Economy is set on idle: Nation's use of capacity is nearing a modern low

Milwaukee Journal-Sentinel ^ | June 28, 2003 | JOHN SCHMID

[evaporation-plus]

The ultimate question is, will the socialist democrats have the opportunity to ruin this nation?

Not for nothin, but the socialist Republicans seem to be taking us down the same road.......

[Jhoffa_]

Would Dean win as presidential candidate?

There's absolutely NO WAY.

His idea of a pressing political issue, on the minds of all Americans, is honoring gay marriages from Canada.

He's a fruit loop who will be back to peddling colidal silver by November of next year.

[arete]

Tight money sure didn't lead to the Great Depression. Tight money lead to a collapse of the highly margined stock market, but had nothing to do with the deflationary depression. Easy money and bubble economics creates a subsequent depression. It was the "roaring twenties".

"Observe that economic depressions are not caused by the collapse in the money stock (as suggested by Milton Friedman), but come in response to a shrinking pool of real funding on account of previous of loose money. Consequently, even if the central bank were to be successful in preventing the fall of the money stock, this would not be able to prevent a depression if the pool of real funding is declining. Also, even if loose monetary polices were to succeed in lifting prices and inflationary expectations (as suggested by Paul Krugman), this would not revive the economy as long as real funding is declining."

"Again, note that contrary to popular thinking, depressions are not caused by tight monetary policies, but are rather the result of previous loose monetary policies. On the contrary, a tighter monetary stance arrests the depletion of the pool of real funding and thereby lays the foundations for economic recovery. Furthermore, the tighter stance reveals the damage that was done to the capital structure by previous monetary policies."

Does a Falling Money Stock Cause Economic Depression?

Richard W.

[snopercod]

The "Help-wanted index" hit a forty-year low last month, too. Previous low was 1960.

Just trying to cheer everybody up...

[snopercod]

There is an option you didn't consider: Lower the capacity of industry.

Coats-America, the last factory in my County in Western North Carolina is now boxing up all their machines and sending them to Mexico. The other two plants closed down earlier this year.

If enough businesspeople got rid of their means of production, it would help the "capacity-factor" statistic, no?

[sarcasm]

Coats-America, the last factory in my County in Western North Carolina is now boxing up all their machines and sending them to Mexico

Do they count as exports?

[TexasCowboy]

"Energy prices are at the center of my list."

They're at the top of my list.

GW is playing a complicated political game.
We went into Iraq to secure the second largest oil reserve in the world because we need the oil for our economic recovery. We will reap the benefits instead of the French, Germans and Russians.
As long as oil is $30/bbl our economy will remain stagnated.

GW will do it the same way that Ronald Reagan did it.
The tax cuts are cosmetic. The real answer is dropping the price of energy.
Ronald Reagan did it in 1985 when he convinced the Saudis to open the taps and lower the price of oil to $11./bb, and he destroyed the "Evil Empire" in the process.
Saudi doesn't have the power it did in 1985. OPEC will never allow the price of oil to get that low again; therefore, we had to have another source of plentiful oil - Iraq.
We're sitting on it, and we will produce it as fast as possible.

At the same time GW realizes that the economy may not turn around in time to assure him the election in 2004; hence, the pandering to the Hispanic vote and the acceptance of hundreds of thousands of illegals who are flooding this country.
In doing so he has the side benefit of millions of dollars of campaign funds from the mega corporations who depend on cheap labor.

[WOSG]

"Again, note that contrary to popular thinking, depressions are not caused by tight monetary policies, but are rather the result of previous loose monetary policies. On the contrary, a tighter monetary stance arrests the depletion of the pool of real funding and thereby lays the foundations for economic recovery. Furthermore, the tighter stance reveals the damage that was done to the capital structure by previous monetary policies."
----

hmmm, that seems to be the other side of the same coin.

Tarriff barriers (Hawley-Smoot) made demand for goods worldwide shrink dramatically. That and punitive policies against Germany led to world-wide recession in 1930. The monetary policies went in exactly the wrong direction (trying to defend the dollar rather than expand demand) with higher taxes and tight money. Result: Depression.

"Observe that economic depressions are not caused by the collapse in the money stock (as suggested by Milton Friedman), but come in response to a shrinking pool of real funding on account of previous of loose money."

The idea that the roaring 20s caused the great depression while ignoring the more proximate causes of poor economic policy is incorrect thinking. The 1920s was a boom, but the bull market was no more significant than the 1980s bull market - we had no depression in the 1990s, but an extended expansion period.

The idea that excessively loose policies is the culprit misses the point: cause-and-effect is multi-variable. A car crash is a sudden deceleration.
Do you blame the driving too fast around the corner, or do you blame the fact you hit a tree?

In the current situation, the Fed was loose, from 1997-2000 due to Asian 'flu' and unfounded year 2K fears. In Feb 2000, the Fed reversed course ... at exactly that time, our sotck market, which had entered 'bubble territory ' since early 1999, peaked and started heading south ... but within a year Fed reversed course again and started loosening.


I'd take nobel prize winner Milton Friedman over an article that thinks 1% interest rates at a time of 5% DEFLATION is 'expansionary' (his pic from 1930). Not so! That is still very high real rate of interest! And the reduction in total money supply was very real.

[Iris7]

What you are saying is what I said earlier in #28. Merely Empire politics, situation as usual.

I had no idea that this oil price business was not common knowledge. I mean, what do people fight over? What they don't want? Give me a break.

[arete]

The idea that excessively loose policies is the culprit misses the point:

I'm staying with Dr. Frank Shostak on this one. Excessive liquidity and easy money cause misallocation of funds and excess capacity. Bubble economics. Once the bubble can no longer be sustained, recession and possible deflationary depression follow. All Greenspan is doing now is pumping more alcohol into the drunk rather than letting him go through the necessary detox period. Like the drunks internal system, the quick fix will eventually fail with horrid consequences.

Richard W.

[TexasCowboy]

"What you are saying is what I said earlier in #28."

Yes, it is, but most people think we "grew" ourselves out of the economic slump in the mid-80s without recognizing what we used as food for that growth.
The economy will turn around when the price of oil hits $20./bbl or less.

[Iris7]

You are correct in your analysis, Richard. The political class refuses to allow the bad debt to be liquidated. The same thing caused the Great Depression. Liquidate, and get it over with.

[arete]

The same thing caused the Great Depression. Liquidate, and get it over with.

I had hoped that Greenspan would eventually come to his senses and do the right thing. That doesn't appear to be the case. It isn't politically acceptable (remember the warning of Jim Bunning to Greenspan) and now, it may even be too late.

Richard W.

[Lael]

The "Help-wanted index" hit a forty-year low last month, too. Previous low was 1960.

THAT index is, IMHO, the most useful Economic Index there is. It is considered to be a coincident indicator, meaning it gives the current state of the Economy.

It is really a collection from 51 Newspapers in different parts of the country...and the individual time series charts relative performance of the Economy.

Unfortunately, the details are 'premium content', and only shared with Conference Board subscribers.

[WOSG]

"I'm staying with Dr. Frank Shostak on this one. Excessive liquidity and easy money cause misallocation of funds and excess capacity. Bubble economics."

Sure. But this is circular logic is my point... we have had expansions in credit, in the 1950s and 1980s, and what followed was ... more growth.

Greenspan himself made the point in 1998 or so that you couldnt tell except in hindsight whether a credit expansion was sustainable or not. *Thats* my point! How can you blame the boom of the 1920s when in fact there was *plenty* of evidence to suggest it *was* sustainable, and the imbalances in NO WAY REQUIRED a huge depression to correct?!?



"Once the bubble can no longer be sustained, recession and possible deflationary depression follow. "

Not so. We've had panics and contractions like 1906 and 1990, of various seriousness and lengths that corrected imbalances.

There is nothing from the 1920s that suggests it *required* a 10 year depression to correct. Something more akin to 1906 or 1987 would be quite possible were it not for bad decisions MADE AFTER 1929's INITIAL CRASH.


"All Greenspan is doing now is pumping more alcohol into the drunk rather than letting him go through the necessary detox period. Like the drunks internal system, the quick fix will eventually fail with horrid consequences."

Tight money in 1930s was hardly the answer (and yes, the money was excessively tight, that was Freidman's point and it has not been refuted), so why think it would work here?

[WOSG]

"You are correct in your analysis, Richard. The political class refuses to allow the bad debt to be liquidated. The same thing caused the Great Depression. Liquidate, and get it over with."

GACK! Largest bankrupties rolling through last year (kmart, wcom, gx, etc.) and you say that. If you believe that, I have $100,000 of WCOM bonds I've got to sell you at par.

[arete]

and yes, the money was excessively tight, that was Freidman's point and it has not been refuted

Freidman himself refuted it a week or so ago I believe.

Richard W.

[texastoo]

"We need another 15 milllion (consumers) to come pouring across our borders."

Don't worry about that as it is estimated that 5000 illegals cross our borders DAILY. If this 15 million illegal aliens follows the tradition of the first 15 million, then they will all be shopping at Walmart buying from China.

[nathanbedford]

Me too

[winodog]

How about we have us a good old fashioned old testament 50 year jubliee? Seeing how our P is a God fearing, bible believing christian.
Boy would that ever shake up the world.