This page has been archived and commenting is disabled.
Nothing Has Changed
This article originally appeared in The Daily Capitalist.
It is apparent to me that the factors that underlie the causes of our boom-bust cycle still exist. Nothing has changed.
While the President's message to the nation was optimistic, much of his speech was dedicated to telling us how much we need the federal government to become "winners" in a globally competitive world. Alas, I believe that it is the free market that is needed to spur economic growth, not more government spending.
I found the speech rather depressing in the sense that the Administration is still planning more spending on "infrastructure" including green energy, education, and physical repairs. Unfortunately, none of those things will contribute in any way to growth. My argument is not that we don't need roads, bridges, and schools, but that more spending on these things will not result in our ability to be more competitive or help to revive our economy.
I have written extensively on this blog about the failures of the economic policies of the last two administrations. It is clear that nothing has been accomplished by any of the spending projects and bailouts that were supposed to have bailed us out. Recently a Fed paper tried to justify the bailouts as having saved the world from collapse, but it was nothing more than "curve fitting" to achieve a desired result.
There is no believable evidence that bailouts or fiscal stimulus has done anything positive for the economy. In fact, it is far easier to weigh and demonstrate the damage to the economy of such policies. I and others would argue that all the negative consequences the advocates of bailouts predicted would happen without a bailout happened anyway.
The numbers speak for themselves.
I propose to you that nothing has changed on the policy front that would do anything to revive the economy. While I believe that reducing taxes is a benefit to taxpayers, the Laffer Curve doesn't always work because it depends on the underlying economic problems. Presently those problems are not a lack of spending as almost all Keynesians, Neoclassicists, Monetarists, and econometricians believe. It bears repeating that if we could spend our way to prosperity, then countries like Zimbabwe would be rich.
Presently what the economy needs is capital to fund expansion and it appears that such capital is lacking in the economy, or the economy would be growing. By spending more the federal government only reduces the pool of available capital to entrepreneurs, drives up the cost of capital, and results in more debt piled onto the backs of future generations. Further, QE only serves to diminish the supply of "real" capital. By real capital I do not refer to the money that the Fed creates from thin air, but actual savings resulting from production and other economic activity.
I continue to monitor the numbers every day and while there are some glimmers of improvement, they don't amount to a trend. I see things such as an improving manufacturing sector but it is almost like a mirage, shimmering in the distance: there is an unreal quality to it. If the dollar should go up, if Europe continue to have fiscal crises, and if inflation becomes rampant everywhere (a not unreasonable scenario), then exports would suffer.
So what do we see on the policy front?
-
The Fed has agreed to continue ZIRP and says it's too early to withdraw QE. I interpret this as the Fed's admission that it doesn't know what to do to revive the economy, and that this is their last shot at it. As long as unemployment remains high, and I believe that will be the case, I would expect QE to continue and that it is likely that we will see more, perhaps a QE3.
-
The president gives lip service to cutting the deficit but says we've got to "win" in the race for international success by spending more on infrastructure, green jobs, and education. Since that hasn't helped so far, we shouldn't expect it to work now. It would be wise to look at Japan for guidance. They have done these exact same things and they have failed too. Moody's announced today that it is cutting Japan's sovereign debt rating because of high sovereign debt.
-
The Administration continues its mercantilist policies and scapegoats China for the failure of our long term policies that have hindered US competitiveness. Those policies include high corporate income taxation, capital gains taxes, bureaucratic barriers, and giving unions broad power to hamper productivity by outdated work rules, too high wages, and work disruption through strikes and intimidation. The best thing it could do is leave China alone and get out of the way of companies who wish to export.
-
Housing continues its decline and foreclosures are still on the rise. Yet Senator Barbara Boxer wishes to recreate the bubble by lowering loan standards to allow people to refi:
The Helping Responsible Homeowners Act of 2011 would remove barriers, such as loan-to-value requirements, in order for certain borrowers to qualify for a refinance.
Risk-based fees on loans for which Fannie Mae and Freddie Mac already account for the risk would be removed, and lenders would be prohibited from dismissing second mortgage borrowers. Underwater borrowers would also be eligible to refinance.
"At a time when millions of Americans have been forced out of their homes, this legislation will ensure that homeowners who make their payments on time will be able to refinance their mortgages at current low rates so they can stay in their homes," Boxer said.
She added that consumer spending would indirectly increase because of the bill because homeowners would have more disposable income.
This shows ignorance of basic economics. We are still trying to get through the housing crises that vastly over-produced and overvalued housing. There have been some basic reforms to the villains, Freddie and Fannie and now Mrs. Boxer wishes to undo all that for purposes of political expediency. In other words, the taxpayers are to be put back into the business of guaranteeing reckless lending behavior. Also, it won't spur the economy. All that money the borrowers save on their mortgages will come from the employees of the banks who have less income to spend themselves. It's the old Robbing Peter fallacy.
-
Adding to that folly, I see where bankers are fighting the new Financial Accounting Standards Board's mark-to-market rules that were adopted to reduce banks' reckless lending behavior. Instead of using current market value in valuing bank assets, FASB has backtracked under bank pressure and has allowed them to use cost as the basis for value. What this means is that if an asset has collapsed in value but the borrower is current on the loan, the bank need not take a hit to capital by reducing the asset to market value. In essence they can keep on lending as if the market had no impact on them. It is a ringing endorsement of zombie banking. More on this later.
Folks, it just more of the same. Don't read their lips, watch what they do. My forecast of stagnation and inflation still stands.
»
- advertisements -
whoah this blog is magnificent i like studying your posts. Stay up the good work! You already know, many individuals are searching around for this information, you can help them greatly.
without credit payday loans
All of these articles debating in/deflation are either disingenuous or misguided at best.
loans for bad credit
It was the fault of the Japanese for allowing such a reactor to be built in that location without additional safety measures being required. That's the real story here. That and the shitty enforcement of already lax safety standards.
florida home insurance
Thanks Look at the size of the new companies. Look at all the gleaming new debt (with nothing to show for it but higher interest payments).
payday loans
I heard the whole interview, and he said "if silver goes to triple digits this year that would make me think about selling. On the other hand, if the dollar is confetti while silver is $150, I'll keep my silver."
cheapest car insurance
The lower echelons of a tyrannical regime who are responsible for (most likely) imposing unjust rulings against the oppressed masses are now scrambling over one another in a last-ditch effort to avoid their date at the hands of the lynch mob.
car loans
Yes, nothing has changed. The interbank markets are no less precarious than at the beginning of the crisis.
Big government is really Big business---they sleep together and the result is Big profits at any cost whether it be outsourcing jobs, accounting fraud, regulatory denial etc. A nation state is passe because its now a Global Economy so get used to it until there is a collapse or rebellion . In meantime, watch the show and enjoy the popcorn. Alternatively do what they are doing in Tunesia ,Yeman and UAR. Its your choice in a democracy.
I have written extensively on this blog about the failures of the economic policies of the last two administrations.
--- The last THREE adminstrations (at least) have caved to the Wall Street and corporate elites. If the government failed at anything, it was by letting these people make the policies for them. Look at the record profits and bonuses. Look at the size of the new companies. Look at all the gleaming new debt (with nothing to show for it but higher interest payments). The policies worked exactly as planned. They were engineered. Always remember beauty is in the eye of the beholder.
Regardless of what happens, I sit with my gold and silver.
Like your article said, we must have true savers who invest their hard earned in money in hopefully wise businesses.
Instead we have organised crime, as can be seen in Egypt.
I would love to invest, but I don’t know who to trust anymore.
As such, like many here, I will sit on the side lines, or either invest in safe havens overseas or punt a few thousand on shorting the upcoming crash. I am not rich, but with such low interest rates, you have to put it somewhere.
The biggest concern will be the Middle East. Many over there are starving because of the low US dollar - if they drop the dollar so as to low their commodity prices, then things maybe closer to a crash than we think...
Hmmm maybe I should invest in popcorn...should be quite a show
The expression: "You can't spend your way to prosperity" needs amending. It should be phrased: "You can't spend yourself to prosperity with your own money." I can certainly spend my way to prosperity with someone elses money. Isn't this what Wall Street and governments do?
The real reason why the economy is faltering is because there are more loan defaults and payoffs than new loans, which removes money out of circulation and shrinks the economy. So, in order for the US economy to grow, there needs to be an increase in new debt over existing debt, which will increase the money in circulation and thus, will grow the economy. Until this happens or most consumer debt is relieved, the government pays enough people directly, and/or there is major tax and regulation reform, there will be no recovery. There is too much debt. This is what happens when you have currency created and circulated through debt. If you want really prosperity, you need change how currency is created. It needs to change from debt driven to asset driven. If you do this, everyone will have prosperity, especially the poor.
"Presently what the economy needs is capital to fund expansion and it appears that such capital is lacking in the economy"
this is absolutely the most intelligent economic statement yet uttered since 2008....wealth is being squandered on russian roulette voodoo economics....the bohemian grovers are on a wild gambling binge....
Good Story.....
Google >>> Jim Willie
Jim has a new story out..
Things that are the same:
Gross incompetence and corruption in our elected officials (Nancy Pelosi and her 6 figure catering bill for her military charter flights home,....can you spell hypocrisy?)
Rampant self dealing for same officials and there backers
Inaction or exactly wrong policy on major issues and challenges
Demographics of baby boomers hitting retirement age
What is different:
The FRB has tasted the wine of debt monetization and decided they like it!
There is no way this ends well.
ZH-ers aren't going to like what you say.
Many readers believe the mess is due to some imagined lack of regulation. They want MORE regulation. They want the government to step in, prosecute, take charge. They think we need bigger, more powerful government, more tax collections, closed borders, immigration and outsourcing controls. And they'll positively HATE the idea - very true though it may be - that American wages are too high...
So, you're probably wasting good sensible breath.
If "guaranteeing reckless lending behaviour" is...what? REGULATION.
Kreditanstalt
I don't believe "ZH'rs" want more regulation per se...
They want clear and effective and enforced regulation against the criminals of the banking cabal.
How about:
Regulation #1. THOU SHALL NOT STEAL.
Regulation #2. Enforce Regulation #1.
Then provide an auditing incentive. A 10% bonus (of the quantum of the theft) for finding and convicting the scum of the earth that engage in Regulation #1.
You cant spend your way to prosperity but when you are close to the zero bound you can get away with a lot.
Rob Peter, write a bad check to Paul....
This article isn't credible as it doesn't deal with facts.
.
Which facts would you like to see? How about central planning didn't really work in the USSR, Eastern Europe or just about anywhere else, why would it be different here? Directing expenditures to green projects, construction projects, or anywhere else is a form of central planning and it always causes distortions in the allocation of capital.
So, again, what "facts" are you talking about?
Read it again, ladies and gents. The author's first 3 bullet points contradict each other. In addition, "central planning" is how corporations become successful. Isn't that what you really want? One big "successful" corporation running "for profit" - and people be damned?
I can think of $14Trillion+ reasons that make your statement un-credible!
Nothing will change until the status quo no longer profits those in control . . . or we change who is in control.
Fascism on a global scale, simply awesome to watch isn't it
How about a comment on the Zimbabwe experiment from an ordinary Zimbabwean? This appeared on a BBS I frequent, just a few minutes ago. The general subject under discussion was the antique car restoration hobby but I asked about local financial conditions and got this response:
"We have been using the US$ officially since the end of 2008 and unofficially for a few years before that. It was an unbelievable situation as I'm sure you read about. I can't remember the inflation figures but we even had a bank note of Zimbabwe $ 10 Trillion at one point!!!! Don't ask me to type out all the zeros because I can't remember how many there were! As a result things became really difficult in just day to day living let alone running and restoring cars. Things have eased a lot but there's no money around, you can't borrow it at reasonable rates and so the economy is still suffering."
100 Trillion note.
That really speaks to the heart of the problem. Zimbabwe's capital has been both stolen and used up. The suffering will continue until the capital can slowly, painfully be rebuilt.
Here in the Snakes, we're going to have to go through the same process as Zimbabwe before we see the sunshine again. And we've only just begun to deal with the disappearance of capital, pretending that paper is wealth is capital.
Yup. You need the Federal Government.
You need the Federal Government to mop up the mess created by the failures and inaction of the Federal Government.
This is an endless loop. You get to pay for all the hamsters busy screwing up the world.
Sushi this is fascism, Big Govt and Big Corp in collusion. The Govt is not the solution, it's the problem (ponzi scheme).
Remove Govt and you remove the ratchet. Game Over for the elite parasites
Freedom and free markets, the only 2 mechanisms that work for humanity, everything else are the cheaters
Just pigs at the trough. Give to the green lobby, give to the construction unions lobby, the construction equipment lobby, and on and on. Bastiat had it figured out a long time ago, the plunder of the many by the many.
BTW, it would seem that Sen. Boxer's plan would only condemn the folks who would refi to and ongoing and endless stream of payments which would strip them forever of their ability to save and create capital. Better to lose the home and then secure housing that is truly affordable, not be stuck in a payment mode hoping that someday the value of their home might go up.
"But, but...my constituents won't vote for me if I don't buy them off!"
(Implied, NEVER stated)
NO ONE of the malefactors are in jail.
NONE of our financial problems have been solved.
Be prepared! Diversification and agility will help us through the mess!
SAVE money! In gold or whatever. That will allow us as holders of REAL CAPITAL help rebuild America,
Zimbabwe could be rich...
They could indeed be rich if they managed to implement the same plan as the US. They did not. They failed in other words.
Their failure does not mean success can not be reached, that one can not spend its way to prosperity.
Having trouble paying your bills?...... Build a high speed commuter train, Problem solved.!
Sorry, either I missed the <sarc> tags on your post, or you're a raving lunatic!
It's all just stealing... The system is wack. I aint buy'n none of that toxic shit. You right, aint dog gone thing changed. Them mofo's is broke as they ever wuz.