Guest Post: The Great American False Dilemma: Austerity vs. Stimulus

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Thu, 10/27/2011 - 12:37 | 1817619 Mercury
Mercury's picture

I don't think you need expansion beyond a certain point.  as long as the net interest margin is sufficient (the old 3-6-3 rule) things can hum along quite nicely with credit stasis.

With ZIRP and too much debt overhang however...not so much.

Thu, 10/27/2011 - 12:40 | 1817638 Archimedes
Archimedes's picture

Totally disagree. What do you think The US Government is doing running 1.3 Trillion in deficits? They are taking up the credit slack for the consumers. Have the US stop deficit spending and the economy pancakes! Debt and credit are the same thing. The Government is borrowing from the future. Which is credit.

Thu, 10/27/2011 - 14:12 | 1818042 Mercury
Mercury's picture

Fractional reserve banking (at the community bank level anyway) and (government) deficit spending are two different things.  We've had the former without the later before.  The government has now painted itself into a corner policy-wise plus they are increasingly in business for themselves at this point anyway.  So, they'll run up huge deficits and worse to keep the leviathan alive.

Thu, 10/27/2011 - 12:26 | 1817581 Archimedes
Archimedes's picture

I have realized that there are lots of Perma Bears and lots of Perma bulls, but very few people who take the market for what it is and trade without either bias.

Thu, 10/27/2011 - 12:29 | 1817599 SheepDog-One
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Sounds nice and reasonable after the fact, but 2 days ago even the bulls were saying we're on very thin ice here. So Europe pulls an imaginary rabbit out of the hat, markets marvel at its splendor and rise 4%, and today everyone says 'Well, shoulda been rational traders and went long'. All well and good for rear view 'traders'. So anyway, whats your next week trades look like?

Thu, 10/27/2011 - 12:35 | 1817615 Archimedes
Archimedes's picture

I hear ya Sheep. I could have gone long yesterday just as easily as I coulda went short. So today I am looking at stocks and ETF's up 7, 10 event 15% saying I could been a contender. But I could have just as easily been wrong and down 15%. That is why I am not in the market. Because it is not being driven by funtamentals. It is being driven by government policy.

And I wa not referring to this day in particular. I was refering to Chris and other pundits as a whole. A man who is always a bear. Just like people like Cramer are always a bull.

Thu, 10/27/2011 - 12:40 | 1817622 SheepDog-One
SheepDog-One's picture

Well at some point here the bears gotta be right in a big way. We just dont know when. 

I dont believe that theyll just keep kicking the can until it blows up in their faces, theyve got to have some other big 'game changer' planned ahead.

Thu, 10/27/2011 - 12:56 | 1817719 Ruffcut
Ruffcut's picture

The fact is that crowded bear trades, often get beat up bad. We seen it time and time again. Shorting is like putting a bullseye on your forehead.

You can hedge with call options, etc, but will always be paying for protection where they still collect money from you.

THose woho have cash and bought enuff PM, items of sustainability and a simpler life are the better off.

Trading on most days is like chasing your own tail. that's why alot here are blog addicted. Just bullshitiing and less trading seems less stressful.

The casino, has some debt issues. They are calling all their patrons to the  table.  "let's play a few more hands". Me say, all bets are off telling them go play with themselves, in the corner of the oval office.

Thu, 10/27/2011 - 13:06 | 1817755 topcallingtroll
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Hey sheep

I tried to get u into EWZ.

hehe. Ssome of us get a few trades right.

Ya should have shorted silver with me too.

Aahh...the glory days.

Thu, 10/27/2011 - 12:26 | 1817582 JR
JR's picture

As Nathan Marin put it today, the U.S. trumped up QE3 GDP “rose to perfectly meet the 2.5% ‘growth’ expectations. Again, this is a completely bogus measurement with inflation way understated which overstates growth.  Also, they count the creation of debt, including our government’s deficit spending as ‘productivity.’"

Nathan Martin has one of the broadest and most comprehensive understandings of finance and debt in the world today and he’s willing and brave enough to publish it. In today’s political climate, he’s the opposite of the paid economists supporting the Establishment to cover up its corruption and lies regarding the equity markets and, especially, its manipulated government indices – all manipulated by those who manipulate the currency.

Says Nate: “GDP is not a measurement of ‘production,’ it is a measurement of money and moneyness. And the comparisons of debt to GDP are completely fallacious! What matters is not a nation’s debt to the nation’s trumped up ‘productivity,’ what does matter is the nation’s debt compared to the nation’s income.  Comparing the nation’s debt to GDP is like comparing your own debt to your neighbor’s productivity – why do they have to do with anything? Nothing! It’s completely ridiculous. What matters in regards to YOUR debt is YOUR income – period.”

Thu, 10/27/2011 - 12:43 | 1817657 tsx500
tsx500's picture

right on, i get Nathan's daily email rant, he is a ' don't miss ' .    

Thu, 10/27/2011 - 12:33 | 1817611 Pants McPants
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What this "system" needs, and I assume the author means the .gov/banker construct, is collapse.  Fascism, to any degree, is always and everywhere a bad thing.

Thu, 10/27/2011 - 12:38 | 1817631 SheepDog-One
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What we need is just 1 adult somewhere in a position of power to throw in the monkey wrench.

Thu, 10/27/2011 - 12:59 | 1817732 GeezerGeek
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I volunteer to be dictator just long enough to throw that wrench. There's no one else I would trust to be dictator, and I must be an adult because my package of diapers says they are for adults.

Thu, 10/27/2011 - 12:33 | 1817612 Mediocritas
Mediocritas's picture

Sounds like Chris Martenson has discovered Cullen Roche.

Thu, 10/27/2011 - 12:37 | 1817623 Little John
Little John's picture

I liked that definition of collapse - “radical simplification”.

Thu, 10/27/2011 - 12:40 | 1817640 Dr. Acula
Dr. Acula's picture

"emerging problem of resource scarcity"

That's absurd and retarded. Scarcity is eternal and ubiquitous. It's an inescapable fact of the human condition.

"economists typically no longer have a solution for Los Angeles, or for Southern California. Or, for that matter, the United States."

What are you tring to solve exactly???

If you want more problems, economics shows that a central planner engineering a "solution" is a great way to cause them. Here's one example:

"Ludwig von Mises argued in a famous 1920 article "Economic Calculation in the Socialist Commonwealth" that the pricing systems in socialist economies were necessarily deficient because if government owned or controlled the means of production, then no rational prices could be obtained for capital goods as they were merely internal transfers of goods in a socialist system and not "objects of exchange," unlike final goods. Therefore, they were unpriced and hence the system would be necessarily inefficient since the central planners would not know how to allocate the available resources efficiently.[1] This led him to declare "...that rational economic activity is impossible in a socialist commonwealth."[1] " -

Why not try learning some economics before condemning it?


Thu, 10/27/2011 - 15:34 | 1818379 Cugel
Cugel's picture

Even more remarkable is that the author who has just discovered scarcity considers it more "humane" to drain off further scarce resources keeping wealth-destroying enterprises afloat. 

I think you can add "absurd and retarded" to the list of inescapable facts of the human condition.

Thu, 10/27/2011 - 12:41 | 1817648 PulauHantu29
PulauHantu29's picture

Come on...recession is over...I heard it on TV today.

Thu, 10/27/2011 - 12:42 | 1817650 Eally Ucked
Eally Ucked's picture

You don't need any austerity programs, you will get it through your pensions funds. They are down and will never recover, but sheeple won't notice it. Next step will be cuts in all promised and contracted benefits programs. Of course all those "true capitalist" will approve it, who the fuck cares about contracts now a days. You signed the contract 20 or 30 years ago for your skills and work, but it is void now because they spent too much for bonuses and moving your industry to China.

Thu, 10/27/2011 - 12:42 | 1817651 LongSoupLine
LongSoupLine's picture

blah, blah, blah...more "common sense" words and charts that do NOTHING to ward off the  greedy and power driven elite whom are making all the self-serving decisions that continue to bury the majority.

Do you know how many times I've written my "representatives" with cut-n-paste "facts" from ZH and my own thoughts and ideas?!?!  The best I've gotten in return is a Dear John form letter.

I'm fucking fed-up with it all...we in the trenches ARE ON OUR OWN!

Thu, 10/27/2011 - 12:44 | 1817659 Archimedes
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Off topic but: god does DRV look attractive at 8.75! Pull the trigger you pussy!

Thu, 10/27/2011 - 12:50 | 1817681 LookingWithAmazement
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The US economy is growing, no recession or collapse. All the doomprophets and their websites can go off the table. Boring world we live in.

Thu, 10/27/2011 - 12:57 | 1817720 LawsofPhysics
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Indeed, and since the booming economy is going to need resources to keep booming, I think you know where to put your money.

Thu, 10/27/2011 - 13:00 | 1817735 SheepDog-One
SheepDog-One's picture

'Economy is growing', no thats fake money printing youre seeing, along with total BS 'GDP' prints.

Thu, 10/27/2011 - 13:07 | 1817759 Dr. Acula
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>The US economy is growing, no recession or collapse.

True. Just like nominal wages have grown in the last 40 years.

I can also make my organ grow, if I redefine the "inch" to be a millimeter.


Thu, 10/27/2011 - 13:16 | 1817811 Vergeltung
Vergeltung's picture

my, my, are you dumb.


Thu, 10/27/2011 - 12:52 | 1817691 GeezerGeek
GeezerGeek's picture

The author says "the ability of Developed Economies to coherently allocate resources" is a problem. By coherently does he imply a cluster of policy wonks getting together in a circle to come up with a plan to allocate resources? I prefer the invisible hand in Smith's Wealth of Nations. I don't like some elitist group telling me what kind of targeted transision process we need.

We do need to transition to a constitutionally limited central government. If government shrinks and stops interfering with the natural course of economic events then TBTF entities will indeed go the way of the dinosaur, as they should. If energy is a problem, let's allow the free market to determine if 'drill, baby, drill' will solve the problem, not some anti-growth ecology-minded bureaucrat. Economically speaking, government is a friction-generating element acting as a brake on the economic engine.

Facetiously: the author states that nearly 7% of the U.S. population lives in the five large counties of southern California. Does anyone have any information about the percentage of the Mexican population living there?

Thu, 10/27/2011 - 13:17 | 1817813 JR
JR's picture

Thanks for the question: I’m looking for the answer.  In the meantime:  2010 U.S. Census results show that “the changes in California and San Diego County closely mirrored those of the nation.” Here are random 2010 U.S. Census statements:

San Diego is home to the 10th-largest Hispanic population, among the most populous counties nationwide. It also had the ninth-highest percentage of Hispanics in the country, among the most populous counties.

1st -- California’s ranking in the number of Hispanic residents. It is tied for second among all states in the percentage of Hispanics in the total population.

46.5%  -- The percentage of Hispanics in the United States  is 50.5 million Hispanics; 46.5% of them in 2010 lived in California or Texas. Those two states were home to half of the Hispanic population in 2000.

Diversity across the U.S. is on the rise.

The greatest increase occurred in the Hispanic population, which accounted for more than half of the country’s population growth in the past decade.

More than 9 million Americans checked multiple race categories on their 2010 census form, up 32 percent from 2000.

“This really is a transformational decade for the nation,” said William H. Frey, a demographer at the Brookings Institution in Washington, D.C. “The 2010 census shows vividly how these new minorities are both leading growth in the nation’s most dynamic regions and stemming decline in others.”

Nationally, Hispanics and Asians were the two fastest-growing demographic groups; both populations soared by about 43 percent from 2000. Hispanics accounted for one in six Americans last year; among those under 18, Hispanics were roughly one in four.

Births and domestic migration drove the Hispanic increase, demographers said. 

Thu, 10/27/2011 - 12:54 | 1817705 razorthin
razorthin's picture

2.5% gdp? 0% chance.  Many suckers taken in today.

Thu, 10/27/2011 - 12:56 | 1817715 csmith
csmith's picture

Simplest and most meaningful relationship in the U.S. economy today:

Diesel: $3.99/gallon

CNG (equivalent energy value) $2.39/gallon


Even with ZERO subsidy, the economics are compelling. The payback is less than 15 months for fleet operators of even moderate size. It will happen.






Thu, 10/27/2011 - 20:23 | 1819271 malek
malek's picture

Unfortunately, there are not many CNG models available any more...

Thu, 10/27/2011 - 12:59 | 1817729 El Viejo
El Viejo's picture

"The connection between needs and actual production is badly broken." 

It started in the early 80's. CEOs looked and found a way around regulation and taxation. Reagan supported this effort with the Self Employment tax. Cheap labor was sought and found in China. All to support Wall St. and stockholders. A quick profit. All the while the private sector was forced into debt and boomer-demographic-less-spending all combined to form the perfect storm of: over production, high personal debt just to maintain status quo, high energy costs, governmental high salaries and benefits and reduced boomer spending as they approach retirement. And to whom does the stimulus go? Why the ones who do not need it. And low rates to further entice more into debt. Amazing! Like it or not Obama was right when he said we will all have to contribute. The Feds have frozen federal salaries for three years. But just try and refi your house. Oh no your not taking from our pension pot. And just try and reduce benies to state government leeches. Oh no your not reducing our salaries or benies. And just try and increase taxes for the rich who do not buy that much anyway and instead put unecessary money into the already overstuffed markets.

Bring production and consumption back into balance or prepare for this to be with us all for a long time.

Thu, 10/27/2011 - 13:03 | 1817744 NEOSERF
NEOSERF's picture

Lot of big words in here but overall I agree.  The structural misallocation of funds by the government (I say mis even though so much of the daily spend is not voluntary) to entitlement programs, maintentance, wars that have not tangibly raised productivity is probably not fixable at this point.  Too many factions to cut anywhere and try to re-allocate say $200b/yr from Medicare towards energy R&D or college education reform.  At this point an increasing % of taxpayer money will end up going to keep grandma warm or to repave a stretch of I-95 which provides no real increase in value to us as a nation.  Velocity of money is not a subsitute for investment in key growth areas. 

Thu, 10/27/2011 - 13:46 | 1817931 sbenard
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Interesting set-up, but this really is just an elaborate sales spiel! Once you click through to Mr. Martenson's website, you must first acquire a "free" username and password to the website. But if you really want the "answers" he proposes, you must PURCHASE a subscription. I don't mind the need to purchase, but it's a bit disingenuous to masquerade a sales letter as an article on ZH, when its nothing but a teaser to buy a product. This isn't an article; it's an ADVERTISEMENT!

Thu, 10/27/2011 - 14:11 | 1818043 daxtonbrown
daxtonbrown's picture

[What the system needs instead is a more targeted transition process, ]

You wouldn't need a transition process if you let a free market eliminate the weak before they got too big to fail. Now you are just putting band aid on band aid on a gangrenous gaping hole.

Good luck with that.

Thu, 10/27/2011 - 14:58 | 1818203 antonwarnung
antonwarnung's picture

The Fed is a complete  joke.  They are so worried about deflation they don't realize they are killing the consumer which will eventually kill whomever is left that they think they are trying to protect.  The reason confidence is down but spending is up is that at some point with the prices of energy we have had and the inflation being shoved down our throats we have to buy things.  Look cars wear out shoes wear out.  The mood is sour and Americans don't feel they have a choice sometimes.  Well they do.  Fix the old car, polish the shoes, boycott all the big corporate stores.  If there is anyone left in your world selling local products buy them.  Give all your old clothes to friends who can use them.  Grow tomatoes in you front yard and give some to your neighbors.  This will be the new reality when this joke a stock market led prosperity evaporates.  It will evaporate because it isn't real.  Make money from it if you can while you can but don't be fooled into thinking it can last and left to holding the bag.  In the mean time take your frustration out by meeting real people and having real experiences.


Thu, 10/27/2011 - 14:55 | 1818204 antonwarnung
antonwarnung's picture

well what are you waiting for?

Thu, 10/27/2011 - 15:34 | 1818377 Gamma735
Gamma735's picture

Hell, in Texas, we are drilling more than 5,000 new oil wells in 2011!

Thu, 10/27/2011 - 16:19 | 1818555 antonwarnung
antonwarnung's picture

Good we need to be.  This will probably be enough to keep production flat even at these prices far above historical averages.  Peak oil believers will be the first to tell you that the earth will never run out of oil.  Most of the easy and cheap oil is no more though.


Thu, 10/27/2011 - 20:22 | 1819268 malek
malek's picture

Yergin wants to have it both ways: He wants us to believe that the market will bear the high prices required to keep supply increasing against the backdrop of mature fields — which are declining by 5% per year — while at the same time asserting that prices will remain low enough to engender continued economic growth. This, we submit, is impossible.

The statement is completely useless without a time frame! 

When will oil prices start seriously inhibiting economic growth, within the next 5 years, or a decade or quarter century??
Do you believe such an estimate to be static, i.e. very unlikely to be pushed out by any kind of adaptation?

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