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US money supply plunges at 1930s pace as Obama eyes fresh stimulus

jujuman13

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US money supply plunges at 1930s pace as Obama eyes fresh stimulus - Telegraph

Quote(The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.)

I do not pretend to be an economist but even I can see that Obama stimulus is a busted flush, the idea of yet another stimulus shews how out of touch this man and his Financial (experts) actually are, it seems to me that they are clutching desperately at some type of straw and hoping that what they do will be enough.

Quote(The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.

The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.

Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to "grit its teeth" and approve a fresh fiscal boost of $200bn to keep growth on track. "We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on," he said.

David Rosenberg from Gluskin Sheff said the White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4pc of GDP) this year and set up a commission to target cuts. "You truly cannot make this stuff up. The US governnment is freaked out about the prospect of a double-dip," he said.

The White House request is a tacit admission that the economy is already losing thrust and may stall later this year as stimulus from the original $800bn package starts to fade.

Recent data have been mixed. Durable goods orders jumped 2.9pc in April but house prices have been falling for several months and mortgage applications have dropped to a 13-year low. The ECRI leading index of US economic activity has been sliding continuously since its peak in October, suffering the steepest one-week drop ever recorded in mid-May.)

God help us all.
 

Lord Tammerlain

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A contracting money supply is a good indicator that deflation is on its way.

Deflation is something most economist feel is generally quite bad for many economies especially ones deeply in debt (austrian economist excluded)
 

Kandahar

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Yes, we definitely need another dose of stimulus. The last thing we need are euro-style "austerity measures" that will doom our economy to several years of anemic growth.

jujuman said:
I do not pretend to be an economist but even I can see that Obama stimulus is a busted flush,
And you base this on what exactly?
 

tacomancer

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Yes, we definitely need another dose of stimulus. The last thing we need are euro-style "austerity measures" that will doom our economy to several years of anemic growth.

And you base this on what exactly?
I agree in principal that we need another one, but since we have such high debt (thanks to every president since Carter, but mostly to Bush 2) we probably cannot afford it. :(
 

donsutherland1

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It should be noted that the dynamics driving M3 lower are not the same as those during the Great Depression. In this instance, the transition toward a better capitalized financial system is playing an important role. The transition, which is necessary if the U.S. financial system is to surmount its previously weak capacity to handle risk, is a temporary factor.

At the same time, the U.S. economy is now in the early stages of a moderate recovery (probably 3% real GDP growth this year and somewhat less next year). While some headwinds persist and the risk of a significant external shock cannot be ruled out, right now it appears that the growth should be sustained through this year and next year.

Furthermore, one of the more important potential shocks that could arise would not be as much an aggregate demand shock as a debt financing shock. Under such circumstances, implementation of a fresh stimulus package at a time when the economy has moved into a cyclical rebound could actually exacerbate the risk of contagion to the U.S. were Europe's debt challenges to deepen.

IMO, a wait-and-see approach is probably the best course right now. Hence, I believe Congress should be on a neutral fiscal path at this time. On a neutral fiscal footing, all new tax/spending measures should be 100% funded. If the economy continues to grow through the remainder of this year, I believe the U.S. should begin to pursue credible fiscal consolidation starting next year.

Having said that, it does appear that Washington will be adopting "backdoor" piecemeal stimulus measures via a variety of largely-to-wholly unfunded tax reductions and Medicare payment increases to physicians in coming days or weeks. Moreover, it appears that support for these backdoor stimulus measures could be bipartisan.
 

Cold Highway

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The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.
This matches Einstein's definition of insanity.
 

Kandahar

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I agree in principal that we need another one, but since we have such high debt (thanks to every president since Carter, but mostly to Bush 2) we probably cannot afford it. :(
Our debt is not intolerable. It's on the high side, yes, but we're hardly teetering on the verge of bankruptcy. Another dose of stimulus will help the economy grow, which will help us reduce our debt-to-GDP ratio in the long term.
 

alms

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Our debt is not intolerable. It's on the high side, yes, but we're hardly teetering on the verge of bankruptcy. Another dose of stimulus will help the economy grow, which will help us reduce our debt-to-GDP ratio in the long term.
kandahar,

What kind of stimulus would you propose? Spending or tax cuts, or both? If both, which one would you place more emphasis on and why?

In my opinion, any stimulus ought to consist primarily of tax cuts. I believe the psychological effect this would have on consumers and producers would help restore and sustain confidence in the economy. I don't think this administration is being accommodative enough towards the private sector, which is the true source of economic prosperity and stability.
 

jujuman13

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Yes, we definitely need another dose of stimulus. The last thing we need are euro-style "austerity measures" that will doom our economy to several years of anemic growth.



And you base this on what exactly?
On two fact
1) if first one had worked, they (Obama) would not be talking about a second one.
2) Unemployment continues to rise.
 

samsmart

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kandahar,

What kind of stimulus would you propose? Spending or tax cuts, or both? If both, which one would you place more emphasis on and why?

In my opinion, any stimulus ought to consist primarily of tax cuts. I believe the psychological effect this would have on consumers and producers would help restore and sustain confidence in the economy. I don't think this administration is being accommodative enough towards the private sector, which is the true source of economic prosperity and stability.
Why not raise taxes on a few things? Let's have a higher tax on gasoline, so people will rely more on public transportation and less on foreign oil. It'll also help spur greener energy tech.

Let's get rid of all the tax exemptions we have. Tax rates have been at their lowest since the 1950's. If we want all these services somebody has to pay for them, and it's about time the American people paid their fair share. There are so many tax exemptions for so many groups and interests it's a wonder anybody pays any taxes at all. Let's repeal some of these to generate more tax revenue.

Let's get rid of no-bid government contracts. No-bid contracts stifle competition and lead to corruption as government contractors "donate campaign contributions" to legislators who vote for these contracts. Getting rid of no-bid contracts will get these huge corporations to compete with each other again and lower the prices the government pays for their services.

Bush and his GOP advisors (especially his advisors) tried to wage two wars on government credit, which means we're in the hole for that and don't have any more credit to help us get out of the Great Recession we're in now. I'm not really saying that to crap on the GOP, but it's just the simple truth. So let's do what we can to help generate more tax revenue so we can start paying down the debt. Cutting services can only go so far, and there are some services that can't be cut. While nobody has the guts to say it because of how unpopular it is, we need to raise taxes somewhere to help pay off our debt.
 

Kandahar

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kandahar,

What kind of stimulus would you propose? Spending or tax cuts, or both? If both, which one would you place more emphasis on and why?
A bit of both, but I'd place more emphasis on spending. In addition to stimulating the economy in general, it has the added benefit of targeting whatever economic problems we're facing. For example, it could be geared toward expanding/extending unemployment benefits, or helping states pay down their debts, or getting started on necessary infrastructure projects.

alms said:
In my opinion, any stimulus ought to consist primarily of tax cuts. I believe the psychological effect this would have on consumers and producers would help restore and sustain confidence in the economy. I don't think this administration is being accommodative enough towards the private sector, which is the true source of economic prosperity and stability.
I wouldn't be opposed to tax cuts...but I think they should mostly be geared toward corporations. Our income taxes are already low enough (perhaps too low) IMO. Cutting the corporate tax rate could definitely help stimulate the economy.
 

samsmart

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I wouldn't be opposed to tax cuts...but I think they should mostly be geared toward corporations. Our income taxes are already low enough (perhaps too low) IMO. Cutting the corporate tax rate could definitely help stimulate the economy.
If we were to have any tax cuts, I'd rather they be focused on small businesses. Small businesses make up the majority of the U.S. economy, but it is only the large corporations who has the most pull in Washington.
 

Kandahar

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On two fact
1) if first one had worked, they (Obama) would not be talking about a second one.
That doesn't follow at all. First of all, the economy clearly HAS improved since the stimulus was passed. Second of all, even if it HADN'T improved, you couldn't necessarily conclude that the stimulus hadn't prevented it from being even worse.

Think of the economy as a big ship...and all of our economic indicators and government policies are little tugboats pulling the ship in different directions. The stimulus is one such tugboat. Just because the ship goes a certain direction doesn't mean that every single tugboat is pulling it in that direction.

jujuman13 said:
2) Unemployment continues to rise.
Unemployment is generally a lagging economic indicator, so this is to be expected. Unemployment continues to rise for several months after the economy as a whole begins to recover. Second of all, the reason it is rising is because people who had previously given up looking for a job are now looking again and are thus counted in the statistics. The US economy has actually been creating net jobs for a couple months now.
 
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