We are all Slaves/The Truth of Money

The expectation adjusted Phillips Curve basically vindicated Friedman in the 70s.

When expansionary monetary and fiscal policies are initially introduced.......they work. However, as expectations adjust, and labor demands more to keep their real wage constant you reach a tipping point. Where expansionary policies are exhausted the economy slows........but the money is still floating around......chasing the remaining marginal goods so you eventually produce an inflationary recession. Which is very difficult to get out of....because the expansionary policies used to power the economy, now only power inflation.

Here's a good link - http://www.econlib.org/library/Enc/PhillipsCurve.html
 
Geeze, if you guys have all the answers, why don't you tell Obamas team so they can fix this mess. Myself, I'm able to balance a checkbook and keep track of a couple a hundred bucks in my pocket, beyond that it's all greek.
 
medicineman said:
Geeze, if you guys have all the answers, why don't you tell Obamas team so they can fix this mess. Myself, I'm able to balance a checkbook and keep track of a couple a hundred bucks in my pocket, beyond that it's all greek.
Click to expand...

There's a tradeoff. If you want to fix this way the quickest and leave this country on a solid structure. These banks fail. The mortgages fail. People lose their homes, and unemployment goes to 25%+.

People with capital take over the shoddy assets and begin building anew.

Now, imagine your a politician. Are you going to allow 25%+ unemployment? Millions MORE americans losing their homes. Life savings gone? Of course not. No. You devalue the currency, let the incompetent keep their assets, and hope the economy can work through this by the time the next election rolls around.

Ever heard of tough love? It works.
 
cookin said:
how did raegan manage to convince people a recession was needed?
Click to expand...

Reagan inherited Jimmy Carter's "Stagflation." Inflation was raging and the economy was at a standstill. When Reagan took office, the Federal Reserve tightened the noose on credit, interest rates on mortgages and other loans soared to 21%, thereby limiting the money supply. It was "tough love."

Presidents really don't have much to do with the Federal Reserve's policies other than appoint the chairman. Cheeseysynapse gave a good explanation in his last post.

As a side note, interest rates as of this morning for a conventional loan, with 20% down and a loan amount up to $417,000, are all the way down to 4.78% with zero points. In addition, housing prices are way below their peak by as much as 40%. The system is geared for a giant recovery in housing, and as is historically correct, housing always leads into a recession ... and it also leads the way out.

Now start lining up at your local real estate office before it gets to crowded. :lol:

Vi


 
cookin said:
how did raegan manage to convince people a recession was needed?
Click to expand...

Reagan didn't convince the people a recession was needed. See, the Federal Reserve isn't technically a government institution. So, when the Fed began raising interest rates, it wasn't at the behest of Reagan per se. By that time, early 80s, inflation had been front page news for a while. So, everybody wanted it done. The problem is politicians don't like getting the blame for a recession. Reagan was willing to take the hit.

It wasn't like "we need a recession to kill inflation." A recession was the by-product of the interest rate increases. Reagan catches a lot of flack because he was a great speaker, and not a great thinker. And that's mostly true. What they miss is Reagan's bedrock unflappable view of American Dynamism and Capitalism. All Reagan knew was if you let people keep what they earn, get government out of the way, America will be fine no matter what. And he was proven right on that. So, Reagan just said basically, he supported the Federal Reserve in raising interest rates to kill inflation, that the country would be better off when the fed was finished - that's all he basically said. He never got technical - that wasn't his style. He just kept faith in the country. It was during this time, or shortly afterward he got his tax cuts passed. That brought the top marginal rate down from around 70% down to 30% - I think, don't quote me on that, but it was significant. So, that helped a lot once the fed was finished raising rates.
 
i wouldnt line up to buy real estate just yet.. it is going to get worse before it gets better, we have only seen round one..

since our gdp and economy is mostly based on services, (about 70 percent) this means that we must continue to spend money, and consuming in order for the economy to get rolling.

seeing as how we just had the worst holiday spending in like 3 or 4 decades, this goes to show that people are holding onto their money, and means that unless people start spending soon lots of companies are and will be going out of business.
this is because our monetary system is based on a system of credit.
most businesses operate and expand on credit, and are only paying down balances on loans.. very few companies actually build a business on profits and expand on profits.
the companies that operate on credit start to go under soon after people start holding onto money like they have been. this is why we have started to see large companies along with small ones start to go out of business. this combined with tightened credit means that there is not much more money going into circulation, and thus slowing down the economy..

i feel that it is going to be a domino effect and we have only begun to see the effects of it..

first was the sub prime market which was almost designed to fail.. this started our economic troubles.

then we have the financial crisis, combined with the banker bailouts along with the industrial bailouts, which will soon lead to state and local bailouts (cali anyone)

along with all of this, we have decreased spending which has led to large corporations going bankrupt (and more to come) which is going to increase unemployment dramatically, lead to more foreclosures, and we will start seeing more and more empty commercial real estate. all of which will lower the housing prices even more.

all of this will lead to more doom and gloom which will make people tighten up even more, and cut spending..

throw in the fact that the bailouts are going to increase inflation, and the recession we are in, that is heading into a depression... we are headed right back into a stagflation period.

the problem is we do not have the industry to pull us out of the toilet like we used to, which means we will probably end up going to war again (hmm helping Israel maybe)

anyways the long and short is we have only begun to see what this recession/depression is going to do, and i have a feeling that there will be more foreclosures and bankruptcies, and housing prices will continue to fall for at least the next year. instead of investing in real estate, hard commodities would historically be a good bet in this type of economic situation

just my .02 but what do i know

FLo
 
^^^ Excellent post, Flo ...

But, like I said, real estate is always the first to go into a recession and always leads out of a recession. The stage is set with low prices, a large inventory and low interest rates.

Stand back and watch ... as real estate recovers, due to pent up demand, it will recover in spades. When that happens, the lumber mills will start to hum, the paint manufacturers will increase production, the steel mills will start to churn, the nail, drywall, electrical ... and all the other businesses supported by real estate will start to go too. Bottom line ... Macy's will be thankful. The auto dealer will be thankful. The waiters at those expensive resorts will be thankful too. :lol:

Vi

 
Flo - been thinkin about the "war" thing too. After all, everyone's been looking to 29 for comparisons.

So, far commercial real-estate has hung in there. But, you gotta think this is the year it falls out of bed.

While I agree we don't manufacture much any more..........We are the designers. Take what the Google boys did. Yeah, their Russian, but they HAD to come here to make it.......

The only "quick" (and that's relative) way out of this, as I see it. Is to take advantage of these ultra low interest rates - sell 50 and 100 year bonds - a ton of em. Enough to cover the country for a year or so, (if thats even possible, which I don't) and cut taxes across the board. Get rid of the AMT. Government spending isn't going to cut it. We need people to seize the opportunity...., and now, there isn't much incentive to do so.

BTW...Your vert grow is fucking insane!
 
So, Cheezy ... What's your take on the soon to come residential real estate recovery? Sales are slightly picking up in my area.

Vi
 
ViRedd said:
So, Cheezy ... What's your take on the soon to come residential real estate recovery? Sales are slightly picking up in my area.

Vi
Click to expand...

Sales are ok here (NC) the triangle has been well insulated here, but we still feel the pain. Prices never really got that crazy here. There were pockets. Downtown Durham, Chapel Hill, and Raleigh.........were comparable to other east coast bubble areas....but those were well confined. It pissed me off at first. My mom has a great house in the burbs, and her area barely felt any kind of bull market in homes. But, downtown durham, a lot of the old homes got crazy ass bids. At the peak, you could've bought a 3 bdrm 1 bath 1400 sq ft home......bordering the swank in downtown...or my mom's 2 story 2300 sq ft 4 bdrm 2 1/2 bath home on 3 times the acreage for the same price. So, the bubble areas here were confined to the coast - which really got nuts, and the yuppie spots... Other than that it was pretty normal, and it still is. My cousin is a realtor, and she's makin sales.

On the whole though, I don't think a recovery is in the cards. Just stop the market falling. Real estate is years away from price increases. And when it does, that's your sign that inflation is here to stay. Think about it. How do you get someone who has a fixed 30 yr mortgage who is upside down on their home? Inflation. Its the only way. So, real estate will come back in nominal terms, but not in real terms. We have no choice other than to inflate our way out of this.

http://www.forbes.com/finance/2008/12/09/dollar-devaluation-gold-pf-ii-in_fb_1209soapbox_inl.html

I don't advocate this, but we're already so far down this road now....its certain. When the economy picks up - start asking for cost of living raises from your employer - don't call it a raise. Call it COLA expenses.
 
thanks cheesey.. appreciate the kind words on the op..

i just think that if most retail businesses go into the black on "black friday" and this black friday wouldnt cut it, can they handle another?? how many companies can go 2 or 3 years in the red without going under?

We have comp usa, netbank, vivitar, wamu, leman brothers, tropicana casino, aloha airlines, skybus air, mervyns california, sharper image, nationwide airlines, linens n things, matress discounters, levitz furniture, fresh xpress, holley performance products (carberators etc), that went bankrupt this last year and the list goes on and on...

then you have the automotive companies about to go toe up asking for bailouts

then you got companies like citigroup bout to cut 50k jobs, ibm, merryl lynch, dhl, starbucks, qwest, yahoo, ebay, whirlpool, budweiser, bank of america, intel, sprint, all making massive layoffs, closing stores and factories, and downsizing considerably not to mention nascar teams, mortage brokers, builders, tech companies, the auto companies, manufacturing companies etc.. basically all of our "tech" and "real industry" corporations which actually provide products and services..

then you have wall street financial layoffs which are guaged between 100 and 200 thousand alone, plus all the downsizing of major banks and financial institutions across the country.

then you have other huge companies like att, microsoft, dell, lucas arts, fighting rumors about making huge layoffs, but they probably will when it comes down to it

so i mean you add all that up and its easily a few million jobs, and thats just right now in the coming months... what will happen when it gets worse and worse, more and more layoffs, more and more unemployment?

is the government just gonna quadruple again like it did under bush and give everyone a job? are we going to be a nation of federal cronies?? i think not.. i think the answer should be to CUT spending, CUT taxes, all across the board.. make the politicians take pay cuts, give the americans tax breaks, quit spending billions on defense, and stupid ass research programs, take people out of jail and quit spending billions on incarcerations... there are so many things that could be done, and the last thing the government should be doing is to spend more, but they seem to think that throwing money at the problem will make it go away, when printing and throwing money around to everyone is what got us in this effing mess in the first place!!

i donno, im ranting now but you get what im trying to say i hope LOL
 
FLO - dead on dude.

Everything you listed is right. DEAD ON.

What do we need now? We need risk takers. We need the businesses contemplating lay-offs to hold off. How to we get them? We have to lower the rates of return on investment. That means cut taxes. But, that brings up another dilemma - how do we finance these bonds? Thats why we have to issue 50 and 100 yr bonds. France and England do and have.

Asking Government to cut back? Maybe this is the silver lining in all of this....maybe it will force governments to pare back.
 
FLoJo said:
thanks cheesey.. appreciate the kind words on the op..

i just think that if most retail businesses go into the black on "black friday" and this black friday wouldnt cut it, can they handle another?? how many companies can go 2 or 3 years in the red without going under?

We have comp usa, netbank, vivitar, wamu, leman brothers, tropicana casino, aloha airlines, skybus air, mervyns california, sharper image, nationwide airlines, linens n things, matress discounters, levitz furniture, fresh xpress, holley performance products (carberators etc), that went bankrupt this last year and the list goes on and on...

then you have the automotive companies about to go toe up asking for bailouts

then you got companies like citigroup bout to cut 50k jobs, ibm, merryl lynch, dhl, starbucks, qwest, yahoo, ebay, whirlpool, budweiser, bank of america, intel, sprint, all making massive layoffs, closing stores and factories, and downsizing considerably not to mention nascar teams, mortage brokers, builders, tech companies, the auto companies, manufacturing companies etc.. basically all of our "tech" and "real industry" corporations which actually provide products and services..

then you have wall street financial layoffs which are guaged between 100 and 200 thousand alone, plus all the downsizing of major banks and financial institutions across the country.

then you have other huge companies like att, microsoft, dell, lucas arts, fighting rumors about making huge layoffs, but they probably will when it comes down to it

so i mean you add all that up and its easily a few million jobs, and thats just right now in the coming months... what will happen when it gets worse and worse, more and more layoffs, more and more unemployment?

is the government just gonna quadruple again like it did under bush and give everyone a job? are we going to be a nation of federal cronies?? i think not.. i think the answer should be to CUT spending, CUT taxes, all across the board.. make the politicians take pay cuts, give the americans tax breaks, quit spending billions on defense, and stupid ass research programs, take people out of jail and quit spending billions on incarcerations... there are so many things that could be done, and the last thing the government should be doing is to spend more, but they seem to think that throwing money at the problem will make it go away, when printing and throwing money around to everyone is what got us in this effing mess in the first place!!

i donno, im ranting now but you get what im trying to say i hope LOL
Click to expand...

Quite a bit of hearsay and conjecture...

When Microsoft makes those lay offs... if Microsoft makes those lay offs. Do you think that a company like Microsoft will be so foolish as to make lay offs before Google?

Besides, Microsoft has something that most of those other companies don't have. A great big ass pile of money.
 
TheBrutalTruth said:
Quite a bit of hearsay and conjecture...

When Microsoft makes those lay offs... if Microsoft makes those lay offs. Do you think that a company like Microsoft will be so foolish as to make lay offs before Google?

Besides, Microsoft has something that most of those other companies don't have. A great big ass pile of money.
Click to expand...

you are going to say its hearsay??

every single thing that i said is documented and proven EXCEPT for the one sentence where i talked about the major companies who are battling rumors about layoffs, and the final paragraph where i gave my opinion.

sure microsoft has a pile of cash but when people quit buying their products like they do now and in the past, do you think if it came down to it bill gates is gonna sit there and say hmm well we are losing millions of dollars a month but im gonna keep draining the coffers because i dont wanna lay anyone off?? bullshit he will cut the fat with the precision of a plastic surgeon.

and you cannot even compare the money made by google and microsoft it is completely different.

microsoft has to make direct income by selling products and services at a direct cost to the consumer. they have to manufacture, advertise and market products, r&d and have a much greater overhead than google

google could thrive through a recession on its adwords revenues alone, which are profits made passivly at no direct cost to the consumer. large corporations like microsoft will continue to pay for advertizing on google because it (good marketing) is one of the few things that will keep it moving through a sluggish economy.

google never has to sell any products, unless they want to like that crappy phone they partnered up to make.. they make an almost entirely passive income.. not to mention that they are currently setting up contracting offices on the east to get more government contracting jobs. plus on top of all that they have a much lower overhead than microsoft and need far less employees.. sure they dont have the richest man in the world backing them but i would see microsoft going under before google.. i mean hell the ownwers could downsize to nothing and run google off a few servers and easily make millions a year
 
FLoJo said:
you are going to say its hearsay??

every single thing that i said is documented and proven EXCEPT for the one sentence where i talked about the major companies who are battling rumors about layoffs, and the final paragraph where i gave my opinion.

sure microsoft has a pile of cash but when people quit buying their products like they do now and in the past, do you think if it came down to it bill gates is gonna sit there and say hmm well we are losing millions of dollars a month but im gonna keep draining the coffers because i dont wanna lay anyone off?? bullshit he will cut the fat with the precision of a plastic surgeon.

and you cannot even compare the money made by google and microsoft it is completely different.

microsoft has to make direct income by selling products and services at a direct cost to the consumer. they have to manufacture, advertise and market products, r&d and have a much greater overhead than google

google could thrive through a recession on its adwords revenues alone, which are profits made passivly at no direct cost to the consumer. large corporations like microsoft will continue to pay for advertizing on google because it (good marketing) is one of the few things that will keep it moving through a sluggish economy.

google never has to sell any products, unless they want to like that crappy phone they partnered up to make.. they make an almost entirely passive income.. not to mention that they are currently setting up contracting offices on the east to get more government contracting jobs. plus on top of all that they have a much lower overhead than microsoft and need far less employees.. sure they dont have the richest man in the world backing them but i would see microsoft going under before google.. i mean hell the ownwers could downsize to nothing and run google off a few servers and easily make millions a year
Click to expand...

Actually, I doubt they'd new just a few servers, maybe a few hundred.

As far as Microsoft going under... I don't see it happening.

Microsoft has only lost 1/3rd of its market cap,

Google on the other hand has gone from its high around $700 to $350.

If no one is selling anything, who is going to advertise?

Besides, more than likely the first luxury to go is likely to be internet, and with it potential revenues for Google.

However, that doesn't mean that people looking for a job are not going to be using their computer (just not upgrading them) which means Microsoft still has its most effective advertising spot, the desktop.
 
TheBrutalTruth said:
Actually, I doubt they'd new just a few servers, maybe a few hundred.

As far as Microsoft going under... I don't see it happening.

Microsoft has only lost 1/3rd of its market cap,

Google on the other hand has gone from its high around $700 to $350.

If no one is selling anything, who is going to advertise?

Besides, more than likely the first luxury to go is likely to be internet, and with it potential revenues for Google.

However, that doesn't mean that people looking for a job are not going to be using their computer (just not upgrading them) which means Microsoft still has its most effective advertising spot, the desktop.
Click to expand...

well i know they couldnt put a desktop and a server in a garage and call it quits i was speaking hypothetically.

and i dont think microsoft is going to go under, nor is google, it was again, hypothetical..

the layoffs and unemployment is not hypothetical it is real..
 
FLoJo said:
well i know they couldnt put a desktop and a server in a garage and call it quits i was speaking hypothetically.

and i dont think microsoft is going to go under, nor is google, it was again, hypothetical..

the layoffs and unemployment is not hypothetical it is real..
Click to expand...

Actually, I'm beginning to think that even the layoffs and unemployment is hypothetical, at least to the extent that the politicians are running their mouths. So far unemployment is still under 10%, nothing near the Great Depression.

And while there has been deflation it hasn't turned into a deflationary spiral and shows no signs of doing that.

A few big companies went under, but that's Capitalism...

Actually more than just a few big companies should have went under (Starting with Wall Street and ending with Detroit) but it's kind of hard for such an event to occur when the government steps in.

Though I am beginning to think that half of what would be referred to as Rhetoric against Democrats from me is closer to the truth. Obama is getting flack from the Socialist Democrats about the size of the tax cuts in his stimulus, a mere $500/taxpayer.

Which is less than 1/4th of the stimulus package. ($150 Billion/$800+ Billion.)

Though I do have to say that if he holds his ground on the tax cuts he'll have some respect from me, not a lot, there's still too much stupidity in some of the policies he was pushing for.
 
TheBrutalTruth said:
Actually, I'm beginning to think that even the layoffs and unemployment is hypothetical, at least to the extent that the politicians are running their mouths. So far unemployment is still under 10%, nothing near the Great Depression.

And while there has been deflation it hasn't turned into a deflationary spiral and shows no signs of doing that.

A few big companies went under, but that's Capitalism...

Actually more than just a few big companies should have went under (Starting with Wall Street and ending with Detroit) but it's kind of hard for such an event to occur when the government steps in.

Though I am beginning to think that half of what would be referred to as Rhetoric against Democrats from me is closer to the truth. Obama is getting flack from the Socialist Democrats about the size of the tax cuts in his stimulus, a mere $500/taxpayer.

Which is less than 1/4th of the stimulus package. ($150 Billion/$800+ Billion.)

Though I do have to say that if he holds his ground on the tax cuts he'll have some respect from me, not a lot, there's still too much stupidity in some of the policies he was pushing for.
Click to expand...
I get it, all liberals are stupid and all conservatives are smart. Duuuhhh, It was always so simple. Why couldn't I see it?
 
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