How to stop Recession & advice to Mr Bernake'''

daveman

New Member
I'm always surprised at how Americans can find the time to worry about the so called problems in China when back at home, the fire is already burning at America's behind.
 

Schumacher

Senior Member
.....
surprisingly, this was actually pretty good, Schumacher. I'm impressed.
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Why should my writing something good be surprising. ?:)

@Ambivalent
I picked some of your points. It's true as you say US household savings are increasing which in itself is good but many make the mistake of equating household savings with total savings which also include government & corporations savings. Increase in household savings have been more than offset by government budget deficits & losses at corporations due to the recession. So with total savings down, the US is even less able to fund investments now than before the recession.
Ultimately, the choice have to be made between goodies like super duper carriers, foreign occupations among other things versus standard of living.
 

pla101prc

Senior Member
Why should my writing something good be surprising. ?:)

@Ambivalent
I picked some of your points. It's true as you say US household savings are increasing which in itself is good but many make the mistake of equating household savings with total savings which also include government & corporations savings. Increase in household savings have been more than offset by government budget deficits & losses at corporations due to the recession. So with total savings down, the US is even less able to fund investments now than before the recession.
Ultimately, the choice have to be made between goodies like super duper carriers, foreign occupations among other things versus standard of living.

the choices will be a lil harder than a few carriers and foreign occupation i am afraid. health care is actually a major aspect, 16% of the GDP isnt something you joke around with lol. problem now is that obama right now is prolly willing to sign anything brought forward by the congress, i am not sure if it will make the situation better or worse...prolly worse.
 

Schumacher

Senior Member
I'm always surprised at how Americans can find the time to worry about the so called problems in China when back at home, the fire is already burning at America's behind.

To be fair, not only Americans but just a dark side of human nature everywhere to sometimes seek comfort in misfortune, real or made up, of others.
I'm more surprised with many widely quoted so-called experts out there who continue to stick their heads in the sand and doubt China's growth figures despite even foreign figures from government to fortune500 confirming the growth trend in China.
Of course the latest we hear is even firms in Dongguan & Yiwu are now once again complaining of difficulty in finding workers with business turning up. Contrast this with the so-called 'jobless recovery' we hear in other countries.
Well, 'jobless recovery' is just another way of saying a major chunk of the stimulus has gone to the pockets of CEOs instead of creating jobs. :D
 

KYli

Brigadier
For KYli:
Read Adam Smith sometime, he was a lot more progressive than he is oft given credit. For one, he was a strong advocate of progressive taxation, and argued that taxing the lowest income workers was essentially self defeating. Today it is a moot point. So no, I think even a progressive has a hard time arguing with Adam Smith, except maybe with his advocacy of retaliatory tariffs. Isn't that surprising?
The Wealth of Nations is a very boring book, and I probably would never have finished reading it. However, I will give it another try, but if I ever accomplished this impossible task. It is only fair I read Karl Marx Capital which is even more difficult to read and Keynes The General Theory of Employment, interest and Money also, because we shouldn't have missed the opportunity to compare the three greatest economists.

Keep in mind the "market" as Adam Smith defines it has to have a nearly infinite number of both buyers and sellers, so that everyone is what he calls a "price taker". In other words, the overall interactions of too numerous to count buyers and sellers sets the market price, and no one or two entities have the power to do anything that could possibly affect the market price. You either take it or leave it. In actual markets, this is often not the case. UPS and FedEx together command 80% of the package shipping market in the US. This is not a market as Adam Smith defines it, any action FedEx does UPS must respond to and vice versa. There are lots of other such markets. Coke vs Pepsi anyone? Airbus vs Boeing? Lever Brothers vs Proctor and Gamble? Lots of markets are dominated by two or three big firms. There is no theory of how such oligopolies behave that has any predictive ability at all.
We have monopolies, natural or legal monopolies.

As for the oligopolies, I would say that maybe Marx is right about one thing in the capitalism market that is the size of business firms will steadily increase as the consequence of the recurrent crises that rack the economy.

As a side point, I don't like the way the government bailout the banks, and the banks took these opportunities to become bigger. It might undermines the competition, and the government will surely not allow the biggest banks to fail because they are too big to fail.


By calling for fully floating currencies I am calling for an end to fiat currencies. Currency values will be determined by their value in trade. As far as specie goes, it has failed every time it is tried. For an economy to grow, banks or some other such entity must make loans to existing and new businesses. Such loans are no different than printing money. I bet you never looked at it that way did you? There really is no difference. The bank puts a number in a deposit account when you take a loan and the money is spent. A central bank like the Fed or any other nation's central bank controls the growth of the money supply indirectly by enforcing reserve requirements on banks and by manipulating the interest rate it charges banks to loan them money. When banks make loans to individuals and businesses and they don't have reserves to cover these loans, they go to their central bank for more, but there is a cost in this reflected in the "discount rate" the central bank charges. If the central bank raises the discount rate, banks curtail loans and this effectively slows the growth of the money supply. The Fed does not "print money" but banks do so every single day.
The money supply must grow if an economy is to grow, but the growth must be balanced against economic growth to minimize inflation. This is a judgement call. But, curtail money supply growth too much and you choke off economic growth, maybe even precipitate a deflation.
This is where specie fails miserably. There has never been enough gold and silver, with one exception, to grow the money supply to accommodate economic growth. In every case where specie has been used, it has had to be supplemented by a paper currency ( bank loans are effectively paper currency ) to keep the nation in question's economy growing. In any event, whenever the value of the metal a currency is made of exceeds the value stamped on the coin, all those coins quickly disappear and are melted down for their higher value in metal. Coins can be shaved and adulterated as well. This is all well known. Paper currencies do not have such problems. In every case where specie was tried it was soon overtaken by the supplemental paper printed to allow business loans and economic growth. This was true of the Dutch two centuries ago and the US and UK last century. Btw, the US was only on a gold standard for 80 years. We were on a tobacco standard for far longer.
I was taught to never trust the bank, and never be indebted.:D

Actually I do, in the late forty of China or Zimbabwe of today both countries have to deal with hyperinflation. When there are excess numberous of loans or money flowing a particular country, there would be consequence.

The Fed didn't pubish all the information they used to, so we have no way to know what really happening. As for species, I never support it, and I think you are trying to explain these to the participants in this topic. So I won't comment more on it.


I am not advocating a command economy. Where did you get this. Lets examine the equation for national income. GDP = C + I + G + ( Ex - Im ). Income equals the sum of consumption, investment, government spending and the net of exports minus imports. Where is the US in this one year ago. C and I are falling rapidly. Ex - Im has been negative for ages. That means that GDP is falling. The only way to immediately moderate that fall is for the government to spend. Plain and simple. How much and for how long is of course very controversial. I am positing that the US should have intervened not with the banks, but directly at the source of the problem, which at the time was bad home mortgages. We spent trillions with minimal effect in my view, and still face a crisis situation. Were it my decision, I would have put $100 grand directly into each mortgage, or less if less paid off the mortgage. That would have ended the mortgage crisis right there. The rest of the cascading effects would have been squelched. That is not the long term solution, bank regulation is necessary ( and I'm not confident the US will do this, but a return to the post Depression regulations is necessary now, no yesterday ) but doing that would have ended the crisis right away.
The government lent money or invested into the banks, and the majority of these money are expecting to be paid back at least in the theory except maybe AIG, Fannie and Freddie. However, you are advocating throwing money at bad home mortgages directly:confused:, and the money would not be retrieved. One simple question I would ask, how should we determined what mortgages are good and what mortgages are bad. As you might know, one of the reasons why this crisis is so damaging was because the banks were cleverly invented many special packages to share risks, CDS. Secondly, there are many people who supposed not owed the home they are living in because they can't afford it, how to deal with though people. Even more , everyone want the government to help their mortgage, how can government acts fairly, responsibly, and effective to what bad mortgage they are going to bailout and forgive. We are talking about trillion dollars hard currency here.

I have nothing for the banking or credit industries, but I think the end game may be some sort of mass credit forgiveness. It's not a pretty picture, but I think in time we will come to this.
Are you saying you want to resolve this crisis comparably with Japan, China, and sweden deal with their banks debt problems? I might support this resolution, if the banks are willing to give up a big chunk of their shares.
Regarding the Renminbi, I think the market should set it's value in trade. This will allow trade imbalances to adjust seamlessly and completely. There is never any excuse for long term trade imbalances, it is the hallmark of government interference in a smoothly operating market. It always leads to market distortions, distortions that never last and lead to corrections that cause real human misery. Policy counts folks, and real people suffer real pain due to bad policy. Too may so-called leaders forget this little detail.
I stand by my statement regarding China. I know many do not agree. Lots of people didn't agree with me two or three years ago when I was harping on the dual deficits. Just like many disagree for my call for floating currencies. Disagree to your heart's content but I smell BS. My critique stands.

Few years back I told my dad not to buy a house, but now I regret it. Because my prediction is off by few years, the collapse of housing market happened until late 2006. From where I lived the houses are expensive as ever, If only I knew how long it took and not all the bubble can be pop. Sad.

China will float its' currency eventually, but the free float of Yuan would only happen at their time table. Of course China might drag their feet, but I would predict it would happen sooner rather than later.

I agreed with you that it is the best interests for everybody to avoid governemnt intervention, however, don't underestimate the US government wishes to maintain a strong dollar. As much as you might think otherwise, US government have artificially wanted a strong dollar throughout 90 and until now, as strong dollar is essential for US to maintain their dominated powers. Dollar stands for USA, so superficial US might be rattling and claimed unfair trade advantage but the truth is US have no intention to give up a strong dollar(world reserved currency) position yet.
 
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pla101prc

Senior Member
the US has been pursuing the strong dollar policy since the 70s when they abandoned the gold standard. that played a big role in reducing the competitiveness of US industries. it simply made gambling in the financial sector easier and more profitable then actually sitting down and producing things. they have no one else to blame but themselves in that one,nobody forced them, they made a bad choice.
 

tphuang

Lieutenant General
Staff member
Super Moderator
VIP Professional
Registered Member
the US has been pursuing the strong dollar policy since the 70s when they abandoned the gold standard. that played a big role in reducing the competitiveness of US industries. it simply made gambling in the financial sector easier and more profitable then actually sitting down and producing things. they have no one else to blame but themselves in that one,nobody forced them, they made a bad choice.

actually, US has been pursuing a very weak dollar policy since Bush came to power. How can you be pursuing a strong dollar policy when you keep your interest rate as low as they did. As for why US industries are less competitive, there are a lot of reason. Too much regulation, corporate tax being too high, paying health care coverage that's too high, education system in America isn't where it should be. Of course, there is also the limited market policy of Asian countries. China is everyone's favourite whipping boy, but Japan has been at it for much much longer. Japan just never figured out that keeping their currency artificially low to support export is not necessarily a good thing.

As for what made gambling in financial sector easier, it's not a by-product of a strong dollar policy. It's a by-product of the Fed working with the big banks and willing to rescue the banks regardless of what they do. So, now that they have an implied guarantee, they are willing to take any kind of risks they want. The problem was that starting from the dot-com bubble, they never allowed a recession for political reasons, so they kept on inflating the bubble by having this super low interest rate. Banks knew that whenever they got in trouble, Greenspan would lower the rates to the point where they can borrow a lot of money really cheaply, so they can do whatever they want. Capitalism is not capitalism if you have certain players that can't loose no matter what kind of choices they make.

The Wealth of Nations is a very boring book, and I probably would never have finished reading it. However, I will give it another try, but if I ever accomplished this impossible task. It is only fair I read Karl Marx Capital which is even more difficult to read and Keynes The General Theory of Employment, interest and Money also, because we shouldn't have missed the opportunity to compare the three greatest economists.
this is a joke right?

I agreed with you that it is the best interests for everybody to avoid governemnt intervention, however, don't underestimate the US government wishes to maintain a strong dollar. As much as you might think otherwise, US government have artificially wanted a strong dollar throughout 90 and until now, as strong dollar is essential for US to maintain their dominated powers. Dollar stands for USA, so superficial US might be rattling and claimed unfair trade advantage but the truth is US have no intention to give up a strong dollar(world reserved currency) position yet.
again, when has the US gov't been purusing strong dollar policies in the recent year? A strong currency is a good thing, because then you have a greater wealth and have greater purchasing power.

Think about it this way. If dollar looses half of its value right now and real GDP of american looses 25% in value and same goes with defense budget. Do you think they'd be able to buy the same amount of military equipments?

Uh, do you read the news? Savings in the US is up tremendously, so much so that some economists are worried that increased saving will choke off a recovery. Almost everyone in the US has lost their life savings while seeing the value of their home drop. People who thought they could finance their retirement by selling the big home and buying a smaller one no longer can. People who thought they would send the kids through college on home equity have had to change their plans. As a nation, Americans are saving again. I have been reading dire predictions ( overly dire in my estimation ) that every one percent increase in savings knocks three percent off the GDP. I don't buy their math but that is what winds up in the news paper.
i think it went up from negative to 6 to 8%, but now it rolled back a little bit because of things like the cash for clunker program. But I think the failure of that program shows the main problem in driving economy through spending. Currently, the manufacturing and production industry in America is not all that strong, so programs put in to encourage consumption are not consuming products made in America. So in the long run, this really is not sustainable. The problem is that in order to fix problems in America, people have to be willing to take extreme pain for a couple of years and no one wants to do that. You may have noticed that the trading deficit went down when America's savings rate went up.

Here is the thing to think about. In the past, America's national debt went up due to wars. And most importantly, they were borrowing from their own citizen's savings. Now, America's debt is going up to increase borrowing and consumption. It's going up to support all the gov't entitlement programs and such. So whereas they used to be able to bring down debt by ending the war. Now, they can't bring down the debt, because they can't suffer the public backlash off ending these programs, reducing budget. Also, they have to print or borrow from foreign countries because Americans are all tapped out of savings.
 

KYli

Brigadier
this is a joke right?
You don't get the hint:rofl:.
again, when has the US gov't been purusing strong dollar policies in the recent year? A strong currency is a good thing, because then you have a greater wealth and have greater purchasing power.
Think about it this way. If dollar looses half of its value right now and real GDP of american looses 25% in value and same goes with defense budget. Do you think they'd be able to buy the same amount of military equipments?
Of course, if it was not in their interests, why should they do it in the first place. But everything have a cost, US government might have underestimated the consequences and problems of artificially strong dollars. Even if a strong dollars is beneficial, they might have been too confidence and overlook the negative side effects.

Even though US government might not want to lose half of dollars value, but it does not mean they couldn't make assaults against some currencies especially Yuan. Think about it, if US government allowed Dollars to be devauluated with all currencies, the negative consequences outweight the positvie, but if they could force a few countries to comply with their wishes. The US government would gain advantages.
 

pla101prc

Senior Member
US gov has always pushed for a strong dollar policy, if the dollar weakens by too much, foreign investors will withdraw from the US and find refuge elsewhere, that will be detrimental to the US economy
 

SteelBird

Colonel
Moving to the correct forum.


You seriously have never heard of Bernanke before this? I guess that's why the Audit the Fed Bill really should pass.

First of all, he had a wrong spelling, or I could have googled to find out what "Bernanke" means. Secondly, I'm from the other side of the ocean, and not so interested in US politics. Finally, this guy doesn't always show up on foreign (outside the US) media. If his did show up on the news, it always come to me in Chinese or Khmer language. :coffee:
 
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