Common Sense Capitalism
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As many in Congress continue to push for more spending and our leaders push the G-20 to spend, one must ask if this spending is going to be effective?
Some say the stimulus and TARP helped to keep unemployment low.
Unemployment in the construction industry is around 30%. What good did the stimulus do there?
TARP was repaid at a $21 billion profit to government, how can that be if the banks were starving for capital. As it turns out, the FASB rule change allowed for banks to write up tens of billions in new capital and essentially hand it to the government.
How has this spending binge helped us? It has made government bigger and our debt bigger, but has it actually DONE anything else?
As many in Congress continue to push for more spending and our leaders push the G-20 to spend, one must ask if this spending is going to be effective?
Some say the stimulus and TARP helped to keep unemployment low.
Unemployment in the construction industry is around 30%. What good did the stimulus do there?
TARP was repaid at a $21 billion profit to government, how can that be if the banks were starving for capital. As it turns out, the FASB rule change allowed for banks to write up tens of billions in new capital and essentially hand it to the government.
How has this spending binge helped us? It has made government bigger and our debt bigger, but has it actually DONE anything else?
No. It's basic logic that taking free-thinking individuals money and then throwing it at certain projects instead of letting those individuals properly employ that money in their own personal daily lives in woefully inefficient and is greatly extending the recession.
At this point, a huge increase in infrasture spending coupled with huge direct "tax refund" checks to every US Citizen (or at least every taxpayer) may be the only way to stimulate the economy.
So you think that the free thinking individuals who have shown a massive spike in savings and not investment or spending would have resulted in better outcomes with a substantial decline in money freely available to the market? That's basically what you're saying.
Savings went through the roof and money fled the market from investments to spending. Many managed accounts are super heavy on institutional money because private money fled the market to chill out under mattresses. Institutions stayed in the game because they are legally mandated to. Therefore, your argument is that individuals who shown a great desire to effectively leave the market would have resulted in better outcomes then additional spending in the market for the economy as a whole. Therefore, less spending, less demand and less economic activity would have resulted in better outcomes then more spending causing more demand and more economic activity.
I suggest you rethink your stance.
The problem is that when interest rates are artificially modified, it makes it appear to businesses and investors that there is more actual wealth and spending in the economy, hence the result is people making business decisions based upon false premises, and they lose money and waste time they could have spent investing in capital (thinking for the longer term since people are saving for the future), hence you get a recession.
Artificially low rates do not suggest that the spending and wealth is fake. Only that the costs of such spending and wealth is not sustainable.
You still haven't addressed my post. Arguing that individuals would have produced a better outcome is to argue that vast reductions in avaliable capital and vast reductions in spending are better then more spending and more avaliable capital.
I see you avoided that deliberately.
As many in Congress continue to push for more spending and our leaders push the G-20 to spend, one must ask if this spending is going to be effective?
Some say the stimulus and TARP helped to keep unemployment low.
Unemployment in the construction industry is around 30%. What good did the stimulus do there?
TARP was repaid at a $21 billion profit to government, how can that be if the banks were starving for capital. As it turns out, the FASB rule change allowed for banks to write up tens of billions in new capital and essentially hand it to the government.
How has this spending binge helped us? It has made government bigger and our debt bigger, but has it actually DONE anything else?
History has proved time and time again, massive government spending has taken countries out of recession time and time again. Now this can be in stimulus spending, like the Hoover Dam or a war, but the fact of the matter is that when the private sector is playing a groundhog under the ground, then the government needs to step up and take over for a short period till the private sector gets its balls back.
History also has shown us what will happen when we dont do this... the great depression. Cutting spending, and building barriers made the great depression into a really great depression.
FDR extended the Great Depression for years because he did the same exact thing to fix the problem that was done to start the problem: Inflate, tax, spend. If he had just gotten out of the way the Depression probably could have ended in a year or so.
Have you ever heard of the depression of 1920 - 1921? It is the depression every keynesian like to sneak around because it was a pretty bad hit to the economy, but the president at the time just pulled back spending and regulation, and let the market fix the problem. It did. In one year. FDR extended the Great Depression for years because he did the same exact thing to fix the problem that was done to start the problem: Inflate, tax, spend. If he had just gotten out of the way the Depression probably could have ended in a year or so.
1920-1921 was caused by contractionary monetary policy by the fed. Between 1919 and 1920 its rates rose 3%. When the fed finally cut its rates the economy quickly recovered.
...A currency crisis in europe caused an international run on gold and severily depressed the money supply in gold standard countries including the US. ...
After FDR devalued the currency and effectively removed this constraint for the fed, the economy began recovery.
However, the fed quickly ran into the zero lower bound (interest rates cannot go below 0), which severlily limited its usefulness in stimulating the economy and made recovery more sluggish. With this limitation on the feds monetary policy it was only prudent for FDR to do some fiscal stimulus.
So if the fed cutting rates allowed the economy to quickly recover then, this most certainly, as low as rates are now, our economy must be BOOMING?
Exactly. Government fiscal stimulous is "only prudent" since the fed has already "quickly ran into the zero lower bound". It is amazing how similar the current Great Recession is to the 1930's Great Depression. I just hope it doesnt take WW3 to pull us out of it. Maybe the gov could review history and ramp up spending levels to WW2 levels without actually having to start a world war. Instead of tanks, how bout a grid of elevated high speed trains, instead of guns how bout some replacement bridges, instead of bombers how bout a wall between the US and Mexico?
my God.... How could you possibly think spending tons of money helps produce more wealth? Or how punishing success helps people work hard to become successful?
Four undenieable facts:
1) It is supported by people on the left and the right and the center that government war spending during WW2 ended the depression.
2) Our highest tax rate bracket during this time went up to 94% to support the spending
3) Our wealthy class became even wealthier due to the improved economy and despite the increased taxes
4) The poor and middle class also became more prosperous
Has absolutely no bearing on whether that spending helped. In fact, I've argued many times that loosening restrictions and the forced savings because of rationing got us out of that depression (not that forced savings was worth it, but it helped).
That was for the war, not to help the economy.
I'm not so sure that this is undeniable. I want to see some proof for this.
At the expense of the death and misery (rationing) caused by war and war production. Not worth it.
If anyone tells you that you don't need savings in an economy, ask them how businesses are going to expand. No business expands on profit alone. There will always be a crash when you lend too much of what you have saved (too much is pretty subjective though). Furthermore, your rate of expansion should be based on people's time preference. Why invest in the future when people want to spend now? It wouldn't make sense. We need to expand based on when people think their money is best spent.
As many in Congress continue to push for more spending and our leaders push the G-20 to spend, one must ask if this spending is going to be effective?
Some say the stimulus and TARP helped to keep unemployment low.
Unemployment in the construction industry is around 30%. What good did the stimulus do there?
TARP was repaid at a $21 billion profit to government, how can that be if the banks were starving for capital. As it turns out, the FASB rule change allowed for banks to write up tens of billions in new capital and essentially hand it to the government.
How has this spending binge helped us? It has made government bigger and our debt bigger, but has it actually DONE anything else?
So you think that the free thinking individuals who have shown a massive spike in savings and not investment or spending would have resulted in better outcomes with a substantial decline in money freely available to the market? That's basically what you're saying.
Savings went through the roof and money fled the market from investments to spending. Many managed accounts are super heavy on institutional money because private money fled the market to chill out under mattresses. Institutions stayed in the game because they are legally mandated to. Therefore, your argument is that individuals who shown a great desire to effectively leave the market would have resulted in better outcomes then additional spending in the market for the economy as a whole. Therefore, less spending, less demand and less economic activity would have resulted in better outcomes then more spending causing more demand and more economic activity.
I suggest you rethink your stance.
I have to argue that there is no evidence that the Great Depression was extended by FDR's policies. If anything, the great depression was in part due to the fact that he did not spend or tax the wealthy enough. When WW2 rolled around, taxation on the wealthy was greatly increased and so was government spending, and it is widely accepted that it was this greater government spending that ended the great depression. Thus, it is highly likely that FDR's New Deal was simply to small to fully serve it's purpose.
During the 1920's, the countries economic wealth grew quite a bit, but the money ended up in the hands of the rich, the average guy on the street actually became poorer. This migration of wealth into the hands of the financially elite was a big part of the reason for the depression. When taxes on the rich were significantly increased, and when wealth was essentially redistributed during WW2, our economy did just fine. 94% tax rates actually helped our economy, and the rich became even richer because when the lower and middle class does well, so do the elite. In some cases the incomes of the uber rich went up 1,000 fold and even with higher tax rates, their net after tax income and net personal wealth increased significantly.
Obamas spendulous bill has failed, but because it was not directed at creating jobs, or helping small business. It also failed because it simply was not large enough to compensate for the intensity of the "Great Recession".
The question to ask is
Where do you think the economy would be today without the spending binge
Would it be worse then it is today, better or the same
Government fiscal stimulous is "only prudent" since the fed has already "quickly ran into the zero lower bound". It is amazing how similar the current Great Recession is to the 1930's Great Depression. I just hope it doesnt take WW3 to pull us out of it.
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