Lilfe long Democrat can't believe how inept Democrats are in Economics

[richrf]

Here is a quote from an article today written by a very well known hedge fund trader who is a pretty straight talker:

"I believe, as Dallas Fed President Richard Fisher does, that the Federal Reserve is prescribing the wrong medicine for the ailment from which the U.S. economy is suffering, as the uncertainty regarding income and future demand, not abundant liquidity, are the binding constraints to growth. Our domestic economy needs an intelligent, creative and transformative fiscal response to tame our deficit and grow jobs, not more monetary "cowbell" that disproportionately benefits the richest Americans and that is not likely to trickle down to the majority of the population."

These policies are entirely endorsed by the Democratic leadership.

 

[Whovian]

Here is a quote from an article today written by a very well known hedge fund trader who is a pretty straight talker:

"I believe, as Dallas Fed President Richard Fisher does, that the Federal Reserve is prescribing the wrong medicine for the ailment from which the U.S. economy is suffering, as the uncertainty regarding income and future demand, not abundant liquidity, are the binding constraints to growth. Our domestic economy needs an intelligent, creative and trans-formative fiscal response to tame our deficit and grow jobs, not more monetary "cowbell" that disproportionately benefits the richest Americans and that is not likely to trickle down to the majority of the population."

These policies are entirely endorsed by the Democratic leadership.

hold on there, sparky.. you tellin us that Dems endorse a trickle-down economic plan, that appears to benefit only the rich? :shocked2:

 

[richrf]

hold on there, sparky.. you tellin us that Dems endorse a trickle-down economic plan, that appears to benefit only the rich? :shocked2:

Yes, it would be quite funny except for one thing ..... millions upon millions of people are seeing their lives destroyed by this willful distribution of wealth to the upper 1%. If it was the other way around, I think I would find it hysterical. As it stands, and since so many of my friends are affected, I think I will just be angry.

 

[imagep]

As long as people continue to believe that our economy is driven by spending, you are pissing in the wind, my friend.

Our economy is driven by spending.

What would happen to our economy if everyone stopped spending?

What else would our economy be driven by?

 

[richrf]

Our economy is driven by spending.

What would happen to our economy if everyone stopped spending?

What else would our economy be driven by?

Yes, demand drives an economy. However, in the case of the Federal Reserve, we are talking about an entity that is neither creating demand, creating a service, or creating a product. They do nothing except print money. The more they print money the less the money is worth. They are essentially transferring wealth from savers who have currency to borrowers who get cheap currency. But not just any borrower is able to get free money from the Feds - only the very, very wealthy. It is a disgrace and while this is going on only Republicans are raising a voice to protect the American household while virtually all Democrats are supporting this enormous shift of wealth from the average American to the upper 1%. Is this a disgrace or not??

The Democrats' willingness to go along with Bernanke can be attributed to a total lack of understanding of economics (a distinct possibility since Democrats seem to only care about social issues), or they are in bed with the wealthy as most certainly is the case with Barney Frank (Fidelity) and Schumer (Wall Street). I think Pelosi is just a rich woman who doesn't understand what it means to have a life-time of savings destroyed. Another clueless wonder who insists on staying on even though she is destroying the Democratic party.

 

[oldreliable67]

They do nothing except print money.

Your anger seems to be clouding your judgment or perhaps your recall. The Fed does much, much more than execute monetary policy.

 

[richrf]

Your anger seems to be clouding your judgment or perhaps your recall. The Fed does much, much more than execute monetary policy.

Yes, they are an unelected body that is dominated by bankers who print money for their buddies whenever they need it. I repeat, all the Federal Reserve does is print money: they print money to bring down rates for the wealthy who can borrow at these low rates (no ordinary household can borrow at 0%); they print money to buy toxic assets from wealthy banks and investment houses and make taxpayers pickup the burden; they print money so that the government can spend hundreds of billions of dollars (monetizing the debt) on boondoggles such as giving money away to people so that they can buy a house or a car. They are money printers plain and simple. No need to get more complicated than that.

 

[richrf]

Here is how Bernanke's plans are destroying the middle and lower class as Democrats look the other way:

From a article in SafeHaven

"Over the past year, the price of wheat has increased 74%; corn: 14%; oats: 68%; heating oil: 29%; gasoline: 25%; pork: 60%; coffee: 27%; beef: 18%; sugar: 44%; copper: 37%; and cotton: 66%."

"It is the consumers who can least afford who suffer the most from rising commodity prices, especially since personal income in the U.S. continues to fall, as it did once again in September, 2010. According to the Bureau of Labor and Statistics, the 20% of Americans with the lowest wages spend nearly 60% of their after-tax income on food and energy. The highest 20% of earners spend about 10% of their after-tax income on these necessities."

 

[oldreliable67]

Yes, they are an unelected body that is dominated by bankers who print money for their buddies whenever they need it. I repeat, all the Federal Reserve does is print money: they print money to bring down rates for the wealthy who can borrow at these low rates (no ordinary household can borrow at 0%); they print money to buy toxic assets from wealthy banks and investment houses and make taxpayers pickup the burden; they print money so that the government can spend hundreds of billions of dollars (monetizing the debt) on boondoggles such as giving money away to people so that they can buy a house or a car. They are money printers plain and simple. No need to get more complicated than that.

Quite a rant. Congratulations. You've got'em nailed. Not.

 

[richrf]

Quite a rant. Congratulations. You've got'em nailed. Not.

Forgive me. I forgot to write that they were also heavy thinkers who like to write long papers about .... printing money. They don't call him Helicopter Ben for no reason.

 

[imagep]

Your anger seems to be clouding your judgment or perhaps your recall. The Fed does much, much more than execute monetary policy.

Other than executing monetary policy, what does the Fed do?

 

[richrf]

There is this aura that economists love to surround the so-called wise-old-men of the Federal Reserve. But in actuality, they are just hack bankers looking out for their industry and academics who have no idea how the real world works (they are so much enamored with their own make-believe thesis about how economics works).

It is true that Bernanke's money printing is going to create jobs ... OVERSEAS! Companies are taking the money, and building in Brazil, Asia, Russia, China, India .. where ever there is ultra cheap labor, cheap natural resources, and a currency that is not being steadily debased by an off-the-chart central bank money printing policy. It is obvious to any investor but for some reason Bernanke wears blinders because such a real-world reaction would not support his thesis. I think he is still trying to get in his own mind his next PHd and he is defending his thesis.

 

[oldreliable67]

Other than executing monetary policy, what does the Fed do?

This CRS report provides the following description of some of the Fed's more important functions other than monetary policy:

"The Board of Governors has a broad range of supervisory and regulatory
responsibilities that affect the entire U.S. banking system. The board seeks to promote
safety and soundness, ensure compliance with laws and regulation, and foster the fair and
efficient delivery of services to customers of financial institutions. Federal Reserve Board
regulations implement policies set by Congress that are defined in legislation and referred
to the Federal Reserve for enforcement. For example, the Fed has implementation and
enforcement responsibilities for the Truth in Lending Act, the Electronic Funds Transfer
Act, and the Fair Housing Act. The board coordinates its activities with other federal and
state regulatory agencies. The board has the power to examine all member banks and
their affiliates and to require periodic reports from them.
The board has the primary responsibility for supervising and regulating bank holding
companies and state-chartered banks that are members of the Federal Reserve System.
In addition, the board supervises corporations through which U.S. banks conduct
operations abroad, and the U.S. operations of foreign banks. The board delegates many
supervisory duties to the 12 Reserve Banks subject to the board’s policy and oversight.
An example is the task of conducting bank examinations.
The Board of Governors has broad oversight and supervisory authority over the
operations and activities of the Federal Reserve Banks. The board appoints three of the
nine directors of each Bank. The Board conducts annual financial examinations of the
Reserve Banks. Major expenditures, such as building construction, must be approved by
the board. The salaries of Reserve Bank presidents and first vice presidents are subject
to board approval."

 

[oldreliable67]

There is this aura that economists love to surround the so-called wise-old-men of the Federal Reserve. But in actuality, they are just hack bankers looking out for their industry and academics who have no idea how the real world works (they are so much enamored with their own make-believe thesis about how economics works).

It is true that Bernanke's money printing is going to create jobs ... OVERSEAS! Companies are taking the money, and building in Brazil, Asia, Russia, China, India .. where ever there is ultra cheap labor, cheap natural resources, and a currency that is not being steadily debased by an off-the-chart central bank money printing policy. It is obvious to any investor but for some reason Bernanke wears blinders because such a real-world reaction would not support his thesis. I think he is still trying to get in his own mind his next PHd and he is defending his thesis.

they print money to bring down rates for the wealthy who can borrow at these low rates

Where were you when mortgage rates were in double digits, the prime rate over 20%, and 30 year treasuries yielded 14%? Times and conditions change and the response of any central bank has to change with them.

But look, if your rants smacked less of someone on the outside looking in the candy store window without a penny to spend, and were at least somewhat more reasoned-as opposed to rant-you might be taken more seriously. But thats just my impression. Others may feel differently.

Whichever the case, your rants, er, opinions are certainly welcome here at DP. Please continue to have at it.

 

[FederalRepublic]

Our economy is driven by spending.

What would happen to our economy if everyone stopped spending?

What else would our economy be driven by?

Our economy is not driven by spending. Productive people drive the economy. Spending is a by-product of production. Produce more than you need and "spend" the excess to make your life more comfortable.

 

[imagep]

Spending is a by-product of production. Produce more than you need and "spend" the excess to make your life more comfortable.

Spending is what drives production. No one is going to produce unless they get paid for their products. If no one is buying products, people will stop producing products.

Over and over again I hear how we need to increase production to get out of this recession. Sure, that's true - on a macroeconomic level. But on a microeconomic level, businesses are not going to just magically increase production without having customers - and this is true regardless of the tax rate or any government policy.

I do agree that people who happen to be productive drive our economy, but the reason that they happen to be productive is profit and income. Without profit and income (derrived from sales) they will not likely be productive. And even if they are productive, without customers, have their efforts really benefited our economy? I own a business, given a large amount of cash in the bank my business could be very productive for a while, producing tons of work, but without people purchasing our products, then what would be the point of that?

Production will not happen without spending, thus spending drives our economy.

The only way to encourage businesses to increase production is for them to have an increase in sales.

 

[Missed AB]

Our economy is not driven by spending. Productive people drive the economy. Spending is a by-product of production. Produce more than you need and "spend" the excess to make your life more comfortable.

Consider that we are not an industrial economy. We are a service economy. Most people do not produce anything at their jobs, nor do they directly sell products which they produced.

Doctors, lawyers, information tech, store clerks, waiters, bartenders, mechanics, landscapers, roofers, nurses, plumbers, teachers... What do you do for work? What did you produce and sell yesterday?

 

[imagep]

Consider that we are not an industrial economy. We are a service economy. Most people do not produce anything at their jobs, nor do they directly sell products which they produced.

Doctors, lawyers, information tech, store clerks, waiters, bartenders, mechanics, landscapers, roofers, nurses, plumbers, teachers... What do you do for work? What did you produce and sell yesterday?

Exactly. Doctors and lawyers and nurses and plumbers cant just "produce up a stockpile of inventory". There has to be customers with a need and more importantly, MONEY and the willingness to SPEND that money, for those jobs to exist. Right now much of our countries wealth has accumulated in the hands of companies that arn't spending, and wealthy individuals who can only consume so much. Middle class folk who do have some money reserve ain't spending a lot either because the fear of loosing their jobs. The rest of us are simply broke, our credit has been ruined, we have lost our houses, our cars, and our jobs. So until there is something that either encourages people who do have money to spend it, or a mechanism that puts money into the hands of the masses so that they will spend it, we are not likely to have any significant improvements in our economy.

This QE2 (or whatever it is called) thing is unlikely to be that mechanism. Why would banks lend to individuals who are risky due to a weak job market? Why would banks lend to small businesses who are risky due to weak sales? Why would financially healthy companies want to borrow more money when they already have large cash reserve?

The Spendulous bill didn't work as that mechanism either because very little of it got into the hands of the consumer because very little of it actually created any jobs. Most of that money went straight into the hands of the wealthy who are now hording it because they simply don't have and immediate need for it.

What it comes down to is that our economy NEEDS redistributation. Not for the purpose of hurting or penalizing the rich, but for the purpose of increasing the velocity of money. $20,000 can result in absolutely nothing being created, not a single job, not a single can of tuna, not a single light bulb. Or it can result in a thousand cars being made if the velocity is high enough. We need a mechinism which will encourage or force those who are hording money to start circulating money.

A lot of people are suggesting some type of consumption tax, isn't that exactly the opposit of what we need during this particular recession? Would taxing the business transactions really incentivise the circulation of money? How about we do just the opposit - a tax on "idle" funds?

 

[oldreliable67]

How about we do just the opposit - a tax on "idle" funds?

Actually, we are and have been doing almost exactly that. Nominal interest rates are almost zero, which means that the opportunity cost of holding cash is very large-if your next best rate of return is return on equity in your business (or some other risky asset) and assuming that your return on equity invested in your business is on average somewhere in the 10% to 20% range, which is fairly typical during 'normal' economic times.

But, these are not 'normal' economic times just now. Coming out of the 'great recession', the perceived risk level was quite a bit higher than historically 'normal' meaning that risk aversion dictated holding higher precautionary cash balances. As the economy slowly recovers and a new expansion phase of the cycle becomes more solid, more visible, more easily believed in, risk aversion will slowly diminish, resulting in idle cash balances being put to work. The following from a Bloomberg article today hints at what I'm describing:

"Some businesses are also responding to increased exports and to a pickup in U.S. demand by replacing aging equipment and bringing more parts of their plants online.

Rockwell Automation Inc., the maker of factory software, said it sees interest rising in large-scale plant projects for full-production lines in developed markets, a sign that those economies may be picking up steam.

“These are projects that are significant expansion in production capacity or new lines,” Chief Executive Officer Keith Nosbusch said in an interview last week. “These would be larger capital spending investments,” which means those markets have a more positive outlook on their future."

The cheaper dollar has helped US exports tremendously, and those exported products are mainly manufactured goods. Today's industrial production report showed manufacturing output up 0.5% in October, following an upward revised Sep (+0.1% vs the preliminary -0.2%), and up 6.1% versus one year ago. Moreover, manufacturing capacity utilization rose again, and is now up to 72.7%, up from 71.7% this past June.

While manufacturing capacity utilization has been increasing, considerable excess capacity remains. "Full capacity" is typically regarded to be somewhere in the mid-80% range. However, in the current situation, I expect capital expenditures on new plant and equipment to begin increasing well before utilization rates get in to the mid-80% range; the need for modernization and productivity-enhancing machinery and tools will encourage deployment of some of those precautionary cash balances well before that. The pick-up in spending for such is already becoming evident in the GDP accounts.

To summarize, there is a 'penalty' rate in place just now for holding high cash balances-it's the high opportunity cost of holding cash when interest rates are very low. But the perceived high risk level has dictated that high precautionary cash balances are prudent. The gradual lowering of risk avoidance as the economic outlook slowly improves will, as it is already beginning, ever so slightly to do, lower those risk premia and reduce the incentives to hold precautionary cash balances.

 

[Missed AB]

Right now much of our countries wealth has accumulated in the hands of companies that arn't spending

Is the goal to have money or things? People who have money, have it because they did not spending it. If you don't have money that's because you spent it. The poor decisions of others to waste their money lead to the expansion of the economy through excessive credit. Why should we attempt to stimulate MORE spending?

Should we just take the money from the rich and give the money to the poor? Why should I work if you will pay me to stop working? That does nothing to fix the situation we are in now.

Middle class folk who do have some money reserve ain't spending a lot either because the fear of loosing their jobs.

Maybe they are not spending in the hopes of becoming wealthy...

The rest of us are simply broke, our credit has been ruined..

If your credit was ruined, it is because you made poor decisions. If you are broke, then sell your stuff.

or a mechanism that puts money into the hands of the masses so that they will spend it, we are not likely to have any significant improvements in our economy.

How about, you take all of your money and give it to someone who is poorer than you. What gives you the right to hoard your money, and not someone who is richer than you?

What it comes down to is that our economy NEEDS redistributation. Not for the purpose of hurting or penalizing the rich, but for the purpose of increasing the velocity of money... We need a mechinism which will encourage or force those who are hording money to start circulating money.

We need a way to stop people from going bankrupt and making them accountable for their debts. We need a way stop people from walking away from their financial obligations. We need to find a way to stop people from buying TV's they can't afford and don't need. We need to find a way educate people to make money instead looking to give them money from people who have figured out how to make money.

How about we do just the opposit - a tax on "idle" funds?

0% interest on 2% inflation. The QE that I am against is because of the reason to the left. The QE that you are against ironically does exactly what you want it to do, encourages people to not keep money in savings accounts.

 

[imagep]

Is the goal to have money or things? People who have money, have it because they did not spending it. If you don't have money that's because you spent it. The poor decisions of others to waste their money lead to the expansion of the economy through excessive credit. Why should we attempt to stimulate MORE spending?

Because spending will create jobs.

Should we just take the money from the rich and give the money to the poor? Why should I work if you will pay me to stop working? That does nothing to fix the situation we are in now.
Maybe they are not spending in the hopes of becoming wealthy...

All economies have to have a mechanism to redistribute wealth or else ultimately one person ends up with all the wealth and that economy becomes very very poor. I am not suggesting that anyone be paid to stop working. Have you ever played monopoly? At the end of the game, just one player has all the money and all the assets and the game ends because everyone else is broke. Is everyone else a lazy worthless piece of crap just because they didn't win? Of course not. They just happen to be out of the game because they lacked either the skill or luck to remain in. In a board game that's not a bad thing. It's the goal of the game to have just one winner who ultimately owns everything. Thats why there is no automatic redistributation mechanism (other than passing "Go"). The game could go on forever if there was a more substantial mechanism for redistributation. I would hope that in the came of real life, that it is not our goal to end our economy. I kind of like having enough money to eat.

I am suggesting that people who have plenty of money have an obiligation to KEEP people working. I would seriously doubt that keeping some money stashed in a savings account paying one half of one percent interest is going to make anyone wealthy. Using that money to start a business, maybe, but certainly not sitting in a savings account. And yes, if people who have lots of money all started spending more, that would fix the situation that we are in now.

If your credit was ruined, it is because you made poor decisions. If you are broke, then sell your stuff.

Maybe, maybe not. Lots of people had jobs that they and the bank both thought that were very stable. Obviously they were both wrong. You can be wrong without making a poor decision. **** happens.

How about, you take all of your money and give it to someone who is poorer than you. What gives you the right to hoard your money, and not someone who is richer than you?

Have I ever suggested that? I own a business, I employ people, and nearly all my assets are utilized in my business. My money is being fully utilized. If it wasn't then I would certainly be part of the problem. People and corporations who at this particular time in this particular economic situation who have large amounts of money invested in low or no yield investments, particuarlly just sitting in bank accounts (while banks arn't lending and their is low demand for capital) are part of the problem. As long as they don't use those funds to expand their business or invest in business or start a business, then they are part of the reason that our economy is as slow as it is. We have to have a higher velocity of money to create jobs and profits.

We need a way to stop people from going bankrupt and making them accountable for their debts. We need a way stop people from walking away from their financial obligations. We need to find a way to stop people from buying TV's they can't afford and don't need. We need to find a way educate people to make money instead looking to give them money from people who have figured out how to make money.

Sure, I agree with that.

0% interest on 2% inflation. The QE that I am against is because of the reason to the left. The QE that you are against ironically does exactly what you want it to do, encourages people to not keep money in savings accounts.

Exactly. If our banks needed more deposits because there were lots of worthy borrowers to lend money to, then I would be all for people saving money in savings accounts. But that's just not the case at this particular time. Our economy has a real need for people to purchase more stuff (that they can afford) so that manufacturing, retail, and service jobs are created. If you disagree with that, then explain how else jobs are going to be created.

 

[washunut]

All economies have to have a mechanism to redistribute wealth or else ultimately one person ends up with all the wealth and that economy becomes very very poor. I am not suggesting that anyone be paid to stop working.

The U.S. does in fact redistribute money through the progressive tax systems of both states and Federal government. So the question is how much redistribution, not should there be redistribution

Have I ever suggested that? I own a business, I employ people, and nearly all my assets are utilized in my business. My money is being fully utilized. If it wasn't then I would certainly be part of the problem. People and corporations who at this particular time in this particular economic situation who have large amounts of money invested in low or no yield investments, particuarlly just sitting in bank accounts (while banks arn't lending and their is low demand for capital) are part of the problem.

How about when you retire, sell your business and then use the funds to live. Is that idle money, or money saved over a lifetime of hard work so that you could enjoy your retirement.

 

[imagep]

The U.S. does in fact redistribute money through the progressive tax systems of both states and Federal government. So the question is how much redistribution, not should there be redistribution

Very true. Obviously there should be enough redistribution so that there becomes an equilibrium between the money that trickles up to the wealthy and down to the worker - or else ultimately the worker will have nothing and the wealthy will have everything just like our game of monopoly. When income and wealth of the non-wealthy start to drop but at the same time the income and wealth of the very wealth increase, then there is obviously not enough redistribution. We may only be talking about an adjustment of just a few percent to reach that equalibrium. I've never suggested any type of massive seizures of wealth or income, we are just talking fine tuning.

How about when you retire, sell your business and then use the funds to live. Is that idle money, or money saved over a lifetime of hard work so that you could enjoy your retirement.

When I am refering to people/businesses hording money, I am using the exact same words that the "experts" that you see on the Sat morning Fox news money lineup use. They are refering to amounts of money that are being stockpiled that would normally either be used for dividends or for further business investment. Individually, I don't blaim any person or business for hording money in this economy - it may certainly be a wize thing to do from a microeconomic standpoint. But it is a large part of the REASON that our economy is doing poorly. I am not trying to pass moral judgement on individual situations, but it is a fair observation to identify this stockpiling of money as a contributor to our current economic delima. You can't tell me that if businesses all suddenly decided to use that money to expand and crank up production that jobs wouldn't be created.

 

[oldreliable67]

All economies have to have a mechanism to redistribute wealth

We have two: entrepreneurship and tax policy.

You can't tell me that if businesses all suddenly decided to use that money to expand and crank up production that jobs wouldn't be created.

Of course jobs would be created. But at what cost to the (former) owner of that money? If they judged correctly and invested in the right areas of the economy, they stand to earn an exceptional rate of return on their investment and create jobs in the process. But if they get it wrong, they lose, perhaps all of it. The perception of risk is beginning to slowly change for the better, but at the moment, prudence still dictates a large dose of cautionary medicine.

There is nothing moral or immoral about this; it is strictly an assessment of risk versus reward.

 

[imagep]

We have two: entrepreneurship and tax policy.

Yup. No disagreement here.

Of course jobs would be created. But at what cost to the (former) owner of that money? If they judged correctly and invested in the right areas of the economy, they stand to earn an exceptional rate of return on their investment and create jobs in the process. But if they get it wrong, they lose, perhaps all of it. The perception of risk is beginning to slowly change for the better, but at the moment, prudence still dictates a large dose of cautionary medicine.

There is nothing moral or immoral about this; it is strictly an assessment of risk versus reward.

I agree entirely and none of that changes the accuracy of my observations.