dagblog - Comments for "The problem, DF, is you haven't really learned to love the recession"

FAKE BLOG SPAMMER! You're a

Michael Wolraich — Thu, 30 Apr 2009 13:34:04 +0000

In reply to President Barack Obama and

FAKE BLOG SPAMMER! You're a slick li'l bastard. I'll let you post one more link b/c your contentless conments amuse me. But then you're banned.

President Barack Obama and

Hailey Y — Thu, 30 Apr 2009 10:39:31 +0000

In reply to It's funny, because it's the

President Barack Obama and his cash advances are potentially very important because economic recovery, as we all know is very hard to achieve. This cash advance can somehow sustain economic activities of one nation. The good news is that the stimulus does seem to be working. The Commerce Department recently released its report, one of the features of which is a rise in manufactured goods, a key economic indicator. A lot of signs point to the stimulus working thus far and a quicker recovery than previously thought, which is good news. A little debt relief can help the nation with its recovery.

It's funny, because it's the

Deadman — Wed, 04 Feb 2009 17:27:48 +0000

In reply to I see a lot about credit in

It's funny, because it's the one thing I forgot to mention in my argument advising care being taken in any stimulus plan: Just logically speaking, I find it quite difficult to believe that the solution to a crisis caused by a consumption/credit binge is to encourage more consumption. that's why i'm very skeptical that any plan to revive the housing market or increase consumer consumption will have the desired stimulative effect. Consumers only spent 17% of the $150 billion stimulus package given last spring. The rest went to pay down debt or for savings, which while not the worst thing in the world was certainly not stimulative.

The tricky thing, of course, is that as the economy hits the skids and unemployment rises, Americans will find it increasingly difficult to manage their debts and improve their balance sheets. They will have to spend their savings and go into more debt (if they can find it) just in order to live day-to-day, which I suppose is the argument for a comprehensive stimulus plan.

But I still feel that the economy got overheated and needs some time to work off the excess which developed over the past decade. I dont think there's a danger of American's consumption habits changing materially even if there's a period of necessary retrenchment. We are and will always be a nation of conspicuous consumers.

I see a lot about credit in

Bluesplashy — Wed, 04 Feb 2009 04:31:28 +0000

In reply to The problem, DF, is you haven't really learned to love the recession

I see a lot about credit in banks, what companies should do and bailing out institutions. What is happening with consumer thinking? I am starting to feel a little stunned and a little pissed when I hear some commentator saying the consumer needs to buy more. I don't know what is going to happen next month so I am not spending money today - to hell with what the economy needs or any promise of government money. My friends are talking the same way. Remember how our grandparents and some of our parents talked about the depression and how they hung on to everything? Are people looking around thier houses and saying 'I have Enough Stuff' and stop buying? I think if the stimulus package in any form isn't passed soon consumers will dig in.

The other consumer problem is credit cards being maxed out. Buying things with a credit card is like magic to a lot of consumers - not like real cash. It is easy to spend $200 dollars at Walmart (or Macy's) when it is put on the credit card. When it is bills out of the wallet $100 looks like a lot.

Then we have the boomers getting ready to retire with all the money they were told to put into 401s, hedge funds, IRAs and portfolios with high returns and all of sudden they have lost 30% of the income they were planning on having. So they work longer at jobs they may be losing AND they can't sell that second home for more than they paid for it to make up the difference. Big numbers those boomers.

The reason I am posting here is if the consumer doesn't start spending soon doesn't that prolong the problem? And the longer the 'crisis' the longer the consumer puts off spending until they get out of the habit. When does it get to a point were the social norm is changed and shopping is out the door?

Are the banks holding on to money because they see something coming with all the credit cards they have out? Banks now earn more of their income from fees instead of interest and if the consumer stops with the credit card spending where are banks picking the difference?

I would love to hear what old

DF — Tue, 03 Feb 2009 18:14:25 +0000

In reply to Milton Friedman might be

I would love to hear what old Milty would have to say right about now.

yeah, clearly 1990s Japan and

Deadman — Tue, 03 Feb 2009 17:35:00 +0000

In reply to Milton Friedman might be

yeah, clearly 1990s Japan and now our current situation proves that monetary policy alone is not always capable of reviving economic growth. far from it.

my fear is that the implementation of the obama plan will prove keynes wrong in a similar manner - that there is perhaps a limit to the effectiveness of keynesian philosophy, particularly when the aggregate amount of government debt is so high to begin with. we shall see, but i do know that economic theory seems to be at least as much art as science, and trusting it as gospel is very dangerous. It certainly did an awful job at predicting or preventing our current mess.

the other thing i forgot to

Deadman — Tue, 03 Feb 2009 17:27:40 +0000

In reply to The TARP was not a stimulus

the other thing i forgot to mention is that while we're not talking about a static fund, fair amount of Obama's stimulus package involves the creation of new social programs and new outlays that will be very difficult to remove from the budget when the economy turn around. most of the stimulus package should be directed toward short-term investments that don't further add to the enormous burden of trillions and trillions in future obligations coming due at an accelerated pace as the baby boomer generation retires en masse.

Milton Friedman might be

Michael Wolraich — Tue, 03 Feb 2009 06:50:03 +0000

In reply to All fair points. I suppose

Milton Friedman might be rolling in his grave, but from what I hear, Keynes is back in favor. Nothing like a failure of free market principles to spur a resurgence of interventionist fervor.

You should blog about the future of the U.S. debt. We'll survive for sure, but the end of U.S. hegemony won't be much fun. My argument notwithstanding, I'm actually a huge deficit hawk. Deficit spending is useful in difficult times, but permanent deficits are moronic. I'm furious with our dear former President for increasing the deficit during boom times. I don't know if his budget policy was any dumber than his other idiotic policies, but it really sticks in my craw, especially the tax cut. The only thing that I like about Republican idealogy is its emphasis on deficit reduction, and G.W. didn't even get that right.

All fair points. I suppose

Deadman — Tue, 03 Feb 2009 06:19:40 +0000

In reply to The only sentences I disagree

All fair points. I suppose you're right about Keynes. And for now, he's all we got to go on. Let's hope he's as smart as we think he is!

I am reading more and more that it is very likely we will not be repaying all of our debts anyway. we just will not be able to do it without killing the currency and the world economy (it's not just our current debt we have to worry about but also the trillions in future obligations we will need to pay out more aggressively as the baby boomers begin retiring) - and will likely have to renegotiate the terms with the foreign governments who own the debt. It will likely lead to the end of U.S. hegemony, the end of the dollar's reign as the world's exclusive reserve currency, and some political concessions, but we'll survive. So maybe all this hand-wringing over trillion-dollar deficits is unwarranted..

The only sentences I disagree

Michael Wolraich — Tue, 03 Feb 2009 05:35:00 +0000

In reply to it's quite simple. if we

The only sentences I disagree with are the first two:

1. it's quite simple.

If only.

2. if we spend money to stimulate the economy before confidence is stabilized, before consumers can retrench and liquify their balance sheets, before bloated inventories and capacity gets sufficiently worn down, we are pissing away money, and when the economy does recover, we will have less flexibility in terms of monetary and fiscal policy because our deficits will be too large, inflation will be too threatening.

Lack of confidence, aka "fear itself," is the problem that could turn this recession into a depression. Confidence must be restored for the credit markets to loosen, for stock markets to revive, for companies to begin reinvesting. Once confidence is restored, we won't need the stimulus; confidence engenders growth.

Lenders and investors lack confidence because they're afraid that the economy will get worse, perhaps much worse, that their loans won't be repaid and their investments will fail. You're telling us that confidence will return once inventories are purged and capacity is worn down. It might happen. Investors might decide that the companies have become undervalued, that the economy has bottomed out, and start to put their money back in.

Or...it might not happen. Bankruptcy could beget bankruptcy, and anxiety could become full-fledged panic, so that we're faced with the exact opposite of a bubble, the dreaded downward spiral. The government is the only entity with the clout to reverse such a spiral and restore confidence when nothing else can--by guaranteeing loans, encouraging consumption, and spending money when no else is willing to spend. In a sense, the government has to "piss away money" to restore confidence. If the spending weren't perceived as poor investment, companies would do it themselves.

We could bide our time and only act aggressively once the economy is really in the shitter and ten times as much spending is necessary to restore confidence, or we could act now to avoid getting there. Acting now does not mean erasing the recession and whistling a happy tune; it means avoiding the risk of a panicked downward spiral which would cost far more in lost revenue and than the stimulus plan under consideration today.

If you believe that there's no risk of such a panic, then your argument is sensible. But I'm told that we have good reason to be very nervous right now. I, for one, am willing to sacrifice some "flexibility in terms of monetary and fiscal policy" after we recover in order to mitigate the risk of economic disaster today.

PS "Extreme deficit expansion" is Keynes' prescription for escaping depression.