BOOM! There goes the market!

[Lust4xxxLife]

Originally Posted by cookie man

Well I hope our elected officials catch pure hell when they come back to work. They won't be up against such an 11th hour deal and should have time to come up with a viable compromise. Otherwise off with their heads...lol.

This could be a defining moment for Obama to prove that he is a leader. He could salvage his re-election hopes by getting involved with both parties and make tough decisions. The politicians are worried about getting re-elected. Their chances will improve greatly if they put the American people's best interest above their stubbornness. I think the American people will appreciate compromise over ideology.

Cookie Man, we agree 100% on this. In fact, I'm mad as hell that our elected representatives aren't in the office working these problems until they're fixed. Any well-run company facing the same kinds of challenges our government faces would have cancelled vacations and kept the leadership team working on getting the company out of the ditch.

I hope that the ranks of both parties get gutted in the coming election. I'd even like to see Obama step down and be replaced with someone far tougher, but certainly not by any of the visible Republican candidates (or visible Democrats).

[Texas Contrarian]

Originally Posted by Lust4xxxLife

Anyone else feeling more optimistic than me? I could sure use some cheering up.

Sorry, but no.

My belief is that we are in far more trouble than most people realize. I think today's blowoff has not so much to do with the S&P downgrade per se, but rather with the fact that it's beginning to settle in on people's consciousness that the current collection of political grandstanders in charge of our government asylum have no intention of doing anything about the crux of the problem.

Originally Posted by Lust4xxxLife

At the same time, Panetta is saying we should raise taxes to avoid cuts to the military. WTF? What a moron. We should cut the military in half and retool it for modern challenges, in my opinion.

Wow, Lust4xxxLife! That's perhaps the most aggressive proposal I've heard, even going beyond Barney Frank and Ron Paul territory.

However...I'm not sure I disagree.

I have a good friend from my boyhood days who's a retired Navy Admiral. Like me, he's pretty conservative (in a libertarian way) and a strong believer in robust national defense. But he says the amount of waste, largely on systems designed to fight potential enemies such as the defunct Soviet Union, is simply unbelievable. And why do we have tens of thousands of troops still in places like South Korea and Western Europe? South Korea is a wealthy nation now; it can afford to pay for its defense. And the Russians aren't very likely to start rolling tanks across the European plain, as far as I can tell.

Originally Posted by cookie man

Obama's stimulus plan showed little results for the amounts we put in.

Originally Posted by TexTushHog

First, the stimulus was what kept us from having a second depression. Second, it was poorly designed in a foolish effort to attract Republican support. Therefore much of it was wasted on unproductive tax cuts. Had it been all stimulus instead of tax giveaways, and had it been about 50% larger as the data suggested it needed to be, we might well be out of the woods now.

Sorry TushHog, but Cookie Man is exactly right. The notion that the "stimulus" kept us from having a second Great Depression is simply ludicrous. It wasn't even designed to be an economic stimulus; hacks in congress simply rewarded favored constituencies. Just break it down into its component parts and take a reasoned look at it and you'll see what I mean.

And arguments intended to undergird support for the stimulus package rest on thoroughly discredited economic doctrine. Big increases in government spending act as economic retardants, not stimulants. History is quite clear on that. We will be paying for this (along with all the other economic malfeasance of the last ten years) for a long time to come.

About the best face you can put on the squadered $860 billion "stimulus" package of 2009 is that it probably made the economy a little less bad in 2009 than it otherwise would have been, since you can't toss around that much money, no matter how wastefully or ineffectively you do it, without doing a little good somewhere. But at what cost?

One more note for students of economics: It's really inappropriate to refer to this as "Keynesianism." In fact, it should be considered a bald-faced affront to John Maynard Keynes, who never recommended adding massive new levels of deficit spending on top of already-large structural budget deficits. Remember, when he did his work in the 1930s, advanced economies generally ran budgets that were in near-balance or even surplus in good times, so that a little "countercyclical kick" wouldn't get you very far out of balance. That clearly is not the case today, and that's why the stimulus package is a large net negative for the U.S. economy.

You can't cure the aftermath of the bust following a debt-fueled consumption boom by injecting more of the same bad medicine that got you there in the first place. That's essentially what we've been trying to do. It will not work and it cannot work.

The problem is that getting anywhere near balance is going to be a very, very painful process. There isn't the slightest chance that we'll cut spending by more than token amounts in little places here and there. The political process just will not allow it. We've made political promises we cannot afford to keep without huge tax increases that will slow the economy for years to come.

In my opinion, we already had structural budget deficits in at least the $500 billion range by 2007. The only reason the headline number was smaller than that was that tax revenue to the Treasury received a big boost for several years as a result of the debt-fueled consumption boom of the '00s (including the housing bubble). Since then we've added hundreds of billions of new annual spending, some of it on autopilot (Medicare, etc.) but much of it dues to gross fiscal recklessness.

In my view, all of this means that serious economic difficulties are already baked into the pie. If we don't narrow the deficits, we'll see crises that will make the panic of 2008 look like a pleasant 4th of July family picnic by comparison. Narrowing the deficits with tax increases would suck about a trillion bucks a year out of our consumer-driven economy.

This only touches the surface and covers an issue or two, while there are so many things structurally wrong.

But I'll wrap this up with one simple thought:

We need less debt-fueled consumption and more savings, investment, production, and exports.

If we don't make some pretty good progress toward getting there, we'll never fully recover.

[TexTushHog]

Originally Posted by mansfield

They are all equally to blame, and so are we for putting them in office year after year.

Horseshit!! I have never bought this "equally to blame" stuff. They're not equally to blame.

Obama worked is ass off -- foolishly, I would argue -- to get the Republicans to agree to raise revenue in a relatively painless manner. They refused to even consider it, and they will refuse again.

The Democrats should not cut anything from Social Security, Medicare, or Medicaid until the Republicans are willing to come to the table and negotiate in good faith. It's going to take more tax money and budget cuts both. One party is willing to consider both. One is not. How the hell does that make it "everybody's fault"?

Originally Posted by CaptainMidnight

Sorry TushHog, but Cookie Man is exactly right. The notion that the "stimulus" kept us from having a second Great Depression is simply ludicrous. It wasn't even designed to be an economic stimulus; hacks in congress simply rewarded favored constituencies. Just break it down into its component parts and take a reasoned look at it and you'll see what I mean.

And arguments intended to undergird support for the stimulus package rest on thoroughly discredited economic doctrine. Big increases in government spending act as economic retardants, not stimulants. History is quite clear on that. We will be paying for this (along with all the other economic malfeasance of the last ten years) for a long time to come.

About the best face you can put on the squadered $860 billion "stimulus" package of 2009 is that it probably made the economy a little less bad in 2009 than it otherwise would have been, since you can't toss around that much money, no matter how wastefully or ineffectively you do it, without doing a little good somewhere. But at what cost?

One more note for students of economics: It's really inappropriate to refer to this as "Keynesianism." In fact, it should be considered a bald-faced affront to John Maynard Keynes, who never recommended adding massive new levels of deficit spending on top of already-large structural budget deficits. Remember, when he did his work in the 1930s, advanced economies generally ran budgets that were in near-balance or even surplus in good times, so that a little "countercyclical kick" wouldn't get you very far out of balance. That clearly is not the case today, and that's why the stimulus package is a large net negative for the U.S. economy.

You are partially correct, but mostly wrong in this reply. I will grant you that the stimulus was very ill designed. The worst part was that over half of it was tax cuts, not direct spending. Those are far less effective in stimulating the economy. But the spending that did occur with the program was reasonably well designed, but way too small to replace the decline in aggregate demand that the liquidity trap caused.

As for whether the stimulus was not really Keynesian, there is a kernel of truth in what you say, but little more. You are correct that Keynes did not directly address the issue of what to do if your predecessor needlessly ran up huge deficits by waging two wars and a perception drug benefit with no means of paying for them, and then poured gasoline on the fire by passing two irresponsible tax cuts on top of that. But he would have doubtless still maintained that the only way to get out of a liquidity trap when interest rates are at the zero bound is to provide additional fiscal stimulus to make up for the lost aggregate demand.

The fact that you would have to do this on top of an unfortunately large existing debt would only underscore the need for subsequent fiscal austerity once your are beyond the liquidity trap. Otherwise, you are just stuck in the liquidity trap.

Indeed, the effort to prematurely end the stimulus and now actually cut government spending will send us toward further recession, if not depression, just as the same type of reduction in stimulus did with the Roosevelt Recession in 1937.

[Little Stevie]

Oh Jesus, there are some dumb fucks spouting economic theory and revisionist history on this site (above poster and a few others excepted).

Wanna know TWO WORDS that precipitated THIS market collapse?

Tea Terrorists - it was the second biggest point drop in market history and only BARELY bigger than the drop after the market re-opened four business days after the 9-11 attacks.

Way to go Tea Terrorists!

[Texas Contrarian]

Originally Posted by TexTushHog

You are partially correct, but mostly wrong in this reply.

If you're going to claim that my statement you quoted was "mostly wrong", I'm going to challenge you to back it up. All you offered was incoherent babble indicating that you have little understanding of the issue.

To wit:

Originally Posted by TexTushHog

I will grant you that the stimulus was very ill designed. The worst part was that over half of it was tax cuts, not direct spending. Those are far less effective in stimulating the economy. But the spending that did occur with the program was reasonably well designed, but way too small to replace the decline in aggregate demand that the liquidity trap caused.

Firstly, about one-third of the stimulus was tax cuts, not "over half." And they were for the most part not the sort of tax cuts that can in certain instances provide incentives to invest or produce. Essentially, they were a collection of refundable tax credits and other giveaways to lower-income households similar to the $150 billion plan George W. Bush and Pelosi's congress implemented in spring of 2008 (which also did little to boost the economy).

The statement that the spending was "reasonably well-designed" is just laughable. Much of it was simply sent to states with no accountability so that they could punt on making any effort toward reigning in their own irresonsible decisions.

Another large portion was spent on wasteful pork projects in congressional districts all over the country. The sad part is that we really do need to develop new infrastructure and maintain existing infrastructure. The "stimulus package" did very little of that and left us in a position where there simply aren't the resources to do some things we really need to do.

The money was simply squandered on political payoffs.

The notion that the stimulus was "way too small" to fill the output gap, and that you can effectively do so with massive government spending, is similarly ludicrous. About the only people who seem to think that works are left-wing loons like Paul Krugman. Look at what's been going on in Japan for 20 years. They've tripled their debt/GDP ratio to a level of about 2.2, and their economy has been mired in stagnation all the while.

Originally Posted by TexTushHog

As for whether the stimulus was not really Keynesian, there is a kernel of truth in what you say, but little more. You are correct that Keynes did not directly address the issue of what to do if your predecessor needlessly ran up huge deficits by waging two wars and a perception drug benefit with no means of paying for them, and then poured gasoline on the fire by passing two irresponsible tax cuts on top of that. But he would have doubtless still maintained that the only way to get out of a liquidity trap when interest rates are at the zero bound is to provide additional fiscal stimulus to make up for the lost aggregate demand.

A kernel, but little more?

Please.

Toward the end of World War II, many economists were worried that a number of countries, including the U.S., would sink back into depression once wartime spending was withdrawn. (Yes, I know, that sounds ridiculous but that's what a number of people thought at the time.) Keynes argued that we could simply not afford to sustain high budget deficits on top of those run up during the war. So how can we afford to do that now?

Originally Posted by TexTushHog

Indeed, the effort to prematurely end the stimulus and now actually cut government spending will send us toward further recession, if not depression, just as the same type of reduction in stimulus did with the Roosevelt Recession in 1937.

Withdrawal of government spending is not what caused the 1937-38 downturn. It was caused by several other factors. Monetary policy was dramatically tightened in 1936 with a large increase in bank reserve requirements. Laws forcing compulsory unionization were passed in the mid-1930s and as a "partial sweetener", some companies were allowed to engage in price collusion. Therefore, wages and prices were artificially increased at a time when recovery was far from insured. Additionally, big tax increases on high-income earners and undistributed corporate profits were implemented. Not only that, Roosevelt decided to engage in a rhetorical war on business at about that time. It should therefore come as a surprise to no one that a lot of capital decided to go on an extended vacation.

But I think the biggest problem of all is that attempts to "stimulate" an economy with big fiscal packages work far less well than their proponents claim, and generally are a net negative for the economy. In a feeble attempt to defend the failed stimulus package, Mark Zandi did a piece of analysis where he claimed that giving away food stamps, unemployment insurance checks, or other transfer payments produced a fiscal multplier of about 1.7. If that really worked in the real world, don't you think the sheer wonderfulness of the idea would be self-evident, and that the economy would be much better off today?

The ECB recently commissed a robustness analysis of some of the macro models relied upon by several European finance ministers. They determined that the multpliers produced by social spending are nowhere near the levels Zandi and others claim, and depending on other variables tend to be around 0.5. And remember, these are folks who try to do everything thay can to justify increased social spending, or at the very least not find reasons to oppose it.

In other words, the whole idea doesn't work.

It's simply a fairy tale.

Increases in government spending retard prospects for economic growth, they do not stimulate them.

[mansfield]

Tea Terrorists - it was the second biggest point drop in market history and only BARELY bigger than the drop after the market re-opened four business days after the 9-11 attacks.

Way to go Tea Terrorists!

Just want to make sure I understand this from you guys. The smallest political party, which is barely even a party, with only one elected member in Congress, is responsible for the biggest stock market crash and economic trouble in long term memory?

The Republicans and Democrats who have been running things for the past 5 decades didn't do anything, they were just victims of Michelle Bachman's evil mind control?

I want some of what you are smoking.

[maxim_232]

Originally Posted by CaptainMidnight

Withdrawal of government spending is not what caused the 1937-38 downturn. It was caused by several other factors. Monetary policy was dramatically tightened in 1936 with a large increase in bank reserve requirements. Laws forcing compulsory unionization were passed in the mid-1930s and as a "partial sweetener", some companies were allowed to engage in price collusion. Therefore, wages and prices were artificially increased at a time when recovery was far from insured. Additionally, big tax increases on high-income earners and undistributed corporate profits were implemented. Not only that, Roosevelt decided to engage in a rhetorical war on business at about that time. It should therefore come as a surprise to no one that a lot of capital decided to go on an extended vacation.

So seriously, you're blaming the Great Depression on unions, wages and taxing the rich? Are you completely ignoring the tariff wars that basically ended demand for US exports? Which, at the time, were a huge percentage of GDP.

[Texas Contrarian]

Originally Posted by maxim_232

So seriously, you're blaming the Great Depression on unions, wages and taxing the rich? Are you completely ignoring the tariff wars that basically ended demand for US exports? Which, at the time, were a huge percentage of GDP.

The Great Depression can be blamed on many things, but the ones I listed were mainly responsible for the 2nd downturn of the decade (1937-38.) The quote snippet you posted was only intended to address TexTushHog's erroneous post.

Smoot-Hawley (1930) was in my opinion a major factor in exacerbating the severity of the steep initial downturn at the beginning of the 1930s.

Additionally, Herbert Hoover signed a big tax increase, raising the top bracket rate from 25% to 63% and at the same time oversaw about a 50% increase in government spending between 1930 and 1933. Concurrently, the money supply contracted by about one-third. This mix was a surefire recipe for economic depression.

[cookie man]

Originally Posted by Little Stevie

Oh Jesus, there are some dumb fucks spouting economic theory and revisionist history on this site (above poster and a few others excepted).

Wanna know TWO WORDS that precipitated THIS market collapse?

Tea Terrorists - it was the second biggest point drop in market history and only BARELY bigger than the drop after the market re-opened four business days after the 9-11 attacks.

Way to go Tea Terrorists!

Stevie I think the memo for left dems said to lighten up a bit and call it a "Teaparty Downgrade".

"Dumb Fucks"...Stevie really? How about "I respectfully disagree". And don't say "I respectfully disagree with the dumb fucks".

There's a lot of money out there worldwide waiting for their governments to get their houses in order. Once they show they have a resonable debt plan, then order will slowly be restored and people will have confidence to put their money back into the system.

One thing history has shown us however is that greed and corruption on Wall Street will rear it's ugly head once the trust has been restored.

CaptainMidnight I wish you were more optimistic...but you're propably right.

[Texas Contrarian]

Originally Posted by cookie man

CaptainMidnight I wish you were more optimistic...

I wish I were too, cookie man. However, I just don't see any cause for optimism, at least in the short to intermediate term.

But I am optimistic about the long term! After we fail badly enough, we tend to find a way to eventually get the policy mix pointed in a more favorable direction. It's just going to require some real leadership. I don't see where that could possibly come from at this point, but I do believe some good people will eventually step up. That may seem like dreamy wishful thinking at this point, but I'm convinced it'll happen. After all, there's still some real talent residing in our nation! That's never changed.

Originally Posted by cookie man

"Dumb Fucks"...Stevie really? How about "I respectfully disagree". And don't say "I respectfully disagree with the dumb fucks".

Don't worry about Little Stevie; that's just the way he acts. Take a look at the thread he started today in the national sandbox:

http://www.eccie.net/showthread.php?t=271593

He routinely calls anyone with whom he disagrees a "moron" or an "idiot."

TexTushHog also has a history of hurling personal insults. In a discussion last year on tax policy in the "Diamonds and Tuxedos" forum, he posted that I was "mired in ignorance." When I then demonstrated that he had made a claim which was factually wrong, not just something involving a difference of opinion, he reacted badly and attacked me with a few condescending posts. (It must be a little embarrassing to throw a boomerang only to see it return and smack you in the face!)

Shortly thereafter, in another thread involving economic policy, he found that the debate wasn't going well for him after I pointed out that an article to which he linked simply did not bolster the point he was trying to make; in fact, it partially countered it. Apparently having run out of ability to craft a reasoned argument, he then lashed out by claiming that one of his favorite left-wing economists (Joe Stiglitz) was "far brighter" than I.

(How he is able to measure someone's IQ from a few internet posts still remains a mystery!)

So if it appeared to anyone that I took up a somewhat strident tone when replying to Tush Hog's earlier post, that's why. There's a history there.

I enjoy a spirited debate with those of differing points of view, but I prefer that they check the cheap insults at the door. Hopefully, those with a clear history of obnoxious behavior will do so for the remainder of this thread.

[TexTushHog]

Originally Posted by CaptainMidnight

If you're going to claim that my statement you quoted was "mostly wrong", I'm going to challenge you to back it up. All you offered was incoherent babble indicating that you have little understanding of the issue.

To wit:



Firstly, about one-third of the stimulus was tax cuts, not "over half." And they were for the most part not the sort of tax cuts that can in certain instances provide incentives to invest or produce. Essentially, they were a collection of refundable tax credits and other giveaways to lower-income households similar to the $150 billion plan George W. Bush and Pelosi's congress implemented in spring of 2008 (which also did little to boost the economy).

The statement that the spending was "reasonably well-designed" is just laughable. Much of it was simply sent to states with no accountability so that they could punt on making any effort toward reigning in their own irresonsible decisions.

Another large portion was spent on wasteful pork projects in congressional districts all over the country. The sad part is that we really do need to develop new infrastructure and maintain existing infrastructure. The "stimulus package" did very little of that and left us in a position where there simply aren't the resources to do some things we really need to do.

The money was simply squandered on political payoffs.

The notion that the stimulus was "way too small" to fill the output gap, and that you can effectively do so with massive government spending, is similarly ludicrous. About the only people who seem to think that works are left-wing loons like Paul Krugman. Look at what's been going on in Japan for 20 years. They've tripled their debt/GDP ratio to a level of about 2.2, and their economy has been mired in stagnation all the while.



A kernel, but little more?

Please.

Toward the end of World War II, many economists were worried that a number of countries, including the U.S., would sink back into depression once wartime spending was withdrawn. (Yes, I know, that sounds ridiculous but that's what a number of people thought at the time.) Keynes argued that we could simply not afford to sustain high budget deficits on top of those run up during the war. So how can we afford to do that now?



Withdrawal of government spending is not what caused the 1937-38 downturn. It was caused by several other factors. Monetary policy was dramatically tightened in 1936 with a large increase in bank reserve requirements. Laws forcing compulsory unionization were passed in the mid-1930s and as a "partial sweetener", some companies were allowed to engage in price collusion. Therefore, wages and prices were artificially increased at a time when recovery was far from insured. Additionally, big tax increases on high-income earners and undistributed corporate profits were implemented. Not only that, Roosevelt decided to engage in a rhetorical war on business at about that time. It should therefore come as a surprise to no one that a lot of capital decided to go on an extended vacation.

But I think the biggest problem of all is that attempts to "stimulate" an economy with big fiscal packages work far less well than their proponents claim, and generally are a net negative for the economy. In a feeble attempt to defend the failed stimulus package, Mark Zandi did a piece of analysis where he claimed that giving away food stamps, unemployment insurance checks, or other transfer payments produced a fiscal multplier of about 1.7. If that really worked in the real world, don't you think the sheer wonderfulness of the idea would be self-evident, and that the economy would be much better off today?

The ECB recently commissed a robustness analysis of some of the macro models relied upon by several European finance ministers. They determined that the multpliers produced by social spending are nowhere near the levels Zandi and others claim, and depending on other variables tend to be around 0.5. And remember, these are folks who try to do everything thay can to justify increased social spending, or at the very least not find reasons to oppose it.

In other words, the whole idea doesn't work.

It's simply a fairy tale.

Increases in government spending retard prospects for economic growth, they do not stimulate them.

I'll take J.M. Keynes, Joe Stiglitz, and Paul Krugman over your revisionism any day of the week.

[TexTushHog]

Originally Posted by CaptainMidnight

The Great Depression can be blamed on many things, but the ones I listed were mainly responsible for the 2nd downturn of the decade (1937-38.) The quote snippet you posted was only intended to address TexTushHog's erroneous post.

Smoot-Hawley (1930) was in my opinion a major factor in exacerbating the severity of the steep initial downturn at the beginning of the 1930s.

Additionally, Herbert Hoover signed a big tax increase, raising the top bracket rate from 25% to 63% and at the same time oversaw about a 50% increase in government spending between 1930 and 1933. Concurrently, the money supply contracted by about one-third. This mix was a surefire recipe for economic depression.

Nothing to do with aggregate demand and liquidity traps, right? Jesus, let's hope you don't teach economics anywhere.

[Boltfan]

Nice comeback TTH.

Does that work with the judges as well, disparaging the opponent's representation?

The plantiff is a poo-poo head your honor!

[TexTushHog]

The only thing I agree with Captain Midnight on is that I'm not optimistic. There is no consensus within the American people on values. There is no consensus among the people or our leaders on what the real problem is. There isn't even a concensus on basic economic facts if you listen to the wing nuts. Just like they want to invent their own facts, they want to ignore things in economics that have been settled for almost a century.

They're like flat earthers. They deny the obvious and claim that up is down and down is up. And as the the TeaNuts have clearly shown, they will place their ideological agenda above the good of the country. And frankly, I think that they are so unmoored from reality that they a not insubstantal portion of them actually think they're right, at least at the grass roots level. (I suspect that most of their elected leaders in DC are just cynical manipulators who know that they are wrong, but want to sacrifice the Social Security and Medicare system to guarantee tax breaks for rich folks like me.)

And the saddest part is that the media has absolutely abdicated any responsibility to call balls and strikes. They just report each sides talking points and ignore reality. They deem it "too complicated", "too controversial" or just don't give a shit because it doesn't generate ratings like two babbling incoherent talking heads spewing venom and talking points.

And when the crisis gets worse, and it will get worse eventually -- probably in a three to six year time frame -- a deep crisis won't change anything. Crisis is what the Republicans want. They want to use it to completely reshape American society into their image of an even more wealth dominated society where the poor are treated more like animals than they already are. And the people are so ill-educated and ill-informed, they have no idea what to do.

I think we'll have a Second Depression greater than the first before this problem will be solved. It will take a crisis of that magnitude for the people to eventually throw the money changers out of the temple. Even they even wake up then.

[TexTushHog]

Originally Posted by Boltfan

Nice comeback TTH.

Does that work with the judges as well, disparaging the opponent's representation?

The plantiff is a poo-poo head your honor!

I've lost four lawsuits in thirty years. And I'm strongly considering retiring abroad in the next year or two.

You tell me if it works.

If he says the earth if flat, I'm going to call him an idiot.