Posted on 01/03/2009 10:22:52 PM PST by RC one
For myself, I believe losses will total above $ 10 Trillion easily. Not counting hedge fund losses for private investors with megabucks at risk. Not counting Madoff's admitted theft of a measly $ 50 Billion. By the way, no audit of Madoff's investments has been completed yet. The total could go higher.
Bill and Hillary Seem to Still Be Raking in Cash for Favors
These corrupt hucksters belong behind bars . . . Need I say more ________ ? They are worse than Blago.
“Value” is what people “think” at any given point in time... it is all in the mind (that’s my thinking... ha!).
Investing at the craps tables in Las Vegas would have been a lot more fun in 2008...and probably more profitable. Our market system is rife with corruption, and the clueless federal “oversight” agencies are totally inept at regulating the crooks. These agencies should be shut down so that buyers of stocks will know they are on their own, instead of clinging to the myth that their investments are “protected” by the government.
The previous increase in value of your house only existed if you cashed it out. The increase was government inflating the bubble with artificially low loan rates. Fabricated value, smoke and mirrors. If you cashed out and rented, you could have taken advantage of this.
The money never existed. It was only listed as ‘assets’ by the banks and businesses who in turn used 90% of that amount to loan credit to others. There was nothing but ‘hope’ attached to it that the people and businesses who were ‘loaned the credit’ at 100% to the first, 90% to the second, 90% of 90% to the third, and etcetera would repay it ‘in cash’ ~~~ When you take credit card B and pay off credit card A because B has a lower rate, where’s THAT ca$h? There is none!
When FDR took the USofA off the GOLD STANDARD, the great Mother Ship of State started sinking. Right now I think it’s listing to the left, but there’s still time to correct the balance . . . however, some people are going to have to throw their luggage overboard and a few people will probably jump in after it, thinking that they are the exception to the rule that you can’t take it with you when you die.
Luggage? US Auto Manufacturers going into Bankruptcy, UAW being downsized, NAFTA abandoned, NAU abandoned, NEA losing influence, denial of need for building fence on Southern Border abandoned, Federal intrusion into State affairs abandoned, etc.
In its place will be cottage industries, growth of manufacturing in the South without UAW or other Unions dominating the employee base, growth of jobs at Southern Border, States making STATE decisions, etc.
It CAN happen but Conservatives, Traditionalists and Constitutionalists MUST start right now and not wait until 2010 or 2012 to get to work to cause it to happen.
Remember, WE are the Country of Infinite Possibilities! We ARE the PIE others want a piece of or they wouldn’t keep coming over here from whatever Country they left.
So, let us get to work. We have a Country, a Nation, to save and a Mother Ship of State to right and get moving onward across the expanse of the sea of time.
Thanks Chuck Schumer...Dodd...Frank..
Thanks Chuck Schumer...Dodd...Frank..
“Spending power isn’t wealth?”
No.
“If you have 1 million dollars today, you are wealthy.”
If you have 1 million dollars today and you’re stuck on a desert island, you’re not wealthy. If you have 1 million dollars today and you’re stuck on Manhattan island, you’re wealthy. The difference? The first island has no wealth; the second, lots of it. The existence and accessibility of real wealth is what makes you (potentially) wealthy with that million dollars.
If you had a million dollars in Weimar during the hyperinflation, you would not be wealthy; you might be able to buy a loaf of bread, but only if you get in line and buy it early in the day; by afternoon the price has gone up significantly.
Money is a generally accepted medium of exchange that represents a CLAIM on wealth. Paper money is not wealth; credit is not wealth; gold is not wealth.
(Actually, gold can be considered wealth, but only to the extent that it is NOT valued as a medium of exchange; i.e., only to the exent that it has some value to us as ornament, electrical contacts, dental work, and some medical use. I suppose paper could be wealth — it does have non-monetary uses — but the fact remains that it has never been chosen by any society as a medium of exchange. One criterion for a medium of exchange is that it should not be too easily created or found. Thus, cigarettes have evolved as money in wartime; rare sea shells are used by some societies; etc.)
Gold considered as a pure medium of exchange - as money - is not wealth.
“If someone steals it tomoorow, you are no longer wealthy.”
Again, if you lose that million bucks on the desert island, you’re no worse off than before in terms of wealth... unless, of course, you had some non-monetary use for the paper (writing on it with a burned stick to keep a diary; toilet paper; etc.). If you lose it, or it is stolen, in Manhattan, you lose your claim on wealth. The stuff you could’ve bought with it still exists, however.
And I hate to be the harbinger of the obvious, but if that 1 million is actually stolen from you in Manhattan, then someone else has the claim on wealth; someone else will spend it; so from the macro standpoint of the economy as a whole, a million dollars’ worth of wealth will still be bought and consumed.
I don’t think anyone stole $6.8 trillion dollars of claims on wealth, otherwise it wouldn’t affect the economy; the spending would still continue, it would merely shift hands to a different set of spenders (i.e., the thieves).
“Printing money is a whole different topic.”
Whether the money medium is physically printed (paper), physically mined (mined), or brought into existence by simply writing it into a ledger and declaring it to exist (credit expansion), makes no difference, and is the essence of “spending power.” “Spending power” (or “purchasing power”) is a function of the quantity of money. The million dollars in paper currency is a large claim on existing wealth only if (i) the wealth really does exist, or is very certain to come into existence; (ii) prices for the things you want are low. Again, during a hyperinflation, if a loaf of bread cost a million dollars, then you are not wealthy by possessing that sum. You’re wealthy if bread is a dollar. How to get bread to be just a dollar? Produce lots of bread and produce few paper dollars. That means you’re wealthier with ten dollars in an economy that can sell bread for a dollar.
“$6.9 trillion worth of spending power disapeared in 2008.”
$6.9T of claims against existing wealth and future production of wealth disappeared. Lots of people made lots of plans and adjusted their personal expections regarding future consumption based on their PRESUMED access to their share of those $6.9T claims. The mansions, the yachts, the pools, the tennis courts, the creative accountants, and the slick lawyers...they still exist. No wealth has disappeared. Your personal claim on the existing array of goods you could have purchased has disappeared; but your CLAIM on wealth is not in and of itself wealth.
“That’s $6.9 trillion that can’t be used to buy those tangible assets and real skills that you mentioned”
From the macro view, it makes little difference how much money is in the economy; for regardless of the existing quantity of money, THE EXISTING QUANTITY OF MONEY HAS TO EXCHANGE AGAINST THE EXISTING QUANTITY OF GOODS. Whether it’s, e.g., $17 trillion exchanging against a given amount of goods, or only $10 trillion exchanging against the same given amount of goods, makes no difference as far as the existence of wealth is concerned. The “price level” is simply the ratio of the quantity of money to the amount of physical goods. Given a specific quantity of physical goods, prices are higher when there’s more money in an economy; prices are lower when there’s less money in an economy. We could just as easily say, “That’s $6.9 trillion that can’t be used to bid up prices.”
Let me also point out that discussions on economics often suffer from a logical fallacy called “the fallacy of composition”; meaning, what applies to a single element within an aggregate need not apply to the aggregate as a whole. Thomas Sowell cites the following simple example: if you’re at a ballgame and you discover that you, personally, have a better view of the game by standing up, it does not follow that therefore everyone would have a better view of the ballgame by standing up. In fact, if everyone stood up, your personal view of the game would be no better off than it was while you were sitting down. What applies to you personally in an economy need not apply to all individuals, considered as a whole, in an economy.
“which exacerbates the economic woes we face because without the means to purchase, production will slow”
That’s also incorrect. With less money/credit in an economy, production will CHANGE, but not slow. The pattern of production changes during a recession or depression, but production continues. Normally, less consumer spending is exactly offset by more capital spending. The notion that consumer spending drives the whole thing is an old fallacy, started really by the “mercantilist” school (pre-18th century) and reiterated by John Maynard Keynes. Keynes also assumed (incorrectly) that consumer was somehow “fixed” — consumers would only want “so much” of a given quantity of goods in an economy and no more. Therefore, he believed that the “velocity of spending” — the number of times a dollar was spent — had to be increased by pumping more money into an economy. The additional money would lower the desire of consumers to hold onto money (by saving it), thus leading to more spending, thus leading to more employment. It’s a fallacy.
What ultimately feeds productive activity is capital accumulation...SAVING...not SPENDING. That economies are driven by consumer spending is the root of the Keynesian fallacy.
“which will result in unemployment”
No, it need not result in unemployment if wages, like all other prices, are allowed to fall. If wages fall, along with the prices of other goods and services, full employment can be maintained, with the added benefit that no one has to be supported while unemployed. The prices of everything else are lower, so purchasing power is maintained. What prevents wages from falling, however, is pro-labor legislation and unions. That’s precisely why we had over 25% unemployment during the Great Depression. Add to that the belief at the time that “we must help our farmers by preventing the ‘collapse’ of their prices; we must keep prices of agricultural products high”, and you have the recipe for a ten-year long depression, instead of what the whole stock market collapse of 1929 should have been: a brief recession.
Your statement reflects the kind of thinking that husseino’bambi and his economic team subscribe to. o’bambi intends to “stimulate” the economy by doing the spending himself rather than by letting consumers choose what to spend on: he’ll inject a trillion dollars into things that he believes we want and need: infrastructure like roads and bridges (and, no doubt, “public buildings”). If that trillion dollars comes from taxes, then he hasn’t created or stimulated anything; he’s merely shifted the spending from what the taxpayers would have personally spent that trillion dollars on (computers, CDs, DVDs, ballgames, hotdogs, haircuts, summer camp for their kids, and even private-sector job creation), to something that he thinks they actually want more or ought to want more. No net gain in spending. The beefy guys and gals working away on roads and bridges could have been absorbed into the computer industry, the CD industry, the DVD industry, the entertainment industry, the food industry, etc. No net gain in employment. The reason that public works are attractive to politicians is that the employment is immediately VISIBLE: you can send a few video crews to tape them working, drilling, climbing ladders, etc. There’s no way for a politician to get good self-promotion by sending out news agencies to all the places manufacturing and selling computers, CDs, DVDs, and so on; and besides, he gets no credit for their private-sector activities.
If o’bambi spends a trillion dollars of NEW money, brought into existence by the Federal Reserve (as I think will happen), then the only ones to profit from this new fiat money will be those who are lucky enough to receive it first: they get the benefit of new money, but with prices still at their pre-new-money level. The first recipients will probably be unions. As they spend it, however, the prices of goods and services will rise in response to the new money. Other workers in the economy will get “their share” of this new trillion dollars by demanding cost-of-living increases in their wages and salaries. As these people now spend their new money, more prices will rise in response to this new spending. The process stops when it reaches those people on fixed incomes, who cannot get cost-of-living increases, but who must now pay higher prices for everything; prices driven up by everyone else’s spending of that initial injection of a trillion dollars. These people are actually funding that original trillion-dollar expansion of money; that’s why many economists call monetary expansion — also called “inflation” — a hidden tax on the poor.
“which will result in a further decrease in spending power which will fuel the cycle further. This, among other things, is what got us into the great depression.”
The Keynesian fallacies on consumer spending are related to older fallacies from an early school of economists known as the “Mercantilists.” They believed that gold and silver were in themselves wealth, and advised their dukes and kings to amass as much of the stuff as possible. The ideas of the mercantilists were debunked by the British/French school of economists such as Adam Smith, David Ricardo, James Mill, John Stuart Mill, Jean-Baptiste Say, and Frederic Bastiat.
If you’re interested in economics and monetary theory, I recommend the following reading (all of it non-technical and very accessible):
http://jim.com/econ/contents.html
“Economics in One Lesson”
By Henry Hazlitt
One of the great classics in economics.
http://mises.org/books/whathasgovernmentdone.pdf
“What Has Government Done To Our Money?”
By Murray Rothbard
I think this is Rothbard’s most important essay. Discusses the fundamental nature of money, the production of fiat currency, fractional-reserve banking, the gold standard, the causes of bank runs, etc.
http://www.gutenberg.org/dirs/etext04/fiatm10.txt
“Fiat Money Inflation in France”
By Andrew Dickson White
White was a sort of renaissance man who, among other things, became president of Cornell University. This is a famous little essay on how a hyper-inflation occurred in 18th century France. An object lesson in why “spending power” is not wealth.
We exchange bits of paper with IOUs buying each others houses and such to the tune of $6.9T. From time to time real cash trades hands to buy one of these IOUs, so that there is a "market."
The we all decide to pay off our IOUs sell our assets for cash and discover that they cannot bring $6.9T, so our IOUs are now worthless. We just "lost" $6.9T. We still have all the tangible assets, but anyone who took an IOU for a tangible asset thinking he was going to retire on the interest is out of luck. He might be able to get the asset back but it won't pay his retirement income.
This is an excellent post, but I think on this one point merits further clarification because credit expansion (out of thin air), unlike cash or barter creates its own ills. The expansion of credit creates the illusion of calls on goods and services deferred for capital investment. If the credit were actually put to that purpose and only that purpose, resulting in increased future production all would be well and good. But if it is used as a mechanism for finiancing current consumption it is a mechanism for inflation (more money demanding the same goods and services) but creates additional demands on future goods and services in the implied interest, that is not offset by increased production. Everyone then has the illusion that he has a right to calls on production (receiving interest payments) but with no increased production. We all try to retire cash in our "investments" only to discover that the pile of paper is worthless.
Such is happening presently.
Actually, you're lower middle class. ;)
I appreciate the time you took to write that but I think we’ll have to agree to disagree on a lot of things. I understand the relationship between money, wealth, purchasing power, deflation, inflation, supply and demand, fractional reserve banking, M1 and M2, and most everything else we’ve talked about. I’m not a professional economist but I have a working knowledge of these things. Irrespective of the assertions contained in the original article, I have a first hand perspective of the stock market crash of 2008 and I can tell you from that experience that after having watched the value of my portfolio and my house plummet this year, my wealth has decreased and, as a result, my purchasing power has decreased. Given the assertion that 6.9 trillion dollars were lost last year, I don’t think that my situation is unique in this aspect. So, I appreciate the essay but, with all do respect, don’t even try to tell me that after having sustained these losses, I haven’t actually lost wealth or spending power and, likewise, don’t try to tell me that the 6.9 trillion dollars doesn’t represent a massive loss of American wealth and spending power and; furthermore, don’t tell me that this loss of purchasing power won’t carry the problems of 2008 right into 2009 and beyond because it might not but nobody on this planet can say with certainty that it will or won’t. I think it will and I’ll leave it at that.
“...my wealth has decreased and, as a result, my purchasing power has decreased.”
Yet in an earlier post you implied that your purchasing power has decreased and, as a result, your wealth has decreased.
Which is it? Did a decrease in wealth cause the decrease in purchasing power? Or did a decrease in purchasing power cause the decrease in wealth?
As Humphrey Bogart said to Ingrid Bergman in Casablanca, “...or aren’t you the kind of gal to tell?”
Just having fun. The above questions are rhetorical only.
That is absolutely correct, plus the fact the arch-crook is still not in jail, where he belongs.
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