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America's Financial Mess

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Wotan
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True to his reputation of having no experience, Obama seems to be simply plugging in cabinet members and advisers from the Clinton regime in the hopes that the magical lightning of that prosperous time will strike twice. Of course the premise of deregulation and balanced budgets, has been replaced by more regulation and deficit spending. Super.

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Judge Napolitano, who works for Fox News, wrote an interesting piece saying that the bail outs where unconstitutional. Basically, he says it is unconstitutional for congress to give it power of the national purse to one man or someone other than Congress, and also that giving national money to particular businessman is a violation of the General Welfare clause and the clause that says all laws must apply to everyone equally. Unfortunately, that essay is difficult to bring up, because I guess it is getting too many hits or something. However, here is the link:

http

://foxforum.blogs.foxnews.com/2008/11/..._1125_bailout/

What I find interesting is that some of his arguments can be applied to welfare recipients, though I suppose those for the bail outs or for welfare will say that the general welfare of the US is supported by these actions. It shows one of the faults of the General Welfare clause, as in exactly what does it mean? The Founders were certainly against giving out money to the people in general, but that clause has been distorted just as it has been distorted to give powers of regulations to the government.

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I was able to pull up the previous link at home, and this is Napolitano's argument:

But history will be angry at them and their colleagues for betraying the Constitution. Their attitude underscores the reasons that the Constitution does not repose in the Congress the power to bail out individuals or private industry: Bailouts violate the Equal Protection doctrine because the Congress can’t fairly pick and choose who to bail out and who to let expire; they violate the General Welfare Clause because they benefit only a small group and not the general public; they violate the Due Process Clause because they interfere with contracts already entered into; and they turn the public treasury into a public trough. Worse still, Congress lacks the power to let someone else decide how to spend the peoples’ money.

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What I dont quite understand is how, exactly, the current approach of pumping 1 trillion dollars into banks actually addresses any of the underlying problems. Consumer debt remains unchanged. The glut of houses remains. The 'toxic' mortgages are still out there. The pace of foreclosures continues, thus continuing the downward pressure on property value. Sure, the banks will have more money to lend, but there will be far fewer borrowers. With property having lost 10-20% of its value those who might have qualified for an equity loan six months ago, might not today. Even people who can get a loan to buy a new house may have little interest if they believe they wont be able to sell their current home without taking a bath. And how does an additional loan help those already overburdened with debt?

I guess I just dont see how all of this government spending is going to make a bit of difference.

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That's right, somebody has to pay for this absurd spending spree that the Federal Government has embarked upon. Other than through inflation, the only way to pay the tab will be through higher future taxes which will lead to lower economic growth and a poorer America.

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Jeremy Grantham is a famous investment manager who was bearish about the stock-market boom of the internet days. Then, after it fell and began to rise again, he said he thought it had not fallen as much as was warranted, and called the second part (which ended recently) the "biggest sucker rally" ever. Permanent bear or great forecaster? Here's a recent interview with him. He comments negatively on Ayn Rand during his criticism of Greenspan; but, for anyone interested in this topic, his views are measured and -- given that he manages $100 billion -- well worth listening to.

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It's when the NBER decides we are. No...seriously, that's really the answer.
Well, it's official now. The NBER says we've been in recession since Dec 2007. So, have we been in recession all of this year? That isn't official yet, because it can take them 9 months or so to tell us when they think it ended.
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Well, it's official now. The NBER says we've been in recession since Dec 2007. So, have we been in recession all of this year? That isn't official yet, because it can take them 9 months or so to tell us when they think it ended.

Yep, whenever the magic economists behind the curtain of the "Business Cycle Dating Committee" decide. Here if the official release.

The release seems to be mainly based on some sort of analysis of employment numbers.

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Well the market took a 680 point crap today. This bailout sure is working well so far, isn't it?

Also, it looks like bondholders are getting wise to the screw-job coming their way in the near future:

From the Financial Times: Fears are rising over the ability of governments to raise the vast amounts of debt they need to pay for economic stimulus packages and bank bail-outs.

Faced with the prospect of governments around the world issuing more than €2,000bn ($2,535bn) of bonds in the next year, bankers are warning of potential problems in meeting funding needs.

Even in the US and Germany, which have the most liquid bond markets in the world, there have been some warning signs. In Germany, a bond auction failed in November, something virtually unheard of until this year, while in the US some analysts say yields could start to rise because of about $1,000bn in bonds in the pipeline next year.

http://www.ft.com/cms/s/0/eb690be2-bf0f-11...?nclick_check=1

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Today, Bernanke said the government (wearing its Fed hat) might start buying government bonds. This is a reversal from what they have been doing recently. Up to this point, the government has been pulling money away from other private uses (by selling government bonds), and diverting that money toward "bailouts". This approach was being followed to keep inflation under check. Basically, it was a way of opting for stagnation rather than inflation; diverting money from productive to unproductive uses, rather than creating new money. Today's message signals that the government is now entering the next phase. Obviously, the first phase did not work. In this phase they will start to create new money, via the purchase of government securities that they themselves issued.

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On ABC's Good Morning America show today, they were doing a piece on how much this "crisis" has cost so far. According to ABC (who knows where their figures come from), the government's guarantees and actual expenditures now total more than $8.5 Trillion and that is before Chairman Obama's expected stimulus package is counted. I almost spit out my Cheerios when that jackass Paul Krugman came on and they asked him how much money the government has available to spend on bailouts and related measures. His response was that most countries can borrow up to 100% or more of their annual GDP, so we still have another $10 trillion or so left to spend if we need it. And they gave this guy the Nobel Prize. :dough:

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On ABC's Good Morning America show today, they were doing a piece on how much this "crisis" has cost so far. According to ABC (who knows where their figures come from), the government's guarantees and actual expenditures now total more than $8.5 Trillion and that is before Chairman Obama's expected stimulus package is counted.

Several score cards here: http://feeds.feedburner.com/~r/NewmarksDoo...out-so-far.html

I almost spit out my Cheerios when ...

Man, don't waste good Cheerios that way! :dough:

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In the address, Obama also said he wants to install energy-saving light bulbs and replace old heating systems in federal buildings to cut costs and create jobs.
This was pushed through as a payoff to the Light bulb Installers Union who threw their support behind Obama. If only the Smoke Detector Battery Replacement Union had had such foresight.

School buildings would get an upgrade, too. "Because to help our children compete in a 21st century economy, we need to send them to 21st century schools," Obama said.
Why not build 22nd century schools so our children can be ahead every one else's kids? Hell, why not build 25th century schools so our kids can build phasers, transporters and boldly go where no man has gone before?

But hey, I'll give the guy a chance. After all, this whole public works idea is really fresh and innovative thinking on Obama's part.

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But hey, I'll give the guy a chance. After all, this whole public works idea is really fresh and innovative thinking on Obama's part.

Yeah...I'm surprised no one has thought of that. Maybe if we destroy 5 million more jobs in the private sector we can create 1 million more public sector jobs. Surely that will save us.... If only FDR had that kind of foresight the depression would have lasted half as long.

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Does anyone else here wonder why all these politician--and even worse--business men want or even think that all these bailouts and government intrusion in business will even work? I mean I can see with just a quick glance that not only can none of this ever work, it actually can--and is--making the situation worse by the day. I just don't understand how all these people can come to a different conclusion when all evidence and history say's that it can NOT work. I just don't understand how these people are coming to such idiotic conclusions and then acting on them. It's like the whole world gone insane. Sorry that was my semi-random rant of the day.

First of all, they don't come to conclusions - it's a knee-jerk reaction. Whenever there's a problem, the first thought is the government ought to do something.

Second of all, people don't want to know about what actually caused the problem, or that the solution being proposed is actually more of the same poison that caused the problem it's supposedly going to solve.

The answer they give to that is, it doesn't matter what caused the problem, something has to be done about families and their kids and mortgages.

If people were willing to listen to real economists, we wouldn't be in this mess. But they don't want to listen. They don't want to understand how the market works, they just want everything to be fixed.

But apparently I'm the naive one because I'm saying the answer in a nutshell is that government intervention in the economy caused the mess we're in, and the answer is to get government out of the economy.

Edited by AllMenAreIslands
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Ron Paul has some interesting things to say about the financial mess and the government bail outs. I disagree with his foreign policy, but he is on target regarding the cause of the economic breakdown. And he is one of the few politicians who has come right out and said that the bail outs are immoral on the grounds that it is immoral to take money away from productive people and give it to the unproductive.
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Ron Paul has some interesting things to say about the financial mess and the government bail outs. I disagree with his foreign policy, but he is on target regarding the cause of the economic breakdown. And he is one of the few politicians who has come right out and said that the bail outs are immoral on the grounds that it is immoral to take money away from productive people and give it to the unproductive.

There's a video of him in the House yesterday located here. He does strike out against the morons in the House about the auto bailout.

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There is a Newsweek interview of Yaron Brook, president of the Ayn Rand Institute, under the title Who Is To Blame? Some point to Alan Greenspan. But his hands-off approach to the economy originated with Ayn Rand. With a browser subtitle: Can Ayn Rand Survive the Economic Crisis?

It's as good interview, but I think the interviewer was really taken aback by Yaron's replies -- as in being totally bewildered that anyone would still support free markets.

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It's as good interview, but I think the interviewer was really taken aback by Yaron's replies -- as in being totally bewildered that anyone would still support free markets.

I agree, but I wish they would have left out the introduction, which was snarky ("Of course, things look entirely different to members of 'free-market advocacy groups,' as they like to be called.") and misrepresentative ("One such group is the Ayn Rand Institute, [...] whose antigovernment and anti-regulation views are embodied in her best-selling novels[...].).

They should have just gone straight to the interview transcript.

Oh, and here's a relevant quote: "Speak reason to a fool and he'll call you foolish."

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This is the sort of thing that inevitably happens when the government intervenes in the market and starts to pick winners and losers:

"American International Group is slashing prices to win new business, industry insiders say, raising concerns that taxpayers could again be left to pick up the tab."

In the wake of its federal bailout, which last month swelled to more than $150 billion, industry executives say AIG has been rashly lowering prices, and at a time when market fundamentals show insurance rates need to rise.

“AIG has intensified its effort to increase its market share, or at least preserve it,” said Edmund Kelly, chief executive of Boston-based rival Liberty Mutual.

“I think it’s fair to say they’re doing some very stupid things in the market,” Mr. Kelly told investors on a quarterly conference call last month. “If (AIG units) are not reined in, it could be very destabilizing for the market.”

“Cutting rates at a time when rates should be strengthening is a quick way to going out of business,” AIG’s former chief executive, Maurice “Hank” Greenberg, a frequent critic of the company’s management, told Reuters.

“AIG has the money to do things that it could not do without it,” said Thom Bradshaw, an insurance wholesaler in Monticello, Indiana. “With $150 billion of taxpayer money we could all be more aggressive, but a) it is irresponsible and :) it is unfair” to the rest of the industry, he added.

http://www.financialweek.com/apps/pbcs.dll.../812119989/1036

Now that AIG has government backing, they're able to compete on an uneven playing field. Who could have forseen this? Anybody with half a brain..... but I suppose that rules out the folks in Washington.

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Today, the Fed officially signaled that it is entering a new phase in dealing with the economic downturn. Bernanke had spoken about this recently, and today's statement from the Fed confirms it. The key part is not the short-rate, but this:

The focus ... going forward will be to ... stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. ..., over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant

Up to this point, the Fed has been creating short-term money, but also removing long-term money from the economy to balance things out. Today's announcement is saying that they will stop removing long-term money. Instead, they will increase the amount of long-term money.

In simplified terms, Bernanke is saying: we see falling prices going out at least a few quarters; so, we're going to create money until the market believes we're serious about inflating and about allowing prices to rise.

Former Fed member Poole says he's worried about how the Fed will back off (say) three or four quarters from now. Backing off from inflation, risking another downturn, is always the hard part, politically.

Edited by softwareNerd
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In simplified terms, Bernanke is saying: we see falling prices going out at least a few quarters; so, we're going to create money until the market believes we're serious about inflating and about allowing prices to rise.

The Fed is getting very close to a liquidity trap. Bernanke is going to lower the interest rates to 0%, and markets won't get any better. The Fed is nearly powerless.

I think today's move by the Fed is the confirmation that they are seeing a fast approaching liquidity trap. This is exactly what Bernanke's been trying to avoid. He is known for the speech a few years ago that blasts 90's Japan for letting deflation take hold, in which he advocated printing money to combat deflation.

I guess today is the confirmation of the "helicopter drop" phase (to use Friedman's term).

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