 annually. Can you see anyway this will resolve your problem? No, neither will it solve the government's problem. We are in serious need of revolution. Our government is out of touchw with its citizens.

 

Obama has announced a goal of reducing the federal deficit to $533 billion in four years. If he accomplishes this goal, I will vote for him in '12.

 

Thoughts?

[wufwugy]

1. Deficit spending in face of demand-based recessions has been vindicated time and time and time again. Your dad's issue with it seems to be the current debt. My response is, not only is that not a problem, but we could have a much higher debt and it still wouldn't be a problem. Here's part of why

 

Our debt/GDP ratio is smaller than a few other major nations, if there was a problem it would hit them long before it hits us; US T-bills are still considered the safest investment on the planet simply because of our colossal economic power and our ability to pay a debt down; Obama's policies are pro revenue and prosperity and our creditors know this.

 

Our creditors are not oblivious to the fact that our debt problems are a product of neo-conservative policies. They know that US economic capabilities are immense, and that when we return to FDR/Eisenhower policies, which we partly are doing with Obama, then they'll get paid back. They also realize that part of getting back to these policies (and emerging from a recession) involves spending for a while.

 

2. Maybe FDR made mistakes in raising taxes on the wealthy, but that would only be the case if US back then was not able to borrow like we are today. Even then, at least some of his tax increases on the wealthy were good. The thing about wealth is that it gets hoarded, and taxing them enough to where they aren't able to hoard much, to where that percentage of the money supply is in circulation instead of making the single person more wealth is great economic policy.

 

Also, AFAIK, high taxes on wealthy always correlates with booming middle class and progressive human rights.

 

3. Pretty sure the 'buy American' phrase got dropped from the stim bill. Besides, I don't think there was any teeth to the phrase anyways other than making the Congressmen reading it feel better.

 

4. Doesn't look like your dad actually elaborated on this

 

5. WRT the second to last paragraph analogy, it doesn't work. It doesn't factor in the differences of income due to times of recession and boom, and it doesn't factor in the ability to create higher income due to investments. These two things are entirely the purpose of more spending; we will be able to increase revenue due to turning the recession around, and also increase revenue by putting money into investments that make revenue higher in the future.

[maikeru]

I asked my father the same question I asked above. His response is below:

 

 

 

Thoughts?

 

Freeztar, I think your dad ought to be president. Well said!

[maikeru]

1. Deficit spending in face of demand-based recessions has been vindicated time and time and time again. Your dad's issue with it seems to be the current debt. My response is, not only is that not a problem, but we could have a much higher debt and it still wouldn't be a problem. Here's part of why

 

Our debt/GDP ratio is smaller than a few other major nations, if there was a problem it would hit them long before it hits us; US T-bills are still considered the safest investment on the planet simply because of our colossal economic power and our ability to pay a debt down; Obama's policies are pro revenue and prosperity and our creditors know this.

 

The "colossal economic power" of the US comes from many portions of its diversified economy, but there are no guarantees. The last couple years have seen large losses in certain industries and businesses, and even things like agriculture (drought in the Central Valley, flooding in Iowa, etc.). Increasingly, natural disasters, unpredictable events, changes in resource prices and availability, and threats and shifts in the world also destabilize industries and agriculture, thus reducing our potential economic power. I would phrase it more like, the US is *capable* of colossal economic power if everything is in order...but rarely is everything in order and there is the chance everything could be out-of-order!

 

Our creditors are not oblivious to the fact that our debt problems are a product of neo-conservative policies. They know that US economic capabilities are immense, and that when we return to FDR/Eisenhower policies, which we partly are doing with Obama, then they'll get paid back. They also realize that part of getting back to these policies (and emerging from a recession) involves spending for a while.

 

I think that it depends heavily on what type of "spending" is going on, whether it produces useful results or not. If, for example, a large part of the spending on road and infrastructure spending is embezzled or improperly spent (such as on faulty materials), those are losses and wastes of money. In addition, spending on infrastructure also entails a subtle but very real commitment to the maintenance and repair of those investments, which maybe are not considered losses but still add up additional, future, required costs. Roads must be paved, shoveled, tarred, or laid with new asphalt, for example. I see this a lot in Utah, where we have like a million roads to nowhere, and highways being built to faraway desert communities. I always wonder how much upkeep is needed for these billion-dollar projects. (And luckily we get federal money to help pay for everything. :shrug:)

 

If it is spending into energy infrastructure, development of new energy resources, science and tech products, etc., I believe those have the potential for high return, because they increase efficiency, decrease living, production, manufacturing, and transportation costs, and create new opportunities and industries which can employ more people. In such ways, spending on those things is a lot like getting an education, to expand one's mind, ideas, and opportunities. In the short term, education is a drain on financial resources. In the long term, it can create untold financial gains (as well as enrich one's life).

 

2. Maybe FDR made mistakes in raising taxes on the wealthy, but that would only be the case if US back then was not able to borrow like we are today. Even then, at least some of his tax increases on the wealthy were good. The thing about wealth is that it gets hoarded, and taxing them enough to where they aren't able to hoard much, to where that percentage of the money supply is in circulation instead of making the single person more wealth is great economic policy.

 

Also, AFAIK, high taxes on wealthy always correlates with booming middle class and progressive human rights.

 

I think it depends heavily on what type of wealth is being hoarded and for what purposes. Wealth, like gold or money, can hoarded because it can be both insurance against hard times or unexpected problems and a resource, such as to buy or invest in a new business, house, or property. Forcing them to not be able to save up or hoard wealth to use it later forces "wealthy" people to borrow or go into debt when they do not need to. It does not make sense to penalize the rich, IMO, if they hoard and then use their wealth for such purposes, because their saving and spending in that sense also flushes more money into the system, and in probably a more productive manner. If you want to tax and distribute hoarded wealth, this seems like government becomes a new "Robin Hood."

[wufwugy]

The "colossal economic power" of the US comes from many portions of its diversified economy, but there are no guarantees. The last couple years have seen large losses in certain industries and businesses, and even things like agriculture (drought in the Central Valley, flooding in Iowa, etc.). Increasingly, natural disasters, unpredictable events, changes in resource prices and availability, and threats and shifts in the world also destabilize industries and agriculture, thus reducing our potential economic power. I would phrase it more like, the US is *capable* of colossal economic power if everything is in order...but rarely is everything in order and there is the chance everything could be out-of-order!

I agree, yet I'm not isolating 'capable' with 'actual' since they are not mutually exclusive. US is a current huge economic power simply because of the numbers, but on the flip side, our capacity is very important since the likelyhood of it being actualized is huge. For example, I would bet very strongly that China and Japan economic elites are fully aware of the retarded US tax policy on the rich and the retarded us of revenue under Bush, but they're also aware of the Clinton policies that they were good and the FDR/Eisenhower policies that were much better, and they probably realize that when push comes to shove (like is happening now) the US will return to more beneficial economic policy which actualizes our potential.

 

Unfortunately, Conservatism and the Republican propaganda machine is so powerful in the US that it will take a bunch of time or an actual economic meltdown for the US to repeat the awesome economic policies utilized during the Depression. I mean right now we're looking at tax policy just letting the Bush cuts expire, when we should be looking to boost up progressive taxes substantially higher (assuming we're no longer in recession, but it's debatable if pumping up taxes on rich from the super low point they're at now would be negative during a recession).

 

 

 

I think that it depends heavily on what type of "spending" is going on, whether it produces useful results or not. If, for example, a large part of the spending on road and infrastructure spending is embezzled or improperly spent (such as on faulty materials), those are losses and wastes of money. In addition, spending on infrastructure also entails a subtle but very real commitment to the maintenance and repair of those investments, which maybe are not considered losses but still add up additional, future, required costs. Roads must be paved, shoveled, tarred, or laid with new asphalt, for example. I see this a lot in Utah, where we have like a million roads to nowhere, and highways being built to faraway desert communities. I always wonder how much upkeep is needed for these billion-dollar projects. (And luckily we get federal money to help pay for everything. ;))

 

If it is spending into energy infrastructure, development of new energy resources, science and tech products, etc., I believe those have the potential for high return, because they increase efficiency, decrease living, production, manufacturing, and transportation costs, and create new opportunities and industries which can employ more people. In such ways, spending on those things is a lot like getting an education, to expand one's mind, ideas, and opportunities. In the short term, education is a drain on financial resources. In the long term, it can create untold financial gains (as well as enrich one's life).

 

Exactly. Given that we were able to run up huge debt under Bush in exactly the areas that are not beneficial is testament to how strong our economic really is relative to other economies. We are now returning to actual spending policy that mirrors investment instead of waste, and our creditors know it.

 

I think it depends heavily on what type of wealth is being hoarded and for what purposes. Wealth, like gold or money, can hoarded because it can be both insurance against hard times or unexpected problems and a resource, such as to buy or invest in a new business, house, or property. Forcing them to not be able to save up or hoard wealth to use it later forces "wealthy" people to borrow or go into debt when they do not need to. It does not make sense to penalize the rich, IMO, if they hoard and then use their wealth for such purposes, because their saving and spending in that sense also flushes more money into the system, and in probably a more productive manner. If you want to tax and distribute hoarded wealth, this seems like government becomes a new "Robin Hood."

 

This is true, however the degrees are what matters. Currently, the degree that our wealth distribution favors the rich, the suppliers, is vastly disproportionate to the wealth distribution to the poor, the consumers. If we were at at FDR/Eisenhower tax rates and discussing raising them even more than your concerns would be practically valid. As it is now, we're so far gone on the other end that we're making the mistake of favoring the wealthy too much.

[Racoon]

Every American needs to send China $6,000

and we need to destroy the Fedral Reserve System.

 

:phones:

[wufwugy]

Every American needs to send China $6,000

The relationship is substantially more highly interdependent and nuanced than this suggests.

 

and we need to destroy the Fedral Reserve System.

And go against over a century of economic understanding?

 

Destorying the fed is to economics what destroying the laboratory is to biology. Like usual, it's not THAT something is used, but HOW something is used

[charles brough]

I notice in these forums an intense pessimism as to the economic outlook---especially among those who seem the least knowledgeable in economics. I see it as entirely unwarranted.The stock market and the economy never do what most people think they will do.

 

The government has the ability to put as much new money, both real and debt money, into the economy as it needs in order to turn the economy around. It loans to businesses and then buys its own debt which creates more money. All this is flowing into circulation and explains why oil prices have recovered, why all the precious metals prices are near their highs, why corn and mostl other food prices stay up and why gasoline prices have already recovered about $.50 a gallon.

 

If the government needs to "stimulus" any more, it will, but the fact that it is not doing it like it was is because it no longer needs to. Stock prices are rising and they are about 6 months ahead of the falling employment picture. When they have risen a little more, people who have stocked all their cash into government bonds and notes will be taking it out and buying stocks and real estate. The economy will reverse real fast.

 

I hope no one snips out each paragraph above and inserts some dumb quibble or bickering comment between them because I don't respond to that. . . its just too much bother. . .

[Lumber Joe]

Just waiting. Government can not really help. Only thing it can do make it more severe.