Discussion of Housing Bubble, US Dollar, Debt, Trade Deficit, Oil, Gold, Consumer Spending, Central Banks, Inflation, Outsourcing and the Bleak Future of the US economy
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Saturday, April 04, 2009
Open Forum
Please feel free to post up your thoughts, links, hold a discussion etc here.
The Stimulus package is a facade. It's purpose is to cover the US government's exit strategy, which is in the midst of being executed.
We know the USD is failing. We've known for some time. We also know the 'stimulus' approach can't work. It bolsters an economy for a short period, with the net result being inflation and lessened faith in the dollar. The government is counting on this.
At present, the US government is asset poor and debt ridden. If international creditors start knocking, the government is bankrupt. To combat this, the US government needs assets. But demand for the dollar is weak internationally, and the remaining buyers (China and Russia) are both expected to propose a world currency at the G20. International assets aren't for sale in USD, at least not in the volumes the US requires. Luckily the US doesn't need international buyers; Corporate America is at the bargaining table.
The government is converting free printed capital into assets under the guise of a bailout program. It's dollar conversion on the only remaining soil where the USD is still widely trusted. It's a brilliant and ruthless strategy. Major industries are being offered bailouts paid in failing funds, for which the government can secure ownership (assets), improving it's debt/asset ratio. If the government gains enough ground before major players catch on, faith in the dollar could be restored. The US lifestyle would still adjust, but the government would have returned to a viable operating position. If faith in the dollar is not restored, the US government's newly acquired assets can be divided up amongst the nations that own the credit notes. A restructuring of ownership occurs, and life resumes at the newer, more sustainable level.
The plan is brilliant. By simply siezing control of Corporate America, the government can fund an exit strategy. If OPEC flips to a new global currency, or if there is a bank run on the US government before the plan is enacted, it will fail. But if the 'stimulus' package buys enough time, the US government will be just fine. :)
Randy, I wasn't sure where to put this. It's a view I've seen no threads on. Could you start one?
Get this, BofA and Citi are buying up bad paper at above market prices (still below face value of course) so that they can make a killing selling it to Geithners PPIP http://dissidentvoice.org/2009/03/geithners-hog-wallow/
Siege: What Divvy up bad mortgages, agency paper and corporate debt to foreigners? I don't thin' so Senor. It's not true capital and there is not ability to produce, the assets still reside in a foreign land that has the biggest, baddest navy in the world (never mind that China may have a super-carrier destroying missile). Idunno, I think this is all about the elite and the banks and Timmy and Larry doing their bidding. The $ is probably safe for a while longer as other economies will detioriorate more quickly than here in the good ole U.S. of A.
Seige, Completely agree with the others - you have put forth an excellent argument that superbly ties many of the disparate pieces together and still passes the common sense test.
BTW: Just created a link to this post from the main page.
The simplist explanation is the best. The Gov't fears a deflationary depression because most monetary and fiscal tools don't work in this instance. Our Gov't prefers the alternative - an inflationary depression, plus, under this alternate, we can pay down the national debt with inflated (devalued) dollars, and meet future medicare and social security obligations by the same means. (Of course, the inflation adjusted benefits will be slashed) Thus, the bailouts and increase in money supply continue until we see inflation with our depression. When foreigners realize the loss in value of their dollar denominated assets they'll exit the dollar and our inflation will turn "hyper". And in a terribly perverse way, a very weak dollar will eventually reinvigorate domestic industrial production at the expense of imports, assuming we still use dollars.
There are very few toxic assets; in truth, most of the assets being cleared are a steal. It's not just the government that knows it... right now two major banks are buying 'toxic' assets at prices far above their valuation. I'm happy to explain why.
First, what we know: 1. A hyperinflationary period is coming, during which the dollar's value will be shed. 2. The US government can't raise interest rates if it is to service the debt.
When hyperinflation hits, the US dollar will rapidly plummet in value and there will be no interest to offset the losses. Translation - Invest in assets and dump USD.
For banks, this means buying up the 'toxic' assets as a means of siezing something of value. For the government it means (back to my first theory) printing more money and using it to sieze assets as well.
But they're toxic! Yeah, bullsh?t. Fact is, when the dollar crumbles, the prices paid for these assets will seem a steal. US hyperinflation percentages will be unfathomable by today's standards, but I'd like to present what we can accept today as realistic. Assume dollar deflation of a meager 25-50%, which translates into price level increases of 25-50%. These toxic mortgages just became solvent. In fact, they just became one of the best stores of value one could hope for.
So why would banks want mortgages instead of business? In the event of a total collapse, one need only look at the first tier on Maslow's chart. Basic sustainability will be the focus. This means water, food, and shelter. Banks can't hold water, and food won't move without the other infrastructure (such as transportation). The next most valued asset is the housing/land combination.
Banks are strategic. Did you really expect them to roll over? Ell no, they're powerful for a reason, and today these two position to become superpowers.
Summary: The assets are only toxic in the short run The money is explosive so the two banks and the US government are dumping it The theory holds strong.
I'd like to point out that I don't like my theory; in truth I hate it. But it's the only theory to date that explains all of what's going on. If you set aside the notion that economics is a social system, and consider only the financial and survivability tactics used in financial warfare, this approach doesn't seem so far fetched.
I don't agree with Siege. I think first the 30-year US T-bond will drop, then the USD and that will cause an amount of (price-)inflation. The other major currencies as the euro and the yen aren't good as well.
As long as banks are not willing to lend and consumers aren't willing to borrow, monetary(hyper-)inflation doesn't stand a chance. Right now, we're still in Deflation.
Thank you for not agreeing with me. I don't want to be right; I just want to figure it out.
Some thoughts on your post...
We know all the world's economy is linked to the main trade currency, which at this time is the USD. If people lose faith in said currency of international trade, then said trade slows. And since the other countries also rely on international trade to operate, couldn't this undermine their systems causing the shared recession?
I'm no expert, but I think the economic disturbances abroad are much closer linked to the US than others wish to believe. I don't think it will take long before international debt holders find a more solvent means of trade, not for spite but simply as a means of restoring faith and jumpstarting a broken system. The problem of course, is that when this happens, $13 trillion in US loans will be called. It's a bank run on a nation, borne of an international trade system that's proving flawed at a very rapid pace.
I think the credit crunch is simply a function of international mistrust in solvency of the USD. When the means of trade is corrected, faith will be restored, global trade will commence again, and the US will have to pay the piper. With this surplus of USD no longer in demand internationally, and entire countries seeking to capitalize on the debt, hyperinflation is the ONLY probable outcome.
In a closed economic system, I might agree with your view. But in one where the risk is external to the nation, I think the measures must be more macroeconomic.
China has already lost faith in the USD as they have been finding ways to avoid using USD for trade. In this article, China and Argentina agree to currency swap Eric deCarbonnel noted that this is the first time China has done currency swap outside of their asian neighbors and is expected to continue pursuing more bilateral currency swaps with other countries which will further decrease demand for USD. THis then puts China in a better position in the event of a collapse of USD and may very well be in position to hold the White House hostage
The reason there's worldwide credit crunch is the giant amount of debt wich is in the entire world. Not only in the US but in Europe, Australia and Japan as well. This giant worldwide debtbubble started to implode in the summer of 2007. Keyword: "The waves of Kondratieff". Randy still has a link to articles on this topic on his website. Read it !!
I agree, the elites of Washinngton and Wall Street are trying to profit from it and the rest of the country has to foot the bill.
The credit crunch is exacerbated by the fall the price of oil and the shrinking budget- and trededeficits all around the world. And that would put the US in a world of hurt because it's so extremely dependent on the inflow of foreign capital. And that's why the Federal Reserve has started to monetize the US federal debt.
I think the stimulus bill is meant to buy Congress to not oppose the rescue of the powerbrokers from Wall Street. It's a way for the members of Congress to "bring home the bacon" to their constituancies.
Consider the possibility (I don't think it will be much of a stretch) that Siege's theory was the endgame from the beginning. It would be to the gov'ment's advantage to intentionally initiate the housing (real asset) bubble through promises to Fannie and Freddie that all bad mortgages would be taken care of. The greedy Wall Street guys did just what they were supposed to do (make "toxic" loans) and let homeowners pay off as much of the house as possible. Then the big balloon hit where they would have to give the house back before the hyperinflation made them cheap. Then the gov buys up the assets and throws the whole system into hyperinflation to pay off our foreign debt AND own quite a bit of American real estate and big business to boot. Notice the banks are using the money they have received through the kickbacks, er, bailouts to buy other banks. They prefer assets to cash also. The table is tilted and we ain't on the right end. -Iconoclast
Still chewing on the Seige maneuver. Interesting to note that if you are sitting in the government and chewing on the fact that the US is going to hit the wall unless the consumer/voter changes his behaviour significantly (e.g., save, reduce entitlements, etc) *and* that it has proven impossible except in a crisis to actually get this to happen . . .
Kill two birds with one stone - re-establish the solvency of the government *and* adjust the behaviour of hundreds of millions of people.
But Seige - who exactly is driving this brain trust? Have to leave it at Summers and Geitners table given their history around Glass Stegall, etc.? Certainly Summers would have the cycles and perspective to pull this off - and it explains the otherwise inexplicable shift of economic advisors as Obama moved from campaign to office.
Banks are strategic. they're powerful for a reason
It makes sense, sort of, the housing bubble bursts, people are upside down on their mortgages, American Government controls the value of the dollar. But the American Government is an amorphous collection of President, Congress and Judicial. Plus civil servants, lobby groups etc. For example, what does Hank Paulson get for his trouble, George Bush? When you start talking about real people what do they get? Wealth, security control? Danielle Dimartino used to write for the Dallas News, I think she worked for the Fed for a while. What does she get?
I don't think that anyone or any group is in control. It's more spiritual, good versus evil. I have the feeling that the world is about to change. Radically. After all America voted for change! Things symbolic are about to become things real.
The theory Seige puts forth may or may not be entirely correct, but it's an important step in the right direction.
Certainly it has been baffling why the Obama administration would embark on such an abbrupt change of course from it's campaign retoric... what with these outrageous ongoing bailouts of Wall St.
Seige is on the right track in formulating a theory that seeks to attribute current goverment actions with a longer term stragety to mantain power & succeed on the fluid world chessboard. It's completely plausible that there are less than altruistic notions behind our Gov's actions. Sad but true that as usual, the masses are mere pawns in this game.
Hey Randy, I think it's time for a new thread. I think I have discovered the first viable solution to the US economic problem to date.
We know unbacked debt has caused this problem. We know trade will cease without faith in the USD. We know that if the world flips trade currencies, the US is going to feel a world of pain.
Celente (renowned trend forcaster) has forecasted doom, claiming that innovation is required for eventual recovery. The US must produce it's way out of the problem. In his forecast holds the key.
Right now, the US is shifting debt and it needs GDP to remain solvent, lest the debt become to great. I think the debt is the solution... stimulus, but in a new form. I believe the US needs to repay the debt to rebuild the society. Don't laugh... hear me out.
If the US went to a creditor nation with a proposal to replace known defaulting money with stuff, they'd take it. How they use the stuff to increase their standard of living is up to them. Point is stuff for defaulting funds is a good deal! Buyers would arise, or there would be proof the debt would not be called. Both are solutions.
Now the government goes to companies and says "Good news guys ________ nation wants $1 Trillion in stuff. Fire up the burners boys, we're back in work!"
We would have stimulus of demand, a US economy bent on producing for the world, and consumers. We'd have money moving back in as opposed to new money with no backing. We'd see deflation, but at a controlled rate, with high employment, and without the implosion.
A few caveats would need to be in place, such as assurances of no food trade embargos or restriction of other life essentials. This would ensure success, while keeping the approach running a bit longer.
Randy, if you think this solution viable, please start a new thread and let's get to analysing. There's little time to examine it and lobby the US government with it if the theory proves sound. I'm feeling pretty good about it personally, and I think it's a 'ell of a lot better than the strategies I've seen playing out lately.
I should also mention that the other nations would have to follow suit, paying their debt and stimulating demand in the same fashion. It would be a consumption rich system, where goods are again plentiful and cheap and employment is high. Developing nations such as China would have to increase demand internally to thrive in the environment. Basically, their government would become it's country's trading partner, returning produced goods back to the people in the form of infrastructure, production capacity, and product. Standard of living would rise for their people as well as the nations solving debt issues.
For posterity's sake, I'm adding a source code to this concept.
Hope you can all forgive my wording in the roughed out stimulus and US recovery plan detailed this morning. Hehe... it was written pretty early and it's not as accurate as it could be. Anyway, the concept is better than what's coming out of the G20, no question.
I thought you all might like to know that the plan is evolving and will be posted in greater detail, assuming Randy builds it a new home. I'm also meeting with a college economics professor that has political links, but would appreciate some additional avenues if you have any. Just view my profile and send a message.
As far as this $11 Trillion US stimulus (debt reduction) theory is concerned, please feel free add to it or rip it to shreds as you see fit. I'm working on how it would be executed by national powers.
You have to see this cartoon over at Sinclair's... from the Chicago Tribune circa 1934. It's deja vu all over again! Planned Economy or Planned Destruction?
I have sent details on the new economic approach to Gerald Celente, President Obama, Governor Schwartzenegger, and a few other high players. Hopefully one takes notice. Cheers all,
Interesting... so if I read you right, you're saying that simulated demand a suitable replacement to stimulated demand, and that producing goods to repay deficit dollars would still fire up the engines for production allowing GDP to support the people and pay of the debt.
It's reversing the trade direction between the US and her creditors. There would be an adjustment period, but I can see how it would work. The US would shift back into a nation of production. It would take time to build capacity, but free enterprise is great at shifting gears when money is present.
This is the first theory that avoids US economic collapse. And it's largely proven, as the countries the US traded with in the past did improve despite their lack of realized cash inflow. I like it. You've turned debt into an asset.
Actually I'd consider the debt more of a bargaining chip, but you're right. The US simply needs demand for it's products. Using the debt to create an $11 Trillion dollar consumption engine for US goods would run the economy for a looong time.
When all is said and done, the US people would have enjoyed gainful employment for 40 or so years and the standard of living throughout the world would have increased as a result of US repayment. All the while, the US system runs without fresh injections of capital.
I've thought up a whole chapter on this concept... on how to make it work from start to end. It's shaping up well.
Thanks for asking my humble opinion on your recovery theory. I originally responded in the comment box under the posting that Randy had allocated for your piece. I have cut and pasted it here with embellishments.
Major industries have not been offered bailouts, thus far. The only industry offered a bailout is the financial sector and they have been recapitalized are about to have their toxic mortgage debt auctioned off with government subsidized funds.
The auto industry has been offered loans, but will eventually be sent to bankruptcy court. The government has not offered to bail them out. On the contrary, they have offered loans and worker supports only.
I have seen no evidence of this theory, although I would not discount it from evolving in the future. I agree that the demand for dollars is shrinking. One reason is that spending is shrinking. There are less dollars in circulation. Deflation is the monetary principle at hand. No spending, decreasing trade deficit. Decreasing trade deficit, fewer dollars buying imports. Remember, currency values are all about availability, fluidity, liquidity, and stability. The dollar continues to fit all categories when compared to other currencies. Watch China's manufacturing continue to shrink. They are importing less now, and are exporting less now, too.
The G-20 resolved only one issue. That was collectively giving third world countries $1T. No doubt, that was to make sure those central banks don't default on IMF interest payments. Watch European central banks begin collapsing as their investments in Eastern European central banks begin to default. The world is heading downward.
The stock market highs will eventually fall, in my opinion. The growth is unsustainable.
Chris, our assets are food commodities, coal, and 17% GDP manufacturing output. In addition, it is also the ingenuity of the very smart and creative minds still wanting to be inventive.
The stimulus is small potatoes, yet will circulate cash, and revenues. The biggest fraud is the entire Geithner Recovery Plan. And now, worse is the toxic mortgage dump on the taxpayer fraud. This is trickle down economics at its very worst. even Reagan would likely cringe.
Chris, I don't see the government seizing control of corporate America. As a matter of fact, just the opposite: letting bankrupted financial corporations to still exist. GM was only symbolic. If anything, major downsizing will occur to our shrink monopolistic corporations in order to stay solvent with more unemployment will be the move. Using anti-trust to break them up would be better.
I continue to return to my premise that Obama is frightened of the financial oligarchy syndicate, since he has embedded his entire cabinet with former Trojan Horses of that syndicate. He only went after GMs CEO, Wagoner, because he could be made an example of. He was the guy who walked the plank for a price. Throw him to the vocal citizen wolves wanting a head no matter whose head. But his was the wrong head.
Obama was willing to talk tough with him because he has no power or bite. But, the financial crime syndicate has incredible bite. Big corporate thieves within banking, finance and monopoly corporations, especially those embedded deeply in the defense industry have incredible power.
Not one big headed banksta has been hung from the pole. Those who crashed the bus are still driving the buses.
There is a lot to be said for what Krugman has been saying. Dean Baker, too. Taleb as well. Michael Hudson especially.
Thanks for asking my opinion, for what it is worth. (It gets ya a cup of coffee and that is about it!)
Actually I'd consider the debt more of a bargaining chip, but you're right. The US simply needs demand for it's products. Using the debt to create an $11 Trillion dollar consumption engine for US goods would run the economy for a looong time.
Jerry says the following:
Chris--that is what Obama wants to do. Use the debt to fire up production, but demand is shrinking because the world has slowed down. Unemployment is rising because demand is shrinking. There have been trillions funneled into the wrong engine.He is using a trickle down engine. FDR took 60% of the unemployed once he took office and created things to do: roads, bridges, buildings, schools, rural electric grid, etc. It was a massive undertaking. He lowered unemployment figures. The only thing that will bring about long term productivity is a bottom-up stimulus putting people back to work. I have written on this extensively. It becomes a bottom up engine.
Chris says:
When all is said and done, the US people would have enjoyed gainful employment for 40 or so years and the standard of living throughout the world would have increased as a result of US repayment. All the while, the US system runs without fresh injections of capital.
Jerry says:
Following the Great Depression, especially after the WW2, there was prosperity, and it took the banks 20 years to recovery again. We don't want war to be our prosperity generator, but a slower form of growth using energy and moving toward sustainability would be the way.
**********BREAKING NEWS!!**************** G 20 released papers: " We have agreed to support a general SDR allocation that will inject 250 billion into the world economy & increase global liquidity & urgent ratification of the 4th amendment." The IMF 4th amendment states that the SDR can be used as a global currency. 74% of voting members support ratifying the 4th amendment. Now only one country has to agree: the USA (& Geithner already said he supports the SDR!). And we will have a new global reserve currency. http://www.youtube.com/watch?v=Ull_HZUxAMk&feature=channel_page
"We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity," it said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century. In effect, the G20 leaders have activated the IMF's power to create money and begin global "quantitative easing". In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body. Conspiracy theorists will love it." http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5096524/The-G20-moves-the-world-a-step-closer-to-a-global-currency.html#comments
Thanks for some meat to ponder Jerry! I do have a few comments, and a cool new source.
To date, 316.6 Billion in bailouts has been exchanged for shares. You're right, it's mostly in banks, but there are other institutions. You can see them all here:
You are right that world demand has started to shrink. Still, in the back of my mind speaks a little voice that says the greed is still there. If the US offered to take back failing USD and give current creditor nations product in return, these nations would take the deal. That's greed creating demand. Sure it's simulated instead of actual, but it's demand none the less. The US would have to take a great leap, stating they can't pay in gold but can pay in product. Obama would have to appear to be doing due diligence.
Now simulated demand would push the US' dollars back into the US economy, realized as monetized debt. International M3 would shift to local M1 before being pulled out through taxation. The US would control an inflow of debt, monetized to pay for the goods, and countries would get goods from the US. Highly inflationary yes, hyperinflationary no. The actual value of the USD would eventually be realized, with limited protection of dollar value resulting from the taxation drawdowns and digital money destruction.
It's not pretty; it's basically national OPD. But it's also a nation working, joblessness solved, and a functional model without the collapse. It's people keeping their houses instead of losing them. It's the lifestyle of a producer nation... better than what we're headed for, but not as frivolous in spending as we see today.
Given the situation, trickledown economics is a joke. I think it starts one level back from jobs, as jobs don't last without demand. Real demand is in limited supply, a simulated demand through US debt repayment is one of few remaining options.
I agree with that war isn't a means of recovery. I don't think it's ever worked; rather, I contest that innovation did. War was little more than a stop gap while innovation caught up.
More will make sense as I continue to put my theory to paper. But for now, I'm getting the impression we agree on many things, we're just viewing them differently.
All theories have winners and losers, and mine is particularly nasty. I'm up to 9 pages detailing the theory and it's proving solid as a rock. But I'm not so sure it's a good thing.
1. We know the damage to the environment and resource base that our current lifestyle causes. My theory would enable this heavy consumption... actually it would increase it. I'm a minimalist and this grates me.
2. We would need to shift the US to a production based economy, right when China is becoming one. I see massive polution as a side-effect. Yep, I'm an environmentalist too.
3. A supreme world governing body is born; it looks a lot like what was in Bicentennial Man with representatives from all nations. The financial and trade theory requires this to operate. I don't know that the world is ready.
4. High tax high inflation nations rarely remain productive. If the US becomes both, which it must to repay the debt, what's to stop business from packin up?
That last one's my plan killer. Still workin on it. No answer to date. The other issues plague me too. The question of course, is if the current US' high consumption society should be propogated to other nations. So... given an option to grow it or kill it, which should it be?
" If the US offered to take back failing USD and give current creditor nations product in return, these nations would take the deal."
Chris, what product are you figuring to exchange for USD?
Let me say this, if Obama were to pursue a radical approach to economic recovery as you are offering, then there are other ways to do domestically without having to entangle ourselves with other nations and their complex laws and policies, such as nationalization of bank assets, then taking those assets and recapitalizing lost 401K plans through a National Investment Program, whereby a person's lost 401K would be replaced with bank assets and held in a government program that could be used as loan capital to rebuild US corporations that could be used to take the nation into an energy independent place, and stimulate the economy through new enterprises, such as a massive national rail system, energy independent communities, local food production and the breaking up of monopoly capitalistic corporations strangling the free market.
Once people are no longer afraid of further personal wealth losses, they might want to begin to spend a bit more, borrow some money to fix their lives back up or homes, help their kids with college or buy a more fuel efficient car-new or used.
The world would then see our economy recovering and that our nation is capable of doing it on our own. They would have a restored faith in our economy and may then feel more confident to buy some Treasuries or whatever.
There are other ways of framing the problem and solving it. I do believe that simple is better. Maybe that is why I am a simpleton.
Chris--continue to think. Continue to write. Continue to create. It is an exercise in growth.
I like your creative mind. Many would oppose nationalization, but everything has it's place. I do agree that there are viable radical approaches. I'm in favor of anything that doesn't necessitate a total collapse.
The surpluses of Social Security (SS) are shrinking at an alarming rate and could turn into a deficit in the second half of this year. Ever since the LBJ administration the US government has used every dime that came in this SS fund to pay for the general expenses of the government. i.e. the SS trust fund only contains a mountain of IOUs. And that's another future (tax-)burden for the US taxpayer. Source: Mike Shedlock
Chris, I don't believe that Americans would object to nationalization. The people are sick of privatizing the winnings and socializing the losses. Americans are tired of such giveaways to the banks and their selling of their overinflated toxic mortgage assets/debts to the taxpayers making them richer, which sits on their balance sheets. There are only 5 banks that hold 95% of the debts. All other banks are solvent!!! Most don't care about the 5 criminal banks getting knocked off their royalty positions.
Chris, total collapse could be coming to us. Obama is not looking at solutions that have been discussed by many economists that are out there in the public eye. Using these ideas would be simple, and less complicated, but he is not even considering such solutions, at this time. I foresee it will happen, but so much damage will have occurred to small business, employment and household wealth by then.
The Royal Scam of the Century is being delivered to us by TimmyG through the $2T dumping of the mortgage toxic debt into shell companies owned by the banking emperors, which they will then bankrupt, since the toxic mortgage debt will be the only holding. Then the banksters walk away with over inflated taxpayer winnings that valued the debt 2-3xs the mark to market price. Walla. The debt is magically gone, and the banksta emperors are totally re-capitalized with nothing to write off.
To your point about how communities are increasingly printing/circulating local currencies, have you also heard the statistics about how much barter and swapping are growing in popularity as an alternative to traditional money-currency transactions?
Barter is increasing in travel, house swaps are increasing in real estate transactions, etc.
Matt Lauer on the Today Show reported a 100% increase in barter transactions on Craigslist since the economic meltdown.
Interesting article link from Iconoclast above about the printing of money by local economies. Now, if only those states would pass a bill to print their own money, back it with infrastructure projects for the state (only put money into circulation with real infrastructure projects) and allow people to use the new money to pay taxes in said state, then we'd be getting somewhere. If the money can be used to pay taxes, then soon enough, the money will begin to circulate inside the state's economy.
The silliest thing is when a state legislature says "we don't have the money for X project in the state". Of course they do! They have all the money they want! They just have to create it and it must be backed by something real which can be utilized by the people living in the state, and it must be put into circulation with no debt attached to itself.
I propose that the economic system that ran correctly for nearly two centuries is responding to a new economic variable instead of just corruption. Please take a look at the newly identified economic principle detailed below, and do your best to rip my arguement apart. I'm moving this through government now.
Thanks to Randy and everyone that contributed to the knowledge needed.
I am a bit puzzled by the article you have linked to your post. You use the phrase "free market" quite a bit in your article but your solutions involve governmental "fixes". Your plan requires relative extensive government ownership and control over resources, innovation, etc. That is exactly the opposite of free market economics. In fact, I wasn't sure I saw anything "free market" about your scenario. Your thoughts?
You raise a good point. It involves a significant amount of intervention with respect to ownership of production rights.
When free market was first developed, there was no risk of offshore production and whatnot. What we had before outsourcing was still free market enterprise. With globalization, working class benefits all occur of foreign soil. An economy can't power itself on the innovation alone; it needs revenue from it.
Developed on US soil, an innovation that resulted in an economic boom in the years 1790-1950 provided the US GDP from:
Raw materials harvesting Manufaturing Management and skills services Retail Export
Today, that same innovation could be outsourced for full production. You'd have no working class injection to raise GDP. You get:
High level management income Retail, now collapsing Revenue from IP (if IP ownership doesn't shift)
It's insufficient to power an economy.
There was a day when the Swiss watch grew their economy, and when German engineering meant something for their economy too. Nobody else offered it. Remove exclusivity and the result is more competition, less income. In the absence of national competitive advantages, economic equalization is assured.
If I am wrong, show me how a system can maintain its strength when the wealth from innovation never reaches the working class. Movement on the outsourcing on the continuum is removing all that national income. Restore it, or equalize to be competitive.
Some news... a US state has viewed my economic principle and expressed intent to have it reviewed by a second advisor and/or the governor. If it appears solid, they will request the Whitehouse consider it as a means of economic correction.
In addition, CHBC News will have a feature spot where the principle is discussed. The two main points in the story are:
1. Economic theory needs to account for outsourcing as a GDP export along a continuum. If you lose raw materials harvesting, then manufacturing, then management, then skills labor, then upper management, at some point there isn't enough GDP remaining to power the economy. Nations must affect current jobs for the working class, not by creating short-term employment, but by capturing rights to production on local soil. Retraction along the continuum is necessary.
2. Nations must cooperate to realize strategic advantages and support IP rights of partner nations if they are to retain first world lifestyles. In the absence of strategic advantage, low price wins and economic reset is forced.
I presented to a university today; there was consensus that the element of free market mechanics I present is missing from free market economic theory, and that it has the potential to be highly influential. I also presented to a college and was advised they would review the proposed principle in more depth.
I just presented my economic theories to the Queen of England and the Pope and they are seriously considering recommending my plan to Willie Wonka and the Munchkins from the Wizard of Oz for further analysis.
If this goes well, we might all be buying products with kisses and hugs soon folks. Stay tuned!
I think I have figured out the entire Royal Scam. I believe I have pieced together how the banks will be getting the toxic debt off their balance sheets the way Geithner envisioned it. It is a beautifully designed Royal Scam. Now, if only the media were to see it and bust it open for all to see. You can't help but say brilliant.
Let's leave aside the merits of your theory for a second. I am not saying it is the right or the wrong way to go about solving the "crisis". What I am saying is that massive government intervention is exactly the opposite of free markets. In a true free market there is zero gov intervention. Under what possible definition is massive government intervention considered an essential element of free markets? Likewise, exactly who do you think is going to make sovereign governments adhere to another government's claim to the rights of sole ownership of an essential or important resource? Some world court? You would need a serious authoritarian NWO for that. You are calling for international, government protected "monopolies" which would destroy the mechanics of free markets. Also, sorry but I am going to have to call "B.S." on some state strongly considering your plan without some serious proof. I do appreciate your contributions to the discussion but you seem confused about some very basic economic elements. However, I could certainly be massively mistaken myself.
I don't believe a 'massive government intervention' is right. The free market can exist if a few strategic outputs are protected. This isn't a revision of all trade, rather it's selective rights to the production of a nation's key innovations.
Much of what you ask is how. Unfortunately, the plan and the state reviewing it, are things I cannot share. What good would a plan in the hands of the public be? Consider the effort required to review a plan amidst an influx of phonecalls. For now, those remain hidden from the public eye. They will come out soon enough.
Too many people see the trade deficits in developed nations and surpluses in developing nations thinking "yep, the money's movin and hmmm... we're accumulating debt." They need to think deeper.
What really goes into an iPod? IP rights (past labor) Raw goods harvesting (labor) Shipment of goods (labor) Manufacturing (labor) More shipping (labor) Retail (labor) etc, all supported by similar labor cycles in other industries.
When people look at money moving, they need to remember it's jobs they are really looking at. We are buying and selling employment. The products, like the money, are just a means to accomplish the trade. So a deficit balance isn't shifting of money, it's employment imbalance. It's outsourcing.
This brings me back to my prior point. There needs to be movement back on the continuum. We need to redirect those jobs back into the system.
There is no such thing as a free market. The interventions by a government, such as trade laws, corporation filing rules, patent and copyright laws, licensure, certifications, board examinations all establish ground rules for the so-called free market. It has been slanted in favor of the monopoly-financial capitalistic economy, instead of the manufacturing-real capitalistic economy, which is now below 17% of GDP.
Also Chris, I did not make up the Royal Scam facts. This is what has been laid out already by Geithner, Summers and ageed to by Obama. All I did was put all the pieces together.
Another look at P/E ratios of the S&P 500 with earnings at $ 27 (march 2009):
S&P / 27 = P/E
850 / 27 = 31 (today) 666 / 27 = 24 (early march)
The long term average P/E is 15. So, today the S&P 500 is still (very) overvalued. With P/E ratios still (far) above 20, the long term average of 15 calls for P/E ratios in the (low) single digits, (e.g. 3 or 7) before one can declare the bottom has been reached.
Chris (and others if interested) check this out: http://video.google.com/videoplay?docid=-2805059940327612897
You can skip the first 10 minutes or so, but from there through the 30 minute mark - look for dynamic self-assembling ways to achieve the targets you are looking for. Delanda describes two different "ways" for firms to be organized in a free market. One of those ways is highly amenable to your concept of capturing the value of innovation locally rather than exporting that value externally.
What is all your take on the rise in bank stocks? Where is Citi and the rest headed on Monday? I read that massive short selling is going on. Market-ticker is calling it out as a scam. Did the banks really need the taxpayer handoff or what? Check out Denninger's take on the banks in his today's posting.
There was big money being made yesterday and today. My friend on my blog has been buying up Citi and feels it will hit 18 by next Friday.
I am a wacko principlist. I won't join in in on the buying frenzy just because they are Wall Street crime syndicate thieves. So I fail in riding the profit's wave. I can live with myself for not being a hypocrite. That is just my wacko mind working.
I want to hear what you all think will happen over the next 5 trading days. Spell it out in a practical sense. I know what your philosophies are.
The problem is deeper than economic - and, therefore, the solution has to be deeper than economic.
We have gotten where we've gotten because of a number of interlocking failures that cut accross our cultural landscape. Jerry's ideas address the problems, but in order to really get ourselves in a long-term solid position, we have to interpolate from where we are to "how did we get here", identify the most fundamental causes that were tied to the most "bad" effects and remediate them.
If we fail to do that, we will simply "prop up" the system for some period of time after which it will just fall down harder.
Woot! Just saw myself on television. They did a good job outlining the theory. :)
I would suggest that we got here by leveraging an inequality, and we're falling because the people we exploit are becoming more capable. I'm providing the government a means to sustain the inequality for a longer period, but I'm a recipient of the benefits. Were I living in a deprived nation, my view would differ greatly.
If we want to work 8 hours in trade for what another builds in 40, there must be a reason... people must feel the value trade is worthwhile. Information sharing is eliminating that reason. In the short run, it's possible to protect information rights so there is no choice but to pay the price. That can't run indefinately, but it would enable a slow reset and ensure a higher global standard when equalization occurs.
I would appreciate a slower reset, but I don't feel this system should permit such inequality indefinately. Parity is the ethical option... I'd just like to reach it with a little less pain.
The 2008 earnings of the S&P 500 were at $14, this implies a P/E ratio of 850 / 14 = 60. So, the US stockmarket is still highly overvalued. Let's assume a P/E of 15 then the S&P 500 should be at 14*15 = 210. Analysts assume 2009 earnings to be $ 28, with a P/E ratio of 15 the S&P 500 should go down to 28 * 15 = 420. Source: John Mauldin.
I'm struggling with the economic Plan presented by Chris:
1)The plan is supposed to help. If I understand the current situation right now, it's that the bankters in charge are purposely destroying the economy. Why would they want to reverse that with a plan that would work?
2)If you are so high up on the food chain that the government will review your plan why would you spend your time blogging?
3)This plan as I understand it would make us a producing economy. We would then be competitors against the very people we are indebted. Why would they want that?
I have approached a view using the Dow Jones Industrial Average Closing figures.
Dow Jones on 1-April-91 was at 2881.19. As on 30-Mar-09 it stands at 7522.02 Investors as early as 1991 have received positive returns. On closer noting, positive returns; with reference to 30-Mar-09 closing on Dow Jones; has been to investors only earlier to 13-Nov-97
Investors in Dow Jones Index Fund, after 13-Nov-97 will have received negative return on their capital with an exception of three days in 2002 and many days after Feb-09.
For over a decade, in reference to 30-Mar-09 closing, the customer has received nothing on the capital invested.
I also compare it with a systematic investment plan investing into Dow Jones Industrial Average.
The example in the attachment states a monthly investment of $10,000 [Total investment = 2,170,000] from 1-Apr-91 till 30-Mar-09 in the beginning of each month in Dow Jones. Units purchased and accumulated when converted using 30-Mar-09 closing of Dow Jones as value gives an account value of $2,490,496.
Absolute return of 15% in 18 years or IRR of 0.364%
69 comments:
Hits the nail on the head: Geithner’s Dirty Little Secret - F. William Engdahl, 30 March 2009
The Stimulus package is a facade. It's purpose is to cover the US government's exit strategy, which is in the midst of being executed.
We know the USD is failing. We've known for some time. We also know the 'stimulus' approach can't work. It bolsters an economy for a short period, with the net result being inflation and lessened faith in the dollar. The government is counting on this.
At present, the US government is asset poor and debt ridden. If international creditors start knocking, the government is bankrupt. To combat this, the US government needs assets. But demand for the dollar is weak internationally, and the remaining buyers (China and Russia) are both expected to propose a world currency at the G20. International assets aren't for sale in USD, at least not in the volumes the US requires. Luckily the US doesn't need international buyers; Corporate America is at the bargaining table.
The government is converting free printed capital into assets under the guise of a bailout program. It's dollar conversion on the only remaining soil where the USD is still widely trusted. It's a brilliant and ruthless strategy. Major industries are being offered bailouts paid in failing funds, for which the government can secure ownership (assets), improving it's debt/asset ratio. If the government gains enough ground before major players catch on, faith in the dollar could be restored. The US lifestyle would still adjust, but the government would have returned to a viable operating position. If faith in the dollar is not restored, the US government's newly acquired assets can be divided up amongst the nations that own the credit notes. A restructuring of ownership occurs, and life resumes at the newer, more sustainable level.
The plan is brilliant. By simply siezing control of Corporate America, the government can fund an exit strategy. If OPEC flips to a new global currency, or if there is a bank run on the US government before the plan is enacted, it will fail. But if the 'stimulus' package buys enough time, the US government will be just fine. :)
Randy, I wasn't sure where to put this. It's a view I've seen no threads on. Could you start one?
Great thoughts Seige. I like your thinking on the "fiat for real goods" angle. Keep preachin' it!
-Iconoclast
Siege - awesome. Where did you get that notion? It may seem bizarre, but its the first theory that explains all of the behaviours.
Get this, BofA and Citi are buying up bad paper at above market prices (still below face value of course) so that they can make a killing selling it to Geithners PPIP
http://dissidentvoice.org/2009/03/geithners-hog-wallow/
Siege: What Divvy up bad mortgages, agency paper and corporate debt to foreigners? I don't thin' so Senor. It's not true capital and there is not ability to produce, the assets still reside in a foreign land that has the biggest, baddest navy in the world (never mind that China may have a super-carrier destroying missile).
Idunno, I think this is all about the elite and the banks and Timmy and Larry doing their bidding. The $ is probably safe for a while longer as other economies will detioriorate more quickly than here in the good ole U.S. of A.
Seige, Completely agree with the others - you have put forth an excellent argument that superbly ties many of the disparate pieces together and still passes the common sense test.
BTW: Just created a link to this post from the main page.
Thanks for sharing
The simplist explanation is the best. The Gov't fears a deflationary depression because most monetary and fiscal tools don't work in this instance. Our Gov't prefers the alternative - an inflationary depression, plus, under this alternate, we can pay down the national debt with inflated (devalued) dollars, and meet future medicare and social security obligations by the same means. (Of course, the inflation adjusted benefits will be slashed) Thus, the bailouts and increase in money supply continue until we see inflation with our depression. When foreigners realize the loss in value of their dollar denominated assets they'll exit the dollar and our inflation will turn "hyper". And in a terribly perverse way, a very weak dollar will eventually reinvigorate domestic industrial production at the expense of imports, assuming we still use dollars.
History repeats.
GFC for supper all you hedgies. Geithner's Fried Capital dinners with fries and potato salad will be served at the GFC G-20 dinner talent show.
Steven,
There are very few toxic assets; in truth, most of the assets being cleared are a steal. It's not just the government that knows it... right now two major banks are buying 'toxic' assets at prices far above their valuation. I'm happy to explain why.
First, what we know:
1. A hyperinflationary period is coming, during which the dollar's value will be shed.
2. The US government can't raise interest rates if it is to service the debt.
When hyperinflation hits, the US dollar will rapidly plummet in value and there will be no interest to offset the losses.
Translation - Invest in assets and dump USD.
For banks, this means buying up the 'toxic' assets as a means of siezing something of value. For the government it means (back to my first theory) printing more money and using it to sieze assets as well.
But they're toxic! Yeah, bullsh?t. Fact is, when the dollar crumbles, the prices paid for these assets will seem a steal. US hyperinflation percentages will be unfathomable by today's standards, but I'd like to present what we can accept today as realistic. Assume dollar deflation of a meager 25-50%, which translates into price level increases of 25-50%. These toxic mortgages just became solvent. In fact, they just became one of the best stores of value one could hope for.
So why would banks want mortgages instead of business? In the event of a total collapse, one need only look at the first tier on Maslow's chart. Basic sustainability will be the focus. This means water, food, and shelter. Banks can't hold water, and food won't move without the other infrastructure (such as transportation). The next most valued asset is the housing/land combination.
Banks are strategic. Did you really expect them to roll over? Ell no, they're powerful for a reason, and today these two position to become superpowers.
Summary:
The assets are only toxic in the short run
The money is explosive so the two banks and the US government are dumping it
The theory holds strong.
I'd like to point out that I don't like my theory; in truth I hate it. But it's the only theory to date that explains all of what's going on. If you set aside the notion that economics is a social system, and consider only the financial and survivability tactics used in financial warfare, this approach doesn't seem so far fetched.
I don't agree with Siege. I think first the 30-year US T-bond will drop, then the USD and that will cause an amount of (price-)inflation. The other major currencies as the euro and the yen aren't good as well.
As long as banks are not willing to lend and consumers aren't willing to borrow, monetary(hyper-)inflation doesn't stand a chance. Right now, we're still in Deflation.
Thank you for not agreeing with me. I don't want to be right; I just want to figure it out.
Some thoughts on your post...
We know all the world's economy is linked to the main trade currency, which at this time is the USD. If people lose faith in said currency of international trade, then said trade slows. And since the other countries also rely on international trade to operate, couldn't this undermine their systems causing the shared recession?
I'm no expert, but I think the economic disturbances abroad are much closer linked to the US than others wish to believe. I don't think it will take long before international debt holders find a more solvent means of trade, not for spite but simply as a means of restoring faith and jumpstarting a broken system. The problem of course, is that when this happens, $13 trillion in US loans will be called. It's a bank run on a nation, borne of an international trade system that's proving flawed at a very rapid pace.
I think the credit crunch is simply a function of international mistrust in solvency of the USD. When the means of trade is corrected, faith will be restored, global trade will commence again, and the US will have to pay the piper. With this surplus of USD no longer in demand internationally, and entire countries seeking to capitalize on the debt, hyperinflation is the ONLY probable outcome.
In a closed economic system, I might agree with your view. But in one where the risk is external to the nation, I think the measures must be more macroeconomic.
Thanks Siege, great explanation, another version of he who dies with the most toys wins.
"Our Gubmint has more net asset value than your Gubmint, we win!
China has already lost faith in the USD as they have been finding ways to avoid using USD for trade. In this article, China and Argentina agree to currency swap Eric deCarbonnel noted that this is the first time China has done currency swap outside of their asian neighbors and is expected to continue pursuing more bilateral currency swaps with other countries which will further decrease demand for USD. THis then puts China in a better position in the event of a collapse of USD and may very well be in position to hold the White House hostage
The reason there's worldwide credit crunch is the giant amount of debt wich is in the entire world. Not only in the US but in Europe, Australia and Japan as well. This giant worldwide debtbubble started to implode in the summer of 2007. Keyword: "The waves of Kondratieff". Randy still has a link to articles on this topic on his website. Read it !!
I agree, the elites of Washinngton and Wall Street are trying to profit from it and the rest of the country has to foot the bill.
The credit crunch is exacerbated by the fall the price of oil and the shrinking budget- and trededeficits all around the world. And that would put the US in a world of hurt because it's so extremely dependent on the inflow of foreign capital. And that's why the Federal Reserve has started to monetize the US federal debt.
I think the stimulus bill is meant to buy Congress to not oppose the rescue of the powerbrokers from Wall Street. It's a way for the members of Congress to "bring home the bacon" to their constituancies.
Consider the possibility (I don't think it will be much of a stretch) that Siege's theory was the endgame from the beginning. It would be to the gov'ment's advantage to intentionally initiate the housing (real asset) bubble through promises to Fannie and Freddie that all bad mortgages would be taken care of. The greedy Wall Street guys did just what they were supposed to do (make "toxic" loans) and let homeowners pay off as much of the house as possible. Then the big balloon hit where they would have to give the house back before the hyperinflation made them cheap. Then the gov buys up the assets and throws the whole system into hyperinflation to pay off our foreign debt AND own quite a bit of American real estate and big business to boot. Notice the banks are using the money they have received through the kickbacks, er, bailouts to buy other banks. They prefer assets to cash also. The table is tilted and we ain't on the right end.
-Iconoclast
Still chewing on the Seige maneuver. Interesting to note that if you are sitting in the government and chewing on the fact that the US is going to hit the wall unless the consumer/voter changes his behaviour significantly (e.g., save, reduce entitlements, etc) *and* that it has proven impossible except in a crisis to actually get this to happen . . .
Kill two birds with one stone - re-establish the solvency of the government *and* adjust the behaviour of hundreds of millions of people.
But Seige - who exactly is driving this brain trust? Have to leave it at Summers and Geitners table given their history around Glass Stegall, etc.? Certainly Summers would have the cycles and perspective to pull this off - and it explains the otherwise inexplicable shift of economic advisors as Obama moved from campaign to office.
Banks are strategic. they're powerful for a reason
It makes sense, sort of, the housing bubble bursts, people are upside down on their mortgages, American Government controls the value of the dollar. But the American Government is an amorphous collection of President, Congress and Judicial. Plus civil servants, lobby groups etc. For example, what does Hank Paulson get for his trouble, George Bush? When you start talking about real people what do they get? Wealth, security control? Danielle Dimartino used to write for the Dallas News, I think she worked for the Fed for a while. What does she get?
I don't think that anyone or any group is in control. It's more spiritual, good versus evil. I have the feeling that the world is about to change. Radically. After all America voted for change! Things symbolic are about to become things real.
God bless America!
The theory Seige puts forth may or may not be entirely correct, but it's an important step in the right direction.
Certainly it has been baffling why the Obama administration would embark on such an abbrupt change of course from it's campaign retoric... what with these outrageous ongoing bailouts of Wall St.
Seige is on the right track in formulating a theory that seeks to attribute current goverment actions with a longer term stragety to mantain power & succeed on the fluid world chessboard. It's completely plausible that there are less than altruistic notions behind our Gov's actions. Sad but true that
as usual, the masses are mere pawns in this game.
Hey Randy, I think it's time for a new thread. I think I have discovered the first viable solution to the US economic problem to date.
We know unbacked debt has caused this problem.
We know trade will cease without faith in the USD.
We know that if the world flips trade currencies, the US is going to feel a world of pain.
Celente (renowned trend forcaster) has forecasted doom, claiming that innovation is required for eventual recovery. The US must produce it's way out of the problem. In his forecast holds the key.
Right now, the US is shifting debt and it needs GDP to remain solvent, lest the debt become to great. I think the debt is the solution... stimulus, but in a new form. I believe the US needs to repay the debt to rebuild the society. Don't laugh... hear me out.
If the US went to a creditor nation with a proposal to replace known defaulting money with stuff, they'd take it. How they use the stuff to increase their standard of living is up to them. Point is stuff for defaulting funds is a good deal! Buyers would arise, or there would be proof the debt would not be called. Both are solutions.
Now the government goes to companies and says "Good news guys ________ nation wants $1 Trillion in stuff. Fire up the burners boys, we're back in work!"
We would have stimulus of demand, a US economy bent on producing for the world, and consumers. We'd have money moving back in as opposed to new money with no backing. We'd see deflation, but at a controlled rate, with high employment, and without the implosion.
A few caveats would need to be in place, such as assurances of no food trade embargos or restriction of other life essentials. This would ensure success, while keeping the approach running a bit longer.
Randy, if you think this solution viable, please start a new thread and let's get to analysing. There's little time to examine it and lobby the US government with it if the theory proves sound. I'm feeling pretty good about it personally, and I think it's a 'ell of a lot better than the strategies I've seen playing out lately.
I should also mention that the other nations would have to follow suit, paying their debt and stimulating demand in the same fashion. It would be a consumption rich system, where goods are again plentiful and cheap and employment is high. Developing nations such as China would have to increase demand internally to thrive in the environment. Basically, their government would become it's country's trading partner, returning produced goods back to the people in the form of infrastructure, production capacity, and product. Standard of living would rise for their people as well as the nations solving debt issues.
For posterity's sake, I'm adding a source code to this concept.
6553 23860 757 278744
Hope you can all forgive my wording in the roughed out stimulus and US recovery plan detailed this morning. Hehe... it was written pretty early and it's not as accurate as it could be. Anyway, the concept is better than what's coming out of the G20, no question.
I thought you all might like to know that the plan is evolving and will be posted in greater detail, assuming Randy builds it a new home. I'm also meeting with a college economics professor that has political links, but would appreciate some additional avenues if you have any. Just view my profile and send a message.
As far as this $11 Trillion US stimulus (debt reduction) theory is concerned, please feel free add to it or rip it to shreds as you see fit. I'm working on how it would be executed by national powers.
- Siege
You have to see this cartoon over at Sinclair's... from the Chicago Tribune circa 1934. It's deja vu all over again!
Planned Economy or Planned Destruction?
I have sent details on the new economic approach to Gerald Celente, President Obama, Governor Schwartzenegger, and a few other high players. Hopefully one takes notice. Cheers all,
Siege
Interesting... so if I read you right, you're saying that simulated demand a suitable replacement to stimulated demand, and that producing goods to repay deficit dollars would still fire up the engines for production allowing GDP to support the people and pay of the debt.
It's reversing the trade direction between the US and her creditors. There would be an adjustment period, but I can see how it would work. The US would shift back into a nation of production. It would take time to build capacity, but free enterprise is great at shifting gears when money is present.
This is the first theory that avoids US economic collapse. And it's largely proven, as the countries the US traded with in the past did improve despite their lack of realized cash inflow. I like it. You've turned debt into an asset.
Actually I'd consider the debt more of a bargaining chip, but you're right. The US simply needs demand for it's products. Using the debt to create an $11 Trillion dollar consumption engine for US goods would run the economy for a looong time.
When all is said and done, the US people would have enjoyed gainful employment for 40 or so years and the standard of living throughout the world would have increased as a result of US repayment. All the while, the US system runs without fresh injections of capital.
I've thought up a whole chapter on this concept... on how to make it work from start to end. It's shaping up well.
Hello Chris,
Thanks for asking my humble opinion on your recovery theory. I originally responded in the comment box under the posting that Randy had allocated for your piece. I have cut and pasted it here with embellishments.
Major industries have not been offered bailouts, thus far. The only industry offered a bailout is the financial sector and they have been recapitalized are about to have their toxic mortgage debt auctioned off with government subsidized funds.
The auto industry has been offered loans, but will eventually be sent to bankruptcy court. The government has not offered to bail them out. On the contrary, they have offered loans and worker supports only.
I have seen no evidence of this theory, although I would not discount it from evolving in the future.
I agree that the demand for dollars is shrinking. One reason is that spending is shrinking. There are less dollars in circulation. Deflation is the monetary principle at hand. No spending, decreasing trade deficit. Decreasing trade deficit, fewer dollars buying imports. Remember, currency values are all about availability, fluidity, liquidity, and stability. The dollar continues to fit all categories when compared to other currencies. Watch China's manufacturing continue to shrink. They are importing less now, and are exporting less now, too.
The G-20 resolved only one issue. That was collectively giving third world countries $1T. No doubt, that was to make sure those central banks don't default on IMF interest payments. Watch European central banks begin collapsing as their investments in Eastern European central banks begin to default. The world is heading downward.
The stock market highs will eventually fall, in my opinion. The growth is unsustainable.
Chris, our assets are food commodities, coal, and 17% GDP manufacturing output. In addition, it is also the ingenuity of the very smart and creative minds still wanting to be inventive.
The stimulus is small potatoes, yet will circulate cash, and revenues. The biggest fraud is the entire Geithner Recovery Plan. And now, worse is the toxic mortgage dump on the taxpayer fraud. This is trickle down economics at its very worst. even Reagan would likely cringe.
Chris, I don't see the government seizing control of corporate America. As a matter of fact, just the opposite: letting bankrupted financial corporations to still exist. GM was only symbolic. If anything, major downsizing will occur to our shrink monopolistic corporations in order to stay solvent with more unemployment will be the move. Using anti-trust to break them up would be better.
I continue to return to my premise that Obama is frightened of the financial oligarchy syndicate, since he has embedded his entire cabinet with former Trojan Horses of that syndicate. He only went after GMs CEO, Wagoner, because he could be made an example of. He was the guy who walked the plank for a price. Throw him to the vocal citizen wolves wanting a head no matter whose head. But his was the wrong head.
Obama was willing to talk tough with him because he has no power or bite. But, the financial crime syndicate has incredible bite. Big corporate thieves within banking, finance and monopoly corporations, especially those embedded deeply in the defense industry have incredible power.
Not one big headed banksta has been hung from the pole. Those who crashed the bus are still driving the buses.
There is a lot to be said for what Krugman has been saying. Dean Baker, too. Taleb as well. Michael Hudson especially.
Thanks for asking my opinion, for what it is worth. (It gets ya a cup of coffee and that is about it!)
This summer will be very interesting!!!
Chris said the following:
Actually I'd consider the debt more of a bargaining chip, but you're right. The US simply needs demand for it's products. Using the debt to create an $11 Trillion dollar consumption engine for US goods would run the economy for a looong time.
Jerry says the following:
Chris--that is what Obama wants to do. Use the debt to fire up production, but demand is shrinking because the world has slowed down. Unemployment is rising because demand is shrinking. There have been trillions funneled into the wrong engine.He is using a trickle down engine. FDR took 60% of the unemployed once he took office and created things to do: roads, bridges, buildings, schools, rural electric grid, etc. It was a massive undertaking. He lowered unemployment figures. The only thing that will bring about long term productivity is a bottom-up stimulus putting people back to work. I have written on this extensively. It becomes a bottom up engine.
Chris says:
When all is said and done, the US people would have enjoyed gainful employment for 40 or so years and the standard of living throughout the world would have increased as a result of US repayment. All the while, the US system runs without fresh injections of capital.
Jerry says:
Following the Great Depression, especially after the WW2, there was prosperity, and it took the banks 20 years to recovery again. We don't want war to be our prosperity generator, but a slower form of growth using energy and moving toward sustainability would be the way.
Zombie banks LOL.
**********BREAKING NEWS!!****************
G 20 released papers: " We have agreed to support a general SDR allocation that will inject 250 billion into the world economy & increase global liquidity & urgent ratification of the 4th amendment." The IMF 4th amendment states that the SDR can be used as a global currency. 74% of voting members support ratifying the 4th amendment. Now only one country has to agree: the USA (& Geithner already said he supports the SDR!). And we will have a new global reserve currency.
http://www.youtube.com/watch?v=Ull_HZUxAMk&feature=channel_page
Telegraph:By Ambrose Evans-Pritchard
"The G20 moves the world a step closer to a global currency
The world is a step closer to a global currency, backed by a global central bank, running monetary policy for all humanity.
A single clause in Point 19 of the communiqué issued by the G20 leaders amounts to revolution in the global financial order.
"We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity," it said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century. In effect, the G20 leaders have activated the IMF's power to create money and begin global "quantitative easing". In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body. Conspiracy theorists will love it."
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5096524/The-G20-moves-the-world-a-step-closer-to-a-global-currency.html#comments
Thanks for some meat to ponder Jerry! I do have a few comments, and a cool new source.
To date, 316.6 Billion in bailouts has been exchanged for shares. You're right, it's mostly in banks, but there are other institutions. You can see them all here:
http://hosted.ap.org/specials/interactives/_business/bailout_tracker/
You are right that world demand has started to shrink. Still, in the back of my mind speaks a little voice that says the greed is still there. If the US offered to take back failing USD and give current creditor nations product in return, these nations would take the deal. That's greed creating demand. Sure it's simulated instead of actual, but it's demand none the less. The US would have to take a great leap, stating they can't pay in gold but can pay in product. Obama would have to appear to be doing due diligence.
Now simulated demand would push the US' dollars back into the US economy, realized as monetized debt. International M3 would shift to local M1 before being pulled out through taxation. The US would control an inflow of debt, monetized to pay for the goods, and countries would get goods from the US. Highly inflationary yes, hyperinflationary no. The actual value of the USD would eventually be realized, with limited protection of dollar value resulting from the taxation drawdowns and digital money destruction.
It's not pretty; it's basically national OPD. But it's also a nation working, joblessness solved, and a functional model without the collapse. It's people keeping their houses instead of losing them. It's the lifestyle of a producer nation... better than what we're headed for, but not as frivolous in spending as we see today.
Given the situation, trickledown economics is a joke. I think it starts one level back from jobs, as jobs don't last without demand. Real demand is in limited supply, a simulated demand through US debt repayment is one of few remaining options.
I agree with that war isn't a means of recovery. I don't think it's ever worked; rather, I contest that innovation did. War was little more than a stop gap while innovation caught up.
More will make sense as I continue to put my theory to paper. But for now, I'm getting the impression we agree on many things, we're just viewing them differently.
All theories have winners and losers, and mine is particularly nasty. I'm up to 9 pages detailing the theory and it's proving solid as a rock. But I'm not so sure it's a good thing.
1. We know the damage to the environment and resource base that our current lifestyle causes. My theory would enable this heavy consumption... actually it would increase it. I'm a minimalist and this grates me.
2. We would need to shift the US to a production based economy, right when China is becoming one. I see massive polution as a side-effect. Yep, I'm an environmentalist too.
3. A supreme world governing body is born; it looks a lot like what was in Bicentennial Man with representatives from all nations. The financial and trade theory requires this to operate. I don't know that the world is ready.
4. High tax high inflation nations rarely remain productive. If the US becomes both, which it must to repay the debt, what's to stop business from packin up?
That last one's my plan killer. Still workin on it. No answer to date. The other issues plague me too. The question of course, is if the current US' high consumption society should be propogated to other nations. So... given an option to grow it or kill it, which should it be?
" If the US offered to take back failing USD and give current creditor nations product in return, these nations would take the deal."
Chris, what product are you figuring to exchange for USD?
Let me say this, if Obama were to pursue a radical approach to economic recovery as you are offering, then there are other ways to do domestically without having to entangle ourselves with other nations and their complex laws and policies, such as nationalization of bank assets, then taking those assets and recapitalizing lost 401K plans through a National Investment Program, whereby a person's lost 401K would be replaced with bank assets and held in a government program that could be used as loan capital to rebuild US corporations that could be used to take the nation into an energy independent place, and stimulate the economy through new enterprises, such as a massive national rail system, energy independent communities, local food production and the breaking up of monopoly capitalistic corporations strangling the free market.
Once people are no longer afraid of further personal wealth losses, they might want to begin to spend a bit more, borrow some money to fix their lives back up or homes, help their kids with college or buy a more fuel efficient car-new or used.
The world would then see our economy recovering and that our nation is capable of doing it on our own. They would have a restored faith in our economy and may then feel more confident to buy some Treasuries or whatever.
There are other ways of framing the problem and solving it. I do believe that simple is better. Maybe that is why I am a simpleton.
Chris--continue to think. Continue to write. Continue to create. It is an exercise in growth.
Jerry,
I like your creative mind. Many would oppose nationalization, but everything has it's place. I do agree that there are viable radical approaches. I'm in favor of anything that doesn't necessitate a total collapse.
The surpluses of Social Security (SS) are shrinking at an alarming rate and could turn into a deficit in the second half of this year. Ever since the LBJ administration the US government has used every dime that came in this SS fund to pay for the general expenses of the government. i.e. the SS trust fund only contains a mountain of IOUs. And that's another future (tax-)burden for the US taxpayer. Source: Mike Shedlock
Chris, I don't believe that Americans would object to nationalization. The people are sick of privatizing the winnings and socializing the losses. Americans are tired of such giveaways to the banks and their selling of their overinflated toxic mortgage assets/debts to the taxpayers making them richer, which sits on their balance sheets. There are only 5 banks that hold 95% of the debts. All other banks are solvent!!! Most don't care about the 5 criminal banks getting knocked off their royalty positions.
Chris, total collapse could be coming to us. Obama is not looking at solutions that have been discussed by many economists that are out there in the public eye. Using these ideas would be simple, and less complicated, but he is not even considering such solutions, at this time. I foresee it will happen, but so much damage will have occurred to small business, employment and household wealth by then.
RANDY,
CHECK THIS OUT. WHAT DO YOU MAKE OUT OF THIS?
-ICONOCLAST
http://www.usatoday.com/money/economy/2009-04-05-scrip_N.htm?csp=34
The Royal Scam of the Century is being delivered to us by TimmyG through the $2T dumping of the mortgage toxic debt into shell companies owned by the banking emperors, which they will then bankrupt, since the toxic mortgage debt will be the only holding. Then the banksters walk away with over inflated taxpayer winnings that valued the debt 2-3xs the mark to market price. Walla. The debt is magically gone, and the banksta emperors are totally re-capitalized with nothing to write off.
Iconoclast,
To your point about how communities are increasingly printing/circulating local currencies, have you also heard the statistics about how much barter and swapping are growing in popularity as an alternative to traditional money-currency transactions?
Barter is increasing in travel, house swaps are increasing in real estate transactions, etc.
Matt Lauer on the Today Show reported a 100% increase in barter transactions on Craigslist since the economic meltdown.
Here are a few sites:
http://cbs11tv.com/local/bartering.web.sites.2.963710.html
http://www.nbc33tv.com/news/craigslist-bartering
http://www.cnn.com/2008/LIVING/wayoflife/09/02/bartering.rise/index.html
Interesting article link from Iconoclast above about the printing of money by local economies. Now, if only those states would pass a bill to print their own money, back it with infrastructure projects for the state (only put money into circulation with real infrastructure projects) and allow people to use the new money to pay taxes in said state, then we'd be getting somewhere. If the money can be used to pay taxes, then soon enough, the money will begin to circulate inside the state's economy.
The silliest thing is when a state legislature says "we don't have the money for X project in the state". Of course they do! They have all the money they want! They just have to create it and it must be backed by something real which can be utilized by the people living in the state, and it must be put into circulation with no debt attached to itself.
I propose that the economic system that ran correctly for nearly two centuries is responding to a new economic variable instead of just corruption. Please take a look at the newly identified economic principle detailed below, and do your best to rip my arguement apart. I'm moving this through government now.
Thanks to Randy and everyone that contributed to the knowledge needed.
http://economicfix.blogspot.com/
Chris,
I am a bit puzzled by the article you have linked to your post. You use the phrase "free market" quite a bit in your article but your solutions involve governmental "fixes". Your plan requires relative extensive government ownership and control over resources, innovation, etc. That is exactly the opposite of free market economics. In fact, I wasn't sure I saw anything "free market" about your scenario. Your thoughts?
-Iconoclast
You raise a good point. It involves a significant amount of intervention with respect to ownership of production rights.
When free market was first developed, there was no risk of offshore production and whatnot. What we had before outsourcing was still free market enterprise. With globalization, working class benefits all occur of foreign soil. An economy can't power itself on the innovation alone; it needs revenue from it.
Developed on US soil, an innovation that resulted in an economic boom in the years 1790-1950 provided the US GDP from:
Raw materials harvesting
Manufaturing
Management and skills services
Retail
Export
Today, that same innovation could be outsourced for full production. You'd have no working class injection to raise GDP. You get:
High level management income
Retail, now collapsing
Revenue from IP (if IP ownership doesn't shift)
It's insufficient to power an economy.
There was a day when the Swiss watch grew their economy, and when German engineering meant something for their economy too. Nobody else offered it. Remove exclusivity and the result is more competition, less income. In the absence of national competitive advantages, economic equalization is assured.
If I am wrong, show me how a system can maintain its strength when the wealth from innovation never reaches the working class. Movement on the outsourcing on the continuum is removing all that national income. Restore it, or equalize to be competitive.
Some news... a US state has viewed my economic principle and expressed intent to have it reviewed by a second advisor and/or the governor. If it appears solid, they will request the Whitehouse consider it as a means of economic correction.
In addition, CHBC News will have a feature spot where the principle is discussed. The two main points in the story are:
1. Economic theory needs to account for outsourcing as a GDP export along a continuum. If you lose raw materials harvesting, then manufacturing, then management, then skills labor, then upper management, at some point there isn't enough GDP remaining to power the economy. Nations must affect current jobs for the working class, not by creating short-term employment, but by capturing rights to production on local soil. Retraction along the continuum is necessary.
2. Nations must cooperate to realize strategic advantages and support IP rights of partner nations if they are to retain first world lifestyles. In the absence of strategic advantage, low price wins and economic reset is forced.
I presented to a university today; there was consensus that the element of free market mechanics I present is missing from free market economic theory, and that it has the potential to be highly influential. I also presented to a college and was advised they would review the proposed principle in more depth.
I just presented my economic theories to the Queen of England and the Pope and they are seriously considering recommending my plan to Willie Wonka and the Munchkins from the Wizard of Oz for further analysis.
If this goes well, we might all be buying products with kisses and hugs soon folks. Stay tuned!
I think I have figured out the entire Royal Scam. I believe I have pieced together how the banks will be getting the toxic debt off their balance sheets the way Geithner envisioned it. It is a beautifully designed Royal Scam. Now, if only the media were to see it and bust it open for all to see. You can't help but say brilliant.
Brilliant... ha! It's sugar coated arsenic. Best take two, won't want to wake after the impact of what you've presented.
I hope you're wrong. I don't think I'm ready to see such brutality from a nation of such noble roots. Still, I can find no fault in what you present.
Chris,
Let's leave aside the merits of your theory for a second. I am not saying it is the right or the wrong way to go about solving the "crisis". What I am saying is that massive government intervention is exactly the opposite of free markets. In a true free market there is zero gov intervention. Under what possible definition is massive government intervention considered an essential element of free markets? Likewise, exactly who do you think is going to make sovereign governments adhere to another government's claim to the rights of sole ownership of an essential or important resource? Some world court? You would need a serious authoritarian NWO for that. You are calling for international, government protected "monopolies" which would destroy the mechanics of free markets. Also, sorry but I am going to have to call "B.S." on some state strongly considering your plan without some serious proof. I do appreciate your contributions to the discussion but you seem confused about some very basic economic elements. However, I could certainly be massively mistaken myself.
-Iconoclast
Iconoclast,
I don't believe a 'massive government intervention' is right. The free market can exist if a few strategic outputs are protected. This isn't a revision of all trade, rather it's selective rights to the production of a nation's key innovations.
Much of what you ask is how. Unfortunately, the plan and the state reviewing it, are things I cannot share. What good would a plan in the hands of the public be? Consider the effort required to review a plan amidst an influx of phonecalls. For now, those remain hidden from the public eye. They will come out soon enough.
Too many people see the trade deficits in developed nations and surpluses in developing nations thinking "yep, the money's movin and hmmm... we're accumulating debt." They need to think deeper.
What really goes into an iPod?
IP rights (past labor)
Raw goods harvesting (labor)
Shipment of goods (labor)
Manufacturing (labor)
More shipping (labor)
Retail (labor)
etc, all supported by similar labor cycles in other industries.
When people look at money moving, they need to remember it's jobs they are really looking at. We are buying and selling employment. The products, like the money, are just a means to accomplish the trade. So a deficit balance isn't shifting of money, it's employment imbalance. It's outsourcing.
This brings me back to my prior point. There needs to be movement back on the continuum. We need to redirect those jobs back into the system.
There is no such thing as a free market. The interventions by a government, such as trade laws, corporation filing rules, patent and copyright laws, licensure, certifications, board examinations all establish ground rules for the so-called free market. It has been slanted in favor of the monopoly-financial capitalistic economy, instead of the manufacturing-real capitalistic economy, which is now below 17% of GDP.
Also Chris, I did not make up the Royal Scam facts. This is what has been laid out already by Geithner, Summers and ageed to by Obama. All I did was put all the pieces together.
Another look at P/E ratios of the S&P 500 with earnings at $ 27 (march 2009):
S&P / 27 = P/E
850 / 27 = 31 (today)
666 / 27 = 24 (early march)
The long term average P/E is 15. So, today the S&P 500 is still (very) overvalued. With P/E ratios still (far) above 20, the long term average of 15 calls for P/E ratios in the (low) single digits, (e.g. 3 or 7) before one can declare the bottom has been reached.
P/E * today´s earnings = S&P 500
7 * 27 = 189
3 * 27 = 61
Chris (and others if interested) check this out: http://video.google.com/videoplay?docid=-2805059940327612897
You can skip the first 10 minutes or so, but from there through the 30 minute mark - look for dynamic self-assembling ways to achieve the targets you are looking for. Delanda describes two different "ways" for firms to be organized in a free market. One of those ways is highly amenable to your concept of capturing the value of innovation locally rather than exporting that value externally.
J
I see more than slight similarities. Feelin a little ripped, but my perspective now has followers I guess.
What is all your take on the rise in bank stocks? Where is Citi and the rest headed on Monday? I read that massive short selling is going on. Market-ticker is calling it out as a scam. Did the banks really need the taxpayer handoff or what? Check out Denninger's take on the banks in his today's posting.
There was big money being made yesterday and today. My friend on my blog has been buying up Citi and feels it will hit 18 by next Friday.
I am a wacko principlist. I won't join in in on the buying frenzy just because they are Wall Street crime syndicate thieves. So I fail in riding the profit's wave. I can live with myself for not being a hypocrite. That is just my wacko mind working.
I want to hear what you all think will happen over the next 5 trading days. Spell it out in a practical sense. I know what your philosophies are.
My error... he does explain similar principles. That's cool.
Buring my head in the sand though, for his movie was created in 2007.
Jerry, Chris,
The problem is deeper than economic - and, therefore, the solution has to be deeper than economic.
We have gotten where we've gotten because of a number of interlocking failures that cut accross our cultural landscape. Jerry's ideas address the problems, but in order to really get ourselves in a long-term solid position, we have to interpolate from where we are to "how did we get here", identify the most fundamental causes that were tied to the most "bad" effects and remediate them.
If we fail to do that, we will simply "prop up" the system for some period of time after which it will just fall down harder.
Dive deep.
Woot! Just saw myself on television. They did a good job outlining the theory. :)
I would suggest that we got here by leveraging an inequality, and we're falling because the people we exploit are becoming more capable. I'm providing the government a means to sustain the inequality for a longer period, but I'm a recipient of the benefits. Were I living in a deprived nation, my view would differ greatly.
If we want to work 8 hours in trade for what another builds in 40, there must be a reason... people must feel the value trade is worthwhile. Information sharing is eliminating that reason. In the short run, it's possible to protect information rights so there is no choice but to pay the price. That can't run indefinately, but it would enable a slow reset and ensure a higher global standard when equalization occurs.
I would appreciate a slower reset, but I don't feel this system should permit such inequality indefinately. Parity is the ethical option... I'd just like to reach it with a little less pain.
The 2008 earnings of the S&P 500 were at $14, this implies a P/E ratio of 850 / 14 = 60. So, the US stockmarket is still highly overvalued. Let's assume a P/E of 15 then the S&P 500 should be at 14*15 = 210.
Analysts assume 2009 earnings to be $ 28, with a P/E ratio of 15 the S&P 500 should go down to 28 * 15 = 420. Source: John Mauldin.
what has happened to randy ? i have been reading this site for over a year and he has never left this long
We have been wondering the same thing. It is spring break. but is it getting close to 2 weeks.
I'm struggling with the economic Plan presented by Chris:
1)The plan is supposed to help. If I understand the current situation right now, it's that the bankters in charge are purposely destroying the economy. Why would they want to reverse that with a plan that would work?
2)If you are so high up on the food chain that the government will review your plan why would you spend your time blogging?
3)This plan as I understand it would make us a producing economy. We would then be competitors against the very people we are indebted. Why would they want that?
To the comment directly above I say amen, amen, and amen.
-Iconoclast
I sure hope Randy is on business or vacation, since his absence has many of us worried, at this point in time.
Any clues out there?
http://www.goldmansachs666.com/
Goldman Sachs is going after this blogger with a law suit. Check this out.
I heard from him via an email on the 8th. Nothing since that time though.
Justin_n_Il
I have approached a view using the Dow Jones Industrial Average Closing figures.
Dow Jones on 1-April-91 was at 2881.19. As on 30-Mar-09 it stands at 7522.02
Investors as early as 1991 have received positive returns.
On closer noting, positive returns; with reference to 30-Mar-09 closing on Dow Jones; has been to investors only earlier to 13-Nov-97
Investors in Dow Jones Index Fund, after 13-Nov-97 will have received negative return on their capital with an exception of three days in 2002 and many days after Feb-09.
For over a decade, in reference to 30-Mar-09 closing, the customer has received nothing on the capital invested.
I also compare it with a systematic investment plan investing into Dow Jones Industrial Average.
The example in the attachment states a monthly investment of $10,000 [Total investment = 2,170,000] from 1-Apr-91 till 30-Mar-09 in the beginning of each month in Dow Jones. Units purchased and accumulated when converted using 30-Mar-09 closing of Dow Jones as value gives an account value of $2,490,496.
Absolute return of 15% in 18 years or IRR of 0.364%
On the topic Teabag party
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