Posted on 02/28/2010 8:28:40 PM PST by Frantzie
Barack Obama's home state of Illinois is near the point of fiscal disintegration. "The state is in utter crisis," said Representative Suzie Bassi. "We are next to bankruptcy. We have a $13bn hole in a $28bn budget."
(Excerpt) Read more at telegraph.co.uk ...
The main reason I am posting it is how Obama's corrupt state (IL) and a model for all of us and beyond broke.
Please go wobbly now, Ben!
Wobbly ping....
so the only way to save America's economy is to steal money out of everyone's savings accounts? great.
Cash is king?
yitbos
Wait til they figure out you've got a 401k.
You don't really intend to use that money, do you? We'll just take it, and leave an IOU in there. We'll even call it a lockbox.
They have their eye on that right now. Argentina did it last year.
“If the governments of America, Europe, and Japan are to retrench – as they must – their central banks must stay super-loose to cushion the blow. Otherwise we will all sink into deflationary quicksand. “
Ambrose is right on. Of course, if the deflation continues, it will kill the DEMS in November, so they are the ones who should be alarmed.
QE is not “shoveling money into the abyss”. M3 has fallen at 5.6% ... he is talking about the money supply tightening.
Can any of you confirm this? I'm still a rookie (or below).
Cheers!
The Americans are giving up on Keynes, China and Europe. They are preparing to tough it out, they have the fundamental resources to do so and it is within their national psyche.
Perhaps they are calculating that playing nice in the world economy to (possibly) save it and paying the price of losing sole super-power status isn't worth it.
This will be very tough on the rest of the world. Trillions spent by inept national governments trying to prevent the tip into deflation will be utterly wasted as deflation is imported anyway via the wired-up Global Economy
and
I think you might be hinting at the answer to a question I have been asking for a while : is there something worse than a depression?
After spending the last 6 months researching this issue, the only people that make sense are the Austrian economists. Von Mises, Hayek, Rothbard and others. The world is deleveraging, there is nothing Ben etal and the CBs of the world can do to stop it. The only question is how bad it all gets before we can start putting it back together.
sschu
It will take years for the consumer in America to come back. The consumer in China doesn’t need us.
Agreed. Govt screwing with free market and causing moral hazard caused this. Giving loans and mortgages to ACORN illiterates and illegal aliens. If the banks said no then Uncle sam would sue them and bankers could go to jail. Govt intervening will only make it worse.
It is really about them stealing as much as they can for their friends so they are on the top of the pile and we are begging for crumbs.
As long as the Dems and Hussein are there - there will be NO recovery.
this is truly an extraordinary article, great find. Because of the issues AEP brings up. But more so because most US observers are not considering the possibility that Bernanke plans to deliberately put the U.S. through a deflation, due to no other alternative. And is willing to face the repurcussions and consequences.
If Pelosi ever understood this, she would blow a gasket (fall elections). More bank failures, more layoffs, strong dollar.
I agree -- and look at the following from the comments to the article:
t will be more terrible than even the most pessimistic believe. Just think through "Bank Failure" in our fatted, self indulgent, 'it's my right', society. Orderly soup queues? Ha!
The inevitable end of the horror of the welfare state will be horror in the extreme; it will not die an easy death with so many sucking at its withered, leathery teat. But die it must.
At least we may see bankers & financiers heads on spikes as in days of yore; light relief amongst the gloom.
Speaking of heads on spikes, though, I personally would include lawyers, and those "free traitors" who told us that offshoring all of our manufacturing to low-cost locales "produced 1.4 new jobs here for each one offshored." I see no empirical evidence of this; in fact, I seethe opposite, as hordes of Asians are brought here to do engineering and IT jobs, and the few remaining financial and R&D jobs are sent elsewhere to follow the physical plant.
Jack Welch and his cadre of MBA vermin should be (to paraphrase humor columnist Dave Barry) "hung, shot stabbed, drawn and quarted, disemboweled, burned at the stake and then REALLY hurt" for all of this.
Cheers!
This is the point of contention, the Keynesian's who think we can borrow and spend our way out versus the Austrians who say that deleveraging/deflation is inevitable, get out of the way and let the market clear.
It looks like Von Mises is correct right now, he has history and math on his side. Time will tell.
schu
article talks about the money supply M3 is shrinking. QE is being reversed. QE is not borrowing and spending.
“Quantitative Easing: This involves increasing the money supply by printing more money. It often involves buying government bonds to reduce long term interest rates and encourage private banks to lend more.
Quantitative easing was introduce in Japan in 2001 to try and overcome their deflationary recession. Quantitative easing is often suggested as a solution to a liquidity trap. If short term rates have been cut to 0%, then short term rates cannot fall any more. Therefore, if deflation is still a problem, one solution is to try and increase the money supply and get out of the deflationary cycle.
Some economists argue that quantitative easing can work in cases of deflationary trap. In particular, it is important to change inflationary expectations from deflation to positive inflation”
http://www.economicshelp.org/blog/economics/quantitative-easing/
Deflation is horribly destructive. It rewards people for hoarding money, punishes investing.
Yes it is and this is why the banksters are so intent on trying to prevent it. That said, there is little proof that government/CB induced inflation will ultimately prevent the deleveraging/deflationary cycle that ensues from easy money policies. Eventually you need to pay these debts, or default.
FDR tried to inflate during 1933/1934 by printing/spending money, changing the gold exchange rate and making holding gold illegal. It just made things worse.
Have we reached the precipice? Not sure, maybe we can pull a rabbit out of the hat once again. At some point the ability to service the debt from your income or earnings stream is no longer possible. Those that start early can deleverage and prevent default/bankruptcy, that is occurring now. Those that think they can beat the game will just delay the inevitable.
Lookup Von Mises Institute, read those guys because it is truly prophetic. Deleverage debt/deflation will happen, it is a function of a fiat currency/fractional reserve system with a healthy dose of human greed. If not this time, next time.
schu
The reality is we are in a deflation, but it consists in the Fed's balance sheet (narrowest "high powered" money), the broader money measures like MZM, and total debt outstanding, all growing very slightly, much slower than their usual rates. But there is no overall money supply contraction, Ambrose-P's hysteria notwithstanding.
Specifically, the Fed's balance sheet is 2% higher now than in November of 2008, at the end of its immediate emergency program to increase narrow money in response to the crash - which is did, to the tune of $1.1 trillion. That was necessary to hold the overall effective money supply and price level stable. Understand, the commercial paper market has contracted by about $1 trillion over the same period. Basically, the Fed let people out of money fund investments in short term loans to corporations, into bank account cash, in the smash itself.
Broad money is up 1.8% year on year. Total debt growth in 2009 was 2.8% for the calendar year. Understand, a normal growth rate in both would be about 7%. Normally, the nominal economy (real growth plus modest price inflation) are running about that fast.
So we have less than normal money growth, as everyone except the US treasury tries to reduce their outstanding debts and their credit risks in particular (loans to riskiest counterparties). The US treasury is borrowing a lot, net, that is the deficit. But banks are paying off debt, net, and so are corporations as a whole. Private households are not taking on additional mortgage debt as they usually do, and other consumer credit is declining slightly (a few percent a year) instead of rising in line with income, as it usually does.
It is a gradual, not life threatening, deflation. That isn't dramatic enough for yellow journalism, however. So 90% of the world screams there is hyperinflation right around the corner - stupidly - and a few scream that there is great depression deflation - hysterically. The latter are marginally less wrong than the former, best one can say.
Interest rates will remain low, there is no inflation and no prospect of any, economic growth has already resumed and it going to remain quite strong. All of it just moves much more slowly than the news cycle and is much less dramatic than end of the world prophesies of doom require. So bored idiots make things up to sell papers, or for political talking point spin.
Hardly. The economy recovered very strongly through 1937 as a result of the devaluation and the increase in effective money supply that allowed. The US gained epic quantities of gold in foreign trade at the lower price for the dollar. In 1937, the government prematurely tightened, both the treasury and Fed, and in far too draconian a manner, because they were worried that "excess reserves" in the banking system and the modest budget deficit were *inflationary*. This caused a second recession before we'd climbed out of the first, and with unemployment still high (though half the 1933 peaks).
The final recovery of the economy that actually eliminated unemployment came in WW II, when the government ran budget deficits of 40% of GDP for several years. Eventually that resulted in a doubling of the price level by the end of the Korean war, as the extra money and government debt created during the war was unleashed into consumer demand.
Without the slightest credit collapse.
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