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EJ
03-06-09, 04:41 PM
http://www.itulip.com/images/paddling.jpg
Can Anything Bring Down the Monthly Payment Consumer? Revisited

January 15, 2007 in Can Anything Bring Down the Monthly Payment Consumer? (http://www.itulip.com/forums/showthread.php?p=5961#post5961)we published a series of interviews by iTulip’s Jane Burns of nine well known economists to get their opinion on the fate of that FIRE Economy phenomenon, the Monthly Payment Consumer. Two of them forecast the recession and one even got the timing right.

The Monthly Payment Consumer is an artifact of FIRE Economy behavioral engineering that produced a consumer who accounts for the cost of purchases not in terms of the total price but as a monthly payment on credit in portion to monthly income. After many years of “No Money Down!” and “Zero Interest for Six Months!” financing, not to mention interest-only and negative amortization mortgages, consumer behavior was modified to consume, stop saving, and expect credit to be almost free and in nearly infinite supply. We expected the Monthly Payment Consumer’s world to come crashing down at the end of 2007, as did our writer Jane.

The economists interviewed: Peter Morici, University of Maryland business school professor and former chief economist of the U.S. International Trade Commission under the Clinton administration; Kevin Hassett, director of economic policy studies at the American Enterprise Institute; Lakshman Achuthan, managing director of the Economic Cycle Research Institute and a governor of the Levy Economics Institute at Bard College; James O’Sullivan, a UBS economist; Ken Goldstein, an economist with the Conference Board; Dean Baker, co-director of the Center for Economic and Policy Research; Russ Roberts, a professor of economics at George Mason University; Ron Blackwell, chief economist of the AFL-CIO; and Dr. Richard Curtin, director of the Surveys of Consumers at the University of Michigan.

Here’s a summary of their forecasts with an iTulip rating, on a scale of one to three, with one going to unconditional forecasts of no recession, two to conditional forecasts of recession, as in "if X, Y, and Z happen, we get a recession," and three to unconditional forecast of no recession.
1: No recession certain (unconditional)
2: Maybe a recession (conditional)
3: Recession certain (unconditional)
We also created a special zero rating for an emphatic forecast of no recession with arguments 100% contradicted by events, and also a special four rating for the on economist who not only correctly called the recession but even got the timing right. Let’s see how well they lined up with the events that unfolded.

Dr. Richard Curtin, director of the Surveys of Consumers at the University of Michigan.

Forecast: “I don’t think consumer spending will succumb to concerns about housing prices, but that also depends on price collapses remaining localized in certain areas such as Miami, Phoenix and Las Vegas where prices were going up quite a bit.”

“Besides a drop in home prices, the other event that could generate consumer pessimism would be a significant increase in unemployment.”

“We foresee that in 2007, consumption will expand at about 3 percent, but residential investment will probably decline by nearly 10 percent. Given the consumption drives the GDP, the overall GDP will be about 2.5 percent. We don’t foresee a recession. The resilience of consumers has been amazing and withstood some events to which they would not have responded to as strongly in years past. It is true that the baby boom generation, by far the largest group in the population, has had some time to build up equity, especially home equity. That has given them a cushion to brace themselves from the more volatile events. Today consumers are concerned about home prices but they haven’t come to the conclusion they’re going to crash. If you look at year over year changes in identical homes, price increases are still above 5 percent, good by any measure.”

Rating: 1
____________________

Ron Blackwell is chief economist of the AFL-CIO.

Forecast: “I thought consumer spending would have run out of steam long ago. How much debt can people assume and how can they keep spending at this rate? Our savings rate went negative in the last couple of years. People are spending more than their household income, something we haven’t seen since the Great Depression. Families have to send all their members into the workforce and they’re spending just to maintain their standard of living. The prices of things like education and health are spiraling, and some people are really struggling to make a living.”

“Voluntary spending, spending on things people don’t need, isn’t a factor in an economy going into recession because America’s wealthiest families, which have the money to spend voluntarily now, have enough income to keep doing it. It’s the people who are spending money they don’t have, and who have very high debt, who are forced to cut back. Every household has discretionary spending—working people take vacation, but if their budgets are strained, they skip a year or they drive instead of flying. That can bring the economy down if enough do that, but it’s a matter of how fast and how far.”

“Now we have sliding housing prices and residential investment is off. Spending is slowing down. Next year will reductions in housing investment and consumer spending take the wind out of an already tepid economic recovery and even produce a recession? I’m not predicting it, but I wouldn’t be at all surprised.”

Rating: 2
____________________

Russ Roberts, a professor of economics at George Mason University.

Forecast: “Contrary to what some write and read, I think the economy is doing pretty well and consumers are content to spend what they have. There’s no mystery. Some people think it’s Wile E. Coyote running off a cliff and finding there’s nothing. That’s not how the economy works. It’s healthy. Employment is very strong, and yes, there are those out there saying the middle class is disappearing and job security is low, but there’s no evidence for that and the spending numbers, the activity, suggest a much rosier picture. Spending activity reflects the picture, it doesn’t create it.”

Rating: 1
____________________

Dean Baker, co-director of the Center for Economic and Policy Research.

Forecast: “Consumer spending has been driven by people borrowing against their home equity at record rates. They’ve borrowed for all kinds of things—for new cars and vacations in some cases, to make ends meet in others. As soon as they run out of cash, they borrow again as long as their house value keeps going up. That ends when prices start falling and a lot of people have no more to borrow.”

“Consumers are the bulk of the story—70 percent of demand comes from consumer consumption. Probably a third of that consumption is variable to some extent. People could change purchases such as buying new cars and furniture. A mass change in consumption would mean a recession, and it’s very likely to happen. People are going to hit the wall in terms of how much they can borrow with the housing market going down.”

Rating: 3
____________________

James O’Sullivan, a UBS economist.

Forecast: “We’ve had ups and downs in spending growth over the years. Certainly you’ve seen some periods with stronger growth than others. The question is how much the downturn in housing feeds on itself through a weaker labor market, which depresses consumer spending. Ultimately the main driver of what’s happening is the downturn in housing. There’s recent evidence that the rate of growth in consumer spending is slowing, but it’s not dramatic. I’d be surprised if it stopped, but it’s highly likely the trend in growth will be slower next year than it has been over the last couple of years.”

“If consumer spending growth goes further down, to 1 percent from 3.75 percent, the odds are the economy is in recession. I don’t think that will happen, but consumer spending will go to 2 percent growth in 2007. To what extent does that weakness in consumer spending feed on itself, leading employers to cut back hiring because there’s less demand for products? That’s how momentum builds into recession. It remains to be seen how far down this momentum in reduced spending growth will carry us. There is clear evidence of slowing, but so far there’s no collapse.”

Rating: 2
____________________

Ken Goldstein is an economist with the Conference Board.

Forecast: “The announcement of the death of the consumer is a bit premature. The Federal Reserve has a publication called the “Flow of Funds Account of the U.S.” It says that in 2005 and into the first quarter of 2006, you and I and every other consumer in America had a total of $12.2 trillion debt—our mortgages, credit cards, bank loans, etc., all coming to $12.2 trillion. That’s a lot of money when you consider the Gross Domestic Product is $13 trillion. It looks like we’re about to drown in red ink—except when you look at assets. That’s almost $40 trillion in IRAs, 401ks, and all the home equity. What this says is the bankers who’ve lent money to us haven’t lost their minds. They’ve lent to us because they’re convinced we have the assets even if something happens to our jobs. Our personal balance sheets are not in that bad shape.”

“There’s no question that a number of households, may 1 or 2 percent, maybe as many as 3 percent, are indeed in a problem situation where they could lose their homes and declare bankruptcy. But on average, most of us have a lot of debt, but it’s debt we can handle. Something else has to happen to make people decrease consumption. If people think there’s a slowing of job growth, if there’s that perception and word of mouth while prices are rising faster than wages, that’s probably the biggest influence on consumer attitudes and spending, the material out of which you get consumers who are more cautious, telling retailers that unless something is hot, it’s got to be discounted. You can lay that argument all out without any reference to debt.”

Rating: 1
____________________

Kevin Hassett is director of economic policy studies at the American Enterprise Institute.

Forecast: “A pull-back in consumer spending is not going to occur. For consumers to stop consuming, their incomes would have to plummet or go down a lot and believe that their incomes would stay down a long time. And the economy is just not that bad. They would stop spending if they thought the economy was going to be very bad, but it hasn’t been very bad in a long, long time. People feel good about keeping their jobs and, if they lose one, about getting a new one. Your own circumstances are what cause you to spend or not spend. The fact most people aren’t saving means they’re optimistic. If they were worried—thinking oh well, it could be tough next month—they’d stop spending.”

Rating: 0
____________________

Lakshman Achuthan is managing director of the Economic Cycle Research Institute and a governor of the Levy Economics Institute at Bard College.

Forecast: “Our approach to the economy at the Economic Cycle Research Institute (ECRI) is from a cyclical perspective. Spending, of which consumer spending is a big part, is one of the key indicators used to define economic activity at any moment in time. While the rate of growth of consumer spending is decreasing, consumers aren’t saving more because they don’t feel like they’re going to get fired, unemployment is pretty low, a number of people are getting some raises and they are still able to borrow long-term money at low rates. Relative to last year, they don’t feel as good, but they don’t feel like they’re falling off a cliff, either. Consumers are adjusting spending subconsciously and they have it about right. They’re playing it a little more conservatively, but they don’t think the sky is falling. That’s looking at the near term, about the next three quarters. Beyond that, there could be a major recession by the end of 2007 or early 2008—there is a limit to how far ahead we can see with our leading indexes.”

Rating: 4
____________________

Peter Morici is a University of Maryland business school professor and former chief economist of the U.S. International Trade Commission under the Clinton administration.

Forecast: “Looking at the Gross Domestic Product—consumption (C) plus investment (I) plus government (G) plus [exports (E) minus imports (M)]—I, of which new housing construction is a big part, is already going down, and falling home prices drag “C,” consumer spending, down a bit. I’m expecting “C” to rise more than 2 percent next year—so the economy would only moderate and overall growth slow to 2.5 percent. But if consumption increases by less than 1 percent and investment is negative, you’re going to have a recession. I put the risk of recession next year at 25 percent.”

Rating: 2
____________________

iTulip.com

Forecast: “The recession that starts in Q4 2007 from the combined result of housing, private-equity, hedge fund, and foreign Investment declines will be major. The stock market along with many inflated asset classes will follow. Maybe the Gods will be laughing in 2007, but a lot of homeowners and investors likely won't be.”

Rating: 4

Our argument for recession was not complicated:


The US economy is dependent on debt financed asset price inflation, especially housing and stocks
Asset price inflation provides both jobs in related industries, such as housing and retail trade, and creates the illusion of “saving” and “wealth” that keeps consumers shopping
When the asset inflation corrects and debt deflation begins, the “saving” and “wealth” disappear along with the jobs: the economy crashes

Recession today compared to our forecasts

To back up our argument, we focused on housing permits as a measure of the health of the housing market and leading indicator of prices.


http://www.itulip.com/images/housingpermits1966-2006.gif


Housing permits issued Oct. 2006


http://www.itulip.com/images/housingpermits1960-2009.gif


Housing permits issued Mar. 2009


http://www.itulip.com/images/NEWRDandRJShomes010207.gif

April 2006: Housing and stocks. Do these look over-priced to you?


http://www.itulip.com/images/durationunemployed.gif

Duration of unemployment Oct. 2006

http://www.itulip.com/images/averageweeksunemployed1948-2009.gif

Duration of unemployment Mar. 2009


Given that with stocks and housing clearly overpriced, housing prices clearly on the edge of plummeting as indicated by a crash decline in housing permits, and employment in our asset price inflation dependent economy already weakening as indicated in rising duration of unemployment, why did forecasting a deep recession posed such a challenge to so many economists? The root of the problem is that most economists, for one reason or another, were unable to see the extent of the US economy's dependence of the financial sector. Some saw it but didn't want to say, others did not see it at all because that's not what they teach in most American universities.

iTulip Forward Forecast


http://www.itulip.com/images/nonfarmpayrolls1938-2009.gif


We expect payroll employment to decline by another 5% in the coming months to decline to 1998 payroll employment levels in 2010, matching the percent decline in payroll employment that occurred after WWII.

A similar response is needed: full on infrastructure projects to improve the energy efficiency and productivity of the US economy.

Our challenge is how to pay for it. There is no magical solution. The money must come from savings, and if not from our trade partners’ savings by foreign borrowing, because they will be too burdened with the task of fighting economic battles of their own at home, then from all of those who have any to spare here in the US.

The Treasury Department needs to stop taking trading our precious credit for securities of questionable value and instead issue Infrastructure Development Bonds. These bonds can use the accumulated savings within the FIRE sector to finance the reconstruction of a new, productive economy rather than pour money down a whole in a vain attempt to resurrect the FIRE Economy that has gotten us into the current troubles we are in. It will then be the duty of Americans who can afford to buy them to do so, to each according to his means. That is the American way out of a mess like this, with a fair sharing of the burdens of cost.

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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Spartacus
03-06-09, 05:18 PM
is this guy THE most PERFECT contrarian indicator,
in love with being wrong,
or just dumber than a box of rocks?

don
03-06-09, 06:09 PM
"The resilience of consumers has been amazing"

How often have we heard this? It's become a MSM Mantra...until now. When I read it once again above, I thought of Hudson's analogy with a parasite. First, and most important step. get the host to not just tolerate you but LOVE you and PROTECT you.

Academics fulfill that role, shall we say, like a mighty sail ;)

Five or six years ago I listened to a guy talking about the road to riches. It lay in convincing the public, aka consumers, to except that his industry's offerings be seen as a monthly expense. That was the key. Once that happened, presto by jingo- money stream forever.

For most Janes and Joes we have typically: rent, mortgage (with property taxes) or otherwise; utilities, which is often multiple billings (gas, electric, water, garbage, etc), home insurance (mandatory with a mortgage) or renter's insurance (optional...so far); car payment(s), car insurance payment, cable or satelite television, internet, telephone(s), including wall and cell; and credit card(s). The weekly payments go to taxes, social security, (possibly) retirement and health 'care'.

That's a tough conga line to break into but it can be done :eek:

Or can it... still :rolleyes:

It's as valid as question as any :cool:

serge_oc
03-06-09, 06:23 PM
Our challenge is how to pay for it. There is no magical solution. The money must come from savings, and if not from our trade partners’ savings by foreign borrowing, because they will be too burdened with the task of fighting economic battles of their own at home, then from all of those who have any to spare here in the US.

The Treasury Department needs to stop taking trading our precious credit for securities of questionable value and instead issue Infrastructure Development Bonds. These bonds can use the accumulated savings within the FIRE sector to finance the reconstruction of a new, productive economy rather than pour money down a whole in a vain attempt to resurrect the FIRE Economy that has gotten us into the current troubles we are in. It will then be the duty of Americans who can afford to buy them to do so, to each according to his means. That is the American way out of a mess like this, with a fair sharing of the burdens of cost.




Hi EJ,

what do you think will be the mechanism(s) that government might employ to get us to feel patriotic and do our duty (i.e. part with whatever money we might have)?

Wouldn't that cause massive exodus of capital from the US?

Wouldn't more 'balanced' approach (try to pilfer everyone equally, as is Democrat's way), cause civil unrest?

mr_fibuli
03-06-09, 06:43 PM
"The resilience of consumers has been amazing"
<snip>
Five or six years ago I listened to a guy talking about the road to riches. It lay in convincing the public, aka consumers, to except that his industry's offerings be seen as a monthly expense. That was the key. Once that happened, presto by jingo- money stream forever.
<snip>


Agreed - also, in my opinion it is what is wrong with business as well. Instead of saving money in good times and avoiding debt as much as possible businesses have become used to leasing buildings, vehicles and even production equipment rather than paying for them - when the economy goes south their overheads end up killing them off. Governments are doing the same thing.

The way I like to look at personal finances is that you have a certain amount of earnings in your lifetime. What we are experiencing now is the point where we have run out of time to pay off our debt. The governments seem to think the problem is access to credit - the real problem is that we have run out of time to make enough money to pay off any more debt (or even what we have already accumulated) unless someone finds a way to drastically extend the human lifespan we're going to have to pay the piper!

I will be unemployed very soon as my company is going under (for the reasons above) and despite a good education, experience etc I will likely be without work for a while. I haven't lost one minute of sleep though as I have no debt and can last for years - I am becoming frightened of what will happen to many of my co-workers though. Some will lose everything - their overheads are too high, they have not put anything away for a rainy day and its f*^%ing pissing down.</snip></snip>

goadam1
03-06-09, 06:59 PM
You seem to have lowered your unemployment forecast. 5% decline from here is around 13%. Fred had some posts saying 20%, which caused some stir akin to the hyperinflation posts.

That said: Good job and spot on.

Sharky
03-06-09, 07:12 PM
Interesting to see that the academics almost universally got it wrong, although it doesn't surprise me. And yet those are the same types of people that the government is soliciting advice from about how to get the country out of the recession / depression. They're also the ones who show up regularly on places like CNBC and spew their crap to the public.

We're freaking doomed.

swgprop
03-06-09, 07:21 PM
It will then be the duty of Americans who can afford to buy them to do so, to each according to his means. That is the American way out of a mess like this, with a fair sharing of the burdens of cost.I have issues with this statement. First I assume it is not sarcasm. And as much as I'd like to do the right thing for the country I find it reprehensible to do so without associated significant change on the political landscape. Do away with the Franks, Dodds, Pelosis and their ilk on the hill and I'm there. Give me status quo and I'd rather take my chances with gold, guns and a little chaos.

jk
03-06-09, 07:28 PM
Agreed - also, in my opinion it is what is wrong with business as well. Instead of saving money in good times and avoiding debt as much as possible businesses have become used to leasing buildings, vehicles and even production equipment rather than paying for them - when the economy goes south their overheads end up killing them off. Governments are doing the same thing.

the tax code allows the full and immediate deduction of interest or lease payments, but purchase requires depreciating the expenditure over an extended period, which can then produce phantom profits on which taxes must be paid. the only way to avoid the phantom profits tax is to make the purchase on credit instead of out of cash flow.

jtabeb
03-06-09, 08:05 PM
We're freaking doomed.

If the above quotes from the economists above has anything to do with our chance for recovery, then I SECOND THAT!

jtabeb
03-06-09, 08:06 PM
I have issues with this statement. Give me status quo and I'd rather take my chances with gold, guns and a little chaos.

No kidding!

Since when did EJ start drinking the "COOL AID"?

John Thain, Angelo Mozillo, Stan O'neal, Robert Rubin, Henry Paulson, Bernie Madoff etc. should ALL be able to buy QUITE A FEW of these bonds. I agree with EJ, it's their "patriotic duty" to do so. :):):) (according to their "means", of course)

rlskaggs2003
03-06-09, 08:11 PM
I have issues with this statement. First I assume it is not sarcasm. And as much as I'd like to do the right thing for the country I find it reprehensible to do so without associated significant change on the political landscape. Do away with the Franks, Dodds, Pelosis and their ilk on the hill and I'm there. Give me status quo and I'd rather take my chances with gold, guns and a little chaos.

my sentiments exactly.

mattley
03-06-09, 08:41 PM
The Treasury Department needs to stop taking trading our precious credit for securities of questionable value and instead issue Infrastructure Development Bonds. Why would these be any different than a regular T-Bill? I'm not sure you could trust what they said on the label. But even if you could, well, it is a big budget and money is fungible.

I am also curious why you (EJ) believe that spending on "infrastructure" will actually go toward productive projects. I am sure we will see bills like the Rebuilding America With Productive And Responsible Infrastructure Investments Bill of 2010--but I don't expect the politicians who write them to be any wiser, any more responsible, or any less focused on re-election than the politicians of 2006. Would love to read an article elaborating your position sometime.


It will then be the duty of Americans who can afford to buy them to do so, to each according to his means. That is the American way out of a mess like this, with a fair sharing of the burdens of cost.Interesting transistion from communist slogan to "the American way". I think you're probably not kidding here. Maybe choosing your words to be a little provocative. An interesting change in tone. Looking forward to reading future developments.

mr_fibuli
03-06-09, 08:53 PM
the tax code allows the full and immediate deduction of interest or lease payments, but purchase requires depreciating the expenditure over an extended period, which can then produce phantom profits on which taxes must be paid. the only way to avoid the phantom profits tax is to make the purchase on credit instead of out of cash flow.

Which is a wrongly directed incentive - the whole tax system is insanely complicated and out of date but I doubt anyone will try to tackle that problem. I heard an interview on NPR with a guy from the US inland revenue who said that the reason there was an estimate of 300 Billion that was not collected was due to a) people trying to cheat and b) honest mistakes because the tax system was too complicated.

There was a time when companies were built entirely from profits - I believe Louis Renault didn't borrow a dime. maybe we can't go back to those halcyon days but the thinking is right.

EJ
03-06-09, 09:39 PM
Yes, I'm being intentionally provocative here, and glad I've smoked out comments from members of the community we have not heard from before.

Consider our unfortunate situation.

On the minus side:


The FIRE Economy is collapsing
Unemployment is rising rapidly
We have minimal savings
Our credit is in question

On the plus side:


We have a surfeit of human capital, millions of well educated people who are willing to work hard
We have strong institutions that took generations to develop, albeit under marginal management lately
We have a strong rule of law, although poorly enforced as of late, especially for property rights, which is why so much is invented here

What to do to build for the future? How to finance it?

audrey_girl
03-06-09, 09:58 PM
Yes, I'm being intentionally provocative here, and glad I've smoked out comments from members of the community we have not heard from before.

Consider our unfortunate situation.

On the minus side:


The FIRE Economy is collapsing
Unemployment is rising rapidly
We have minimal savings
Our credit is in question

On the plus side:


We have a surfeit of human capital, millions of well educated people who are willing to work hard
We have strong institutions that took generations to develop, albeit under marginal management lately
We have a strong rule of law, although poorly enforced as of late, especially for property rights, which is why so much is invented here

What to do to build for the future? How to finance it?

Dear EJ -

You forgot another plus...

the corrupt, self-serving, bought and paid for, asleep at the wheel corporate media is also going the way of the dinosaur:


http://newsosaur.blogspot.com/2008/01/23b-zapped-in-news-stock-value.html

jtabeb
03-06-09, 10:22 PM
What to do to build for the future? How to finance it?

ONE way dude, and ONE way ONLY.

Kill the third "bank of the united states" the FED, and do direct governement debt issue as JFK with silver notes. No more PRIVATE issuance of credit. Banks still exist but the are ONLY INTERMEDIARIES between the US ISSUED (not fed issued) credit and the borrower. They become middle men, not issuers of debt.

This requires a two tiered structure for US Gov Debt, T-bills and Bonds, on the lower tier, and Gold Backed infrastructure and Green energy notes as the top tier. (Super senior debt collateralized by the US Gold reserves)

Make the transfer of PMs into currency (sale to the Government ONLY) a NON TAXABLE event for anyone (even foreigners, drag the ALL worlds gold over here in the process, not a bad idea if you ask me) , people would sell their PM's to buy things (and they would buy things, trust me, (I feel I am uniquely qualified to speak in that reguard as an ALL IN PM holder, I want to buy a house and a FARM, and an airplane factory to make these http://en.wikipedia.org/wiki/Berkut_360)

Kill the fraud that is COMEX, ban uncollateralized futures trading (if you don't own it, you can't short it, or go long, make it a true risk hedging market like it was supposed to be in the first damn place.)

Re-instate the up-tic rule.

Bail out debtors with Tier two US notes (give debtors the inflation they need to get out from under the debt burden)

Revalue the Gold reserves at 5-10x current spot prices, issues these notes collateralized by GOLD (and the infrastructure, lender's choice of terms of redeement on the notes, e.g. they can CHOOSE to be paid in dollars or gold), that's it, the only way. (this is the Tier One Super senior US debt collateralized by the US GOLD reserves)

Eventually end up at a multi-metallic currency system for the dollar exchange mechanism. Gold, Silver, Plat, Palladium are all free to fluctuate in value against each other AND the Dollar. Each is freely convertible into any other as a NON-taxable event. Purchases of things in the economy ,real or otherwise ,are ONLY allowed in DOLLARS. So savings units (multi-metallics) must be transferred into dollars before the savings that these represent can actually be used. (Banks chartered in the above manner would be PERFECT for this role).

Foreign nations would be forgiven if they think we might pull a "fast one" so the only way to guarentee the security of their principle is to collateralize the loan with gold (they can get a nominal return in dollars too, if the so choose, should the plan be wildly successful, see abovel).

Honestly,

Without Debt forgivness, increasing the social support net, and the above, we are well and truely fucked.

I hope to god someone is listening, but I'm not delusional.

I wish SOMEONE could arrange a meeting between steve keen, michael hudson and Obama.

If he LISTENED to the information that these two would provide, I would be quite enthusiactic actually about our prospects for recovery.

As you mention, I think a solution is EASY, it is the inability to FORCE all the above into being due to the political situation that is what is going to kill us.

I think there are a number of WORKABLE solutions that could all be successful. But they won't happen, just as the above won't happen, because of the lack of a mandate and action.

Don't ever kid yourself EJ, finding a workable and VIABLE, and ultimately SUCCESSFUL solution WAS and NEVER HAS BEEN the problem. (you said so yourself)

It's the impossibility of implementation due to conflicts of finacial interests that's the issue. Always has been, Maybe always will.

So for now, I'm sticking with gold and guns. ( I would change if the above were true, and I know A LOT of PMers would)

Hope that answers your question.

P.S. Don't piss off china and the ME debt holders and Japan, give them first shot and trading in their OLD treasuries for NEW NOTES (after revaluation) before any one else. Got to keep the oil suppliers happy and the Consumer products producers happy (and give them a reason to go a long.

A Win -Win is the ONLY way this works out, if we fuck people, well let's just say I don't think we will get another chance to fuck other countries after doing so so many times.

1933, 1971, Today, we've got a bad rap and we have to MAKE IT WORTH their while to help us. Otherwise, DOOM GLOOM AND BOOM would be a HAPPY FANTASY compared with what we will end up with.

V/R
JT


Added:

http://www.safehaven.com/article-12773.htm

This seems like a good idea as well.

cjppjc
03-06-09, 11:55 PM
Where are the show trials?

Rajiv
03-07-09, 12:37 AM
EJ,

What about interviewing Emmanuel Saez (http://www.econ.berkeley.edu/~saez/index.html) from Berkeley? Possibly William Domhoff (http://sociology.ucsc.edu/whorulesamerica/) from UC Santa Cruz

MarkL
03-07-09, 12:38 AM
These bonds can use the accumulated savings within the FIRE sector to finance the reconstruction of a new, productive economy .... It will then be the duty of Americans who can afford to buy them to do so, to each according to his means. That is the American way out of a mess like this, with a fair sharing of the burdens of cost.



With "Poom" coming wouldn't buying these bonds be foolish unless they happened to be inflation adjusted? Even then it'd need to be off the PPI, not the CPI. All debt will be deflated when Poom hits, right Eric?

goadam1
03-07-09, 12:49 AM
wow. The "burn, baby, burn" crowd has the floor here. Punish them all, right?

I would easily use a good portion of my capital and buy a "build-a-bond." Think of it as war bonds. What happened to common interest? What happened to thinking of the greater good? You should as an example, pay taxes to immunize your neighbors' kid, not just because it is right, but because you benefit from him not having a disease.

I thought we were Jeffersonian around here.

goadam1
03-07-09, 12:56 AM
If all post-war recessions were centered around over production of housing, then is there any business we can really invest in besides "growth?"

goadam1
03-07-09, 01:00 AM
The question is: is it worth it to have the good of the many outweigh the costs of a few? Didn't anyone see, "Wraith of Khan."

Not all solutions can come from every market player running for cover. You can't build a new future hiding it all under the bed.

Rajiv
03-07-09, 01:16 AM
wow. The "burn, baby, burn" crowd has the floor here. Punish them all, right?


I hope you didn't equate me with the "burn, baby, burn" crowd -- I have never been in favor of burning babies! ;)

Down Under
03-07-09, 01:21 AM
There was a time when companies were built entirely from profits - I believe Louis Renault didn't borrow a dime. maybe we can't go back to those halcyon days but the thinking is right.

Cisco is one such company. Story of Cisco is that in the early days, it raised some venture capital money, think it would be needed for expansion etc, and sold a large chunk of the company in return.

The VC money was never needed; it simply sat in the bank and was never spent. Truly amazing.

Down Under
03-07-09, 01:32 AM
Kill the third "bank of the united states" the FED, and do direct governement debt issue as JFK with silver notes. No more PRIVATE issuance of credit. Banks still exist but the are ONLY INTERMEDIARIES between the US ISSUED (not fed issued) credit and the borrower. They become middle men, not issuers of debt.


Yer, well a bit of honesty and integrity would sure help, now, wouldn't it.

Honesty and integrity, more or less a summary of all that you've said.

Down Under
03-07-09, 01:34 AM
I would easily use a good portion of my capital and buy a "build-a-bond." Think of it as war bonds. What happened to common interest? What happened to thinking of the greater good? You should as an example, pay taxes to immunize your neighbors' kid, not just because it is right, but because you benefit from him not having a disease.

I thought we were Jeffersonian around here.

I would like to see a bit of accountablity.

nael
03-07-09, 07:03 AM
Yes, I'm being intentionally provocative here, and glad I've smoked out comments from members of the community we have not heard from before.

Consider our unfortunate situation.

On the minus side:


The FIRE Economy is collapsing
Unemployment is rising rapidly
We have minimal savings
Our credit is in question
On the plus side:


We have a surfeit of human capital, millions of well educated people who are willing to work hard
We have strong institutions that took generations to develop, albeit under marginal management lately
We have a strong rule of law, although poorly enforced as of late, especially for property rights, which is why so much is invented here
What to do to build for the future? How to finance it?



EJ,

I’m new to the site , I've been an observer for about 3 months, this is my first post.
I have been following your comments very closely and they are greatly appreciated. I believe that only you, Steve Keen and Michael Hudson really have an in depth understanding of the many dynamics of the unfolding catastrophe.
Unfortunately Steve Keen is focusing a lot on Australia (if you can, you should interview him more often or have a monthly contribution from Keen on general topics non Australian) but his comments are nonetheless very interesting even when they are on Australia.
Michael Hudson is also very interesting but particularly when you are interviewing him and he does not digress too much towards his absolute hatred of the FIRE economy actors (although he has many valid points on the topic).
But I believe you manage to have a pragmatic approach on a very solid intellectual/academic base and you focus your work on topics that are most relevant to the itulip community (ie, our survival). So thank you for being a beacon of light in this increasingly darker world that we live in.<O:p</O:p
I have the following question/argument which as you will see his based on your writings:<O:p</O:p
How can the US consumers do anything else than try to frantically reduce his suffocating debt level/burden in view of:
- Household savings sufficient to finance cash flow for ONLY two months (from your "Modern Depression: Focus on US GDP" article. How does this compare with 18 days figure from your Dual Cycles of Demand Destruction and the Economic Face Plant article.)
- Household debt service as % of disposable income higher than great depression level (Dalio’s interview in Barron’s)
<O:p- falling income and sky rocketing unemployment
<O:pHence today any US consumer investment whether in T-bills (to replace foreign creditors when the “Road to Ruin” sudden stop will happen) or Infrastructure bonds can only happen after a “steve keen” type politically unthinkable general debt reduction.
The IMF calculated that should the personal saving rate rise to 8% by 2010 that creates only 830 Bn $ of savings available and even if you add an estimated 500 Bn $ from foreigner (I think unrealistically high in view of collapsing export worldwide), that’s 1.3 Trillion $ of possible t-bill purchases out of a government funding need of 4 TN $ over 2009/2010 (argument made by gaius marius on Setser’s blog). I believe that the 4 TN $ figures of funding the US government needs is seriously underestimating the loss of tax receipt the likely 24% decrease ("Modern Depression: Focus on US GDP" article ). Specially that in case personal saving rate rise to 8% by 2010 this will most probably lead to a worst case scenario type GDP contraction of 15% (again gaius marius on the brad setster blog but I believe this is also close to a roubini estimate).
I don’t think they are enough “Americans who can afford it “to finance the upcoming fiscal deficit of us government.
I don’t see how the US hyper inflation scenario can be avoided except that it might not necessarily mean an automatic dollar crash as the euro might disintegrate beforehand (with the possible secret 25 Trillion $ of impaired assets see last part of interesting presentation in http://www.arpllp.com/core_files/The%20Absolute%20Return%20Letter%200309.pdf ).
So we will either be in a world where domestic hyper inflated USA will look like a safe haven compared to the rest or no more fiduciary currency and back to the gold standard with gold at 5000$ with the added bonus of monetizing a good chunk of US debt.

BiscayneSunrise
03-07-09, 07:18 AM
So Eric,

Regarding these infrastructure bonds, what kinds of interest rates should they offer to attract investors?

In WW2, war bonds were offered at lower than market rates but people bought them anyway to do their part. Given that the investor class is currently on strike, it seems like that today, you'd have to offer them at much higher than current rates.

Possible scenario: Infrastructure bonds offered at let's say 7% tax free, then the money lent at 5%. Sure the feds would have to cover the cost of the 5% point difference but that would be cheaper than running trillion dollar deficits.

Sharky
03-07-09, 08:25 AM
On the minus side:


The FIRE Economy is collapsing
Unemployment is rising rapidly
We have minimal savings
Our credit is in question

I would add:


Way too much debt


On the plus side:


We have a surfeit of human capital, millions of well educated people who are willing to work hard
We have strong institutions that took generations to develop, albeit under marginal management lately
We have a strong rule of law, although poorly enforced as of late, especially for property rights, which is why so much is invented here

What to do to build for the future? How to finance it?

The issue of current laws being poorly enforced is a huge one. I would argue that that the current situation has directly undermined what used to be a "strong rule of law." Now it seems that all you need to do to get away with a crime is to make it big enough. If someone walks into my house and steals $10, they go to jail. If someone else destroys my bank, my neighborhood and my life savings with fraudulent loans, they get a slap on the wrist and a big bailout.

IMO, one of the first things that needs to be done is to enforce laws already on the books. For example, people who lied on their mortgage applications, bankers and their agents who knowingly accepted those loans, should be brought up on charges. Mortgage fraud is a felony. Current law does not allow criminals to financially benefit from their crimes. The fees they obtained should be clawed back even if already spent, etc, etc.

Also, transparency and accounting honesty need to be established. Who owns toxic assets? As things are now, the market seems to be assuming that everyone does. You can't believe anyone's financial statements any more, and the level of market manipulation that's happening is beyond criminal. As long as that continues, the capital markets are dead.

Americans need to rediscover their roots. In particular, sound money, individual rights and the fact that wealth flows from production. You don't get rich by borrowing-and-spending or with a service-based economy. You get rich by making things and selling them. And it's not just the wealthy that get rich(er) in a production-based economy, it's everyone.

Unfortunately, I don't think any of this is going to happen without a BIG housecleaning in Congress. And that chances of that happening are, well, pretty damn small.

GeraldRiggs
03-07-09, 09:23 AM
Jtabeb:

I agree with you wholeheartedly on all points! However, killing the FED is not going to be easy. Remember, they run the country and their counterparty CB's in other countries run them. They will not standby while the gutless CONgress tries to pass a law repealing the federal reserve act of 1913. No way! btw, I think Obama is bought and paid for by this group. Look at his cabinet picks and actions so far.
I personally think this economic collapse is orchestrated to allow for a global solution. Not sure what that would be but there are a lot of people throwing out ideas.....new global currency.....??
You can tack this to the bank....Whatever the solution put forward is.....it won't be good for the average citizen!

Serge_Tomiko
03-07-09, 09:29 AM
Dear EJ -

You forgot another plus...

the corrupt, self-serving, bought and paid for, asleep at the wheel corporate media is also going the way of the dinosaur:


http://newsosaur.blogspot.com/2008/01/23b-zapped-in-news-stock-value.html


This is very, very true.

c1ue
03-07-09, 10:03 AM
JT,

In principal the idea of a hard asset backed currency as a limit on government fiscal shenanigans is a fine one.

However, an immediate conversion of present fiat dollars to hard asset backed dollars would be a huge mistake. By Obama's own estimates, the deficit will be in the order of $15T by 2013.

A rise in interest rates to historical average numbers would mean $750B a year in interest alone - vs. a GDP of $15T or so.

Or in other words - the growth of the GDP must equal the interest rate to have a prayer of ever paying it off. Whether that interest is 4% or more likely 6%+, the aforementioned likelihood seems low.

What is far more likely is either a deliberate or an accidental inflationary period first to reduce to debt. Then there will be much more benefit to 'hardening' the dollar, but of course in doing so the US will have effectively at least partially defaulted on its existing debt - with all the likely consequences.

For a nation which (in my opinion) is not going to reverse the currency account deficit any time soon - the result is not going to be pleasant.

EJ
03-07-09, 10:13 AM
Thank you for the very thoughtful question. My response, below.


EJ,

I’m new to the site , I've been an observer for about 3 months, this is my first post.
I have been following your comments very closely and they are greatly appreciated. I believe that only you, Steve Keen and Michael Hudson really have an in depth understanding of the many dynamics of the unfolding catastrophe.

Welcome. I appreciate your careful attention to our ideas.


Unfortunately Steve Keen is focusing a lot on Australia (if you can, you should interview him more often or have a monthly contribution from Keen on general topics non Australian) but his comments are nonetheless very interesting even when they are on Australia.
Michael Hudson is also very interesting but particularly when you are interviewing him and he does not digress too much towards his absolute hatred of the FIRE economy actors (although he has many valid points on the topic).
But I believe you manage to have a pragmatic approach on a very solid intellectual/academic base and you focus your work on topics that are most relevant to the itulip community (ie, our survival). So thank you for being a beacon of light in this increasingly darker world that we live in.<o>:p</o>:p
I have the following question/argument which as you will see his based on your writings:<o>:p</o>:pAristotle said that a man is what he does. I am a business person who also has a background in finance and a business person's understanding of economics. As an entrepreneur it is my nature to look for solutions; we are as a creed problem solvers. Academics are better at defining problems in an in-depth and scholarly way, as Hudson and Keen have independently from the established academic economics community, much to our benefit.


How can the US consumers do anything else than try to frantically reduce his suffocating debt level/burden in view of:
- Household savings sufficient to finance cash flow for ONLY two months (from your "Modern Depression: Focus on US GDP" article. How does this compare with 18 days figure from your Dual Cycles of Demand Destruction and the Economic Face Plant article.)Going back to our early days here we posted three charts, one showing distribution of income gains, the second distribution of liquid net worth, and the third distribution of debt. The point of these charts was to support our thesis that when the economic collapse took place, it would be far more rapid and deep than most expected because of a high concentration of debt and little savings among approximately the lower 50th net worth percentile of US households. This leaves households vulnerable to a decline in incomes, and as both Elizabeth Warren and James Scurlock pointed out years ago, loss of income that makes households cash flow negative today commonly means the loss of only one income out of two. A business in this situation can lay off employees to reduce payroll, the largest expense for any business, but all a household can do is cut expenditures, and that is what we are seeing starting with those households that are the most indebted and have the least liquid net worth in 2007, and cascading at a rapid pace starting in Q4 2008.

This has been an accident waiting to happen for a long time. It was only avoided in 2001 by the dramatic and desperate creation of the housing bubble by the Public Private Partnership of the Fed, the Treasury, and Wall Street financial institutions.


- Household debt service as % of disposable income higher than great depression level (Dalio’s interview in Barron’s)
<o>:p</o>- falling income and sky rocketing unemployment
<o>:p</o>Hence today any US consumer investment whether in T-bills (to replace foreign creditors when the “Road to Ruin” sudden stop will happen) or Infrastructure bonds can only happen after a “steve keen” type politically unthinkable general debt reduction. I have an idea in my book about how to execute the debt reduction. I can't talk about it here because my publisher will not allow it, but after talking to a few members of Congress I think it's potentially workable within both the current economics orthodoxy, legal framework, and shifting political alignments, but not likely before the crisis get a lot worse and the political will builds.


The IMF calculated that should the personal saving rate rise to 8% by 2010 that creates only 830 Bn $ of savings available and even if you add an estimated 500 Bn $ from foreigner (I think unrealistically high in view of collapsing export worldwide), that’s 1.3 Trillion $ of possible t-bill purchases out of a government funding need of 4 TN $ over 2009/2010 (argument made by gaius marius on Setser’s blog). Liquid net worth is what most people think of when they think of savings, as it is the result of saving net of debt liabilities. But most economists confuse these terms and concepts. Nearly all of the saving going on today is repayment of debt and is contributing to net worth only insofar as the debt liabilities are reduced. In the past you could say that this repayment of debt is as good as cash on household balance sheets because households are improving their creditworthiness by paying down debt. That is true. Unfortunately, lack of employment and deterioration in the credit markets that results in a tightening of credit standards is reducing their creditworthiness more quickly than they can improve it by paying off debt. And unlike previous FIRE Economy recovery periods, credit will remain tight; the long era of cheap credit is over. Thus the savings that you are seeing today is, tragically, getting tossed down a bottomless hole of post FIRE Economy debt where it does nothing to rebuild household balance sheets in a way that contributes to economic recovery in the future.


I believe that the 4 TN $ figures of funding the US government needs is seriously underestimating the loss of tax receipt the likely 24% decrease ("Modern Depression: Focus on US GDP" article ). Specially that in case personal saving rate rise to 8% by 2010 this will most probably lead to a worst case scenario type GDP contraction of 15% (again gaius marius on the brad setster blog but I believe this is also close to a roubini estimate).
I don’t think they are enough “Americans who can afford it “to finance the upcoming fiscal deficit of us government.For Road to Ruin we did a scenarios of federal outlays, receipts, and GDP to come up with a fiscal deficit in the range of 10% to 15% of GDP in 2010. These are 3rd world levels. If local and state governments continue to contract at the current rate, outlays as transfers to states may rise significantly above projected outlays. Such levels, especially if they are reached quickly and "unexpectedly" -- and that is the reason for the Road to Ruin warning, so that if it occurs our readers are not surprised -- will test the thresholds of our sovereign credit rating. How our one remaining active creditor -- China -- will respond is anyone's guess. Our contacts there describe a deeply divided government with the more hawkish older members increasing in influence over the debate as social unrest increases inside the country.


I don’t see how the US hyper inflation scenario can be avoided except that it might not necessarily mean an automatic dollar crash as the euro might disintegrate beforehand (with the possible secret 25 Trillion $ of impaired assets see last part of interesting presentation in http://www.arpllp.com/core_files/The%20Absolute%20Return%20Letter%200309.pdf ).
So we will either be in a world where domestic hyper inflated USA will look like a safe haven compared to the rest or no more fiduciary currency and back to the gold standard with gold at 5000$ with the added bonus of monetizing a good chunk of US debt.Readers know that my long gold position is also as short on the FIRE Economy since 2001. I am long USA, however, and am not about to get on a plane to move to China. To do so is to fail to grasp the critical advantage of America's culture, history, and institutions. Everyone will be quite shocked by how quickly the US can recover once the right people with the right philosophies take charge of those institutions. The idea of the Infrastructure Bonds is similar to War Bonds, which were both a way of financing WWII at a time when foreign sources were nil and also to extract excess money from the economy that was creating high inflation. We will be faced with both the challenges: one, of inflation as the dollar weakens and supply crash meets money supply later this year or early next, and two, of financing our transition from one form of economic structure to another, in the previous case from a war economy to a civilian economy, and in the current case from a FIRE Economy to a Re-Industrialized Economy, with our own money. The goods news is that there is plenty of money. The bad news is that it is concentrated in 1% of the population. Politically and philosophically, I don't believe that progressive taxation -- redistribution of wealth -- is the answer. We are going to need both capital and the profit motive of entrepreneurs to move us forward. Rather, we need a simple tool and a simple philosophy behind it to guide its use: that we're all in this together, that we need to transition from a FIRE to a Production based economy, and some of us are more able than others to help finance that transition, and at the moment there is no way anyone can help do so even if they wanted to.

goadam1
03-07-09, 10:25 AM
We expect payroll employment to decline by another 5% in the coming months to decline to 1998 payroll employment levels in 2010, matching the percent decline in payroll employment that occurred after WWII[/QUOTE]


It seems the entire drop from peak unemployment in 1948 was 5%.

jtabeb
03-07-09, 11:43 AM
r cover. You can't build a new future hiding it all under the bed.

Absolutely! But Justice is the cornerstone of society, as one Ituliper has in their motto. SO, you can't make meaningful progress UNTILL you restore JUSTICE by making meaningful reform. (and until that is done, it is ENTIRELY APPROPRIATE for all investors to "run for cover").

goadam1
03-07-09, 12:17 PM
Cowboys vs. New Englanders. Both philosophies lay claim to the real America. I will put EJ's trial balloon in the New Englander camp.

Good luck with perfect Justice.

goadam1
03-07-09, 12:41 PM
So why rely on bonds (a form of taxation)? Why not rely on the 1% to invest in new business as the ideas and needs arise. In the meanwhile, there is plenty of political will to invest in "smart grids" and such which would lay the groundwork for new productive means.

If you did the bond route, then the bonds might have more appeal if they were marketed as say, "Green Bonds" for some projects or some other name for projects like high speed rail.

I volunteer my services to a marketing campaign. I have a talented graphics team. Write a proposal and I will make a viral piece for you.

raja
03-07-09, 12:53 PM
The issue of current laws being poorly enforced is a huge one. I would argue that that the current situation has directly undermined what used to be a "strong rule of law." Now it seems that all you need to do to get away with a crime is to make it big enough. If someone walks into my house and steals $10, they go to jail. If someone else destroys my bank, my neighborhood and my life savings with fraudulent loans, they get a slap on the wrist and a big bailout.
The Banksters and Wall Streetniks acted either foolishly or criminally, or both.

My "Recovery Plan" would require that the upper level management of any firms that require government assistance reap the consequences of their actions by immediately being fired, and forbidden to work in the financial industry for at least 10 years. Where criminal behavior can be proven, the criminals should be stripped of their profits and go to jail. Management at regulating and rating agencies should receive similar treatment.

Why should I do anything for "America", when the country is controlled by greedy criminals and/or idiots who have ruined the economy, resulting in incredible hardship to many, many people.

If these financial "wizards" are fired and punished, then I'll think about contributing. Until then, it's every man for himself. :eek:

goadam1
03-07-09, 02:18 PM
As a small business owner I can tell you that you are wrong. Many business use lines of credit and confuse the crdit with income. But a business can only hold so much cash as a cushion. I keep a years worth of basic overhead as savings. But if I can't generate revenue then what is he point of running a business out of past profit
As far as leases go, you don't want to use all your cash on hand for every cApital improvement. Equipment generates revenue over time And you get to depreciate it. And it is the right thing for the interest to be deductable because it encourages growth. As a business you are always. Caught between recievables and expenditures. You never want to be caught without enough to cover expenses. The problem isn't debt or credit. The problem is bad judgement. I keep my business small because I don't want to grow my way to bankruptcy. But I do use leases and depreciation as part of my business.

jtabeb
03-07-09, 02:54 PM
Cowboys vs. New Englanders. Both philosophies lay claim to the real America. I will put EJ's trial balloon in the New Englander camp.

Good luck with perfect Justice.

NOT looking for perfect, just SOME.

lenrisk
03-07-09, 03:31 PM
It is fairly naive to think that people who are not in debt and can afford to invest would support inefficient government infrastructure programs. Especially when they will have to pay more than 50% of their income in tax (state/federal/property/social security).

serge_oc
03-07-09, 03:35 PM
ONE way dude, and ONE way ONLY.

Kill the third "bank of the united states" the FED, and do direct governement debt issue as JFK with silver notes. No more PRIVATE issuance of credit. Banks still exist but the are ONLY INTERMEDIARIES between the US ISSUED (not fed issued) credit and the borrower. They become middle men, not issuers of debt.

This requires a two tiered structure for US Gov Debt, T-bills and Bonds, on the lower tier, and Gold Backed infrastructure and Green energy notes as the top tier. (Super senior debt collateralized by the US Gold reserves)

Make the transfer of PMs into currency (sale to the Government ONLY) a NON TAXABLE event for anyone (even foreigners, drag the ALL worlds gold over here in the process, not a bad idea if you ask me) , people would sell their PM's to buy things (and they would buy things, trust me, (I feel I am uniquely qualified to speak in that reguard as an ALL IN PM holder, I want to buy a house and a FARM, and an airplane factory to make these http://en.wikipedia.org/wiki/Berkut_360)

Kill the fraud that is COMEX, ban uncollateralized futures trading (if you don't own it, you can't short it, or go long, make it a true risk hedging market like it was supposed to be in the first damn place.)

Re-instate the up-tic rule.

Bail out debtors with Tier two US notes (give debtors the inflation they need to get out from under the debt burden)

Revalue the Gold reserves at 5-10x current spot prices, issues these notes collateralized by GOLD (and the infrastructure, lender's choice of terms of redeement on the notes, e.g. they can CHOOSE to be paid in dollars or gold), that's it, the only way. (this is the Tier One Super senior US debt collateralized by the US GOLD reserves)

Eventually end up at a multi-metallic currency system for the dollar exchange mechanism. Gold, Silver, Plat, Palladium are all free to fluctuate in value against each other AND the Dollar. Each is freely convertible into any other as a NON-taxable event. Purchases of things in the economy ,real or otherwise ,are ONLY allowed in DOLLARS. So savings units (multi-metallics) must be transferred into dollars before the savings that these represent can actually be used. (Banks chartered in the above manner would be PERFECT for this role).

Foreign nations would be forgiven if they think we might pull a "fast one" so the only way to guarentee the security of their principle is to collateralize the loan with gold (they can get a nominal return in dollars too, if the so choose, should the plan be wildly successful, see abovel).

Honestly,

Without Debt forgivness, increasing the social support net, and the above, we are well and truely fucked.

I hope to god someone is listening, but I'm not delusional.

I wish SOMEONE could arrange a meeting between steve keen, michael hudson and Obama.

If he LISTENED to the information that these two would provide, I would be quite enthusiactic actually about our prospects for recovery.

As you mention, I think a solution is EASY, it is the inability to FORCE all the above into being due to the political situation that is what is going to kill us.

I think there are a number of WORKABLE solutions that could all be successful. But they won't happen, just as the above won't happen, because of the lack of a mandate and action.

Don't ever kid yourself EJ, finding a workable and VIABLE, and ultimately SUCCESSFUL solution WAS and NEVER HAS BEEN the problem. (you said so yourself)

It's the impossibility of implementation due to conflicts of finacial interests that's the issue. Always has been, Maybe always will.

So for now, I'm sticking with gold and guns. ( I would change if the above were true, and I know A LOT of PMers would)

Hope that answers your question.

P.S. Don't piss off china and the ME debt holders and Japan, give them first shot and trading in their OLD treasuries for NEW NOTES (after revaluation) before any one else. Got to keep the oil suppliers happy and the Consumer products producers happy (and give them a reason to go a long.

A Win -Win is the ONLY way this works out, if we fuck people, well let's just say I don't think we will get another chance to fuck other countries after doing so so many times.

1933, 1971, Today, we've got a bad rap and we have to MAKE IT WORTH their while to help us. Otherwise, DOOM GLOOM AND BOOM would be a HAPPY FANTASY compared with what we will end up with.

V/R
JT


Added:

http://www.safehaven.com/article-12773.htm

This seems like a good idea as well.


Regardless of how it's done (gold, apples, fresh water or something), I agree in principle here.

Too much cronyism, too much paper shuffling, too much swindle.

Only something that will inescapably show that there is good faith behind recovery will work. And any grand-yet-seriously-backed-with-implied-threats promises (think Clinton in China), bonds, laws, amazing oratory from Obama won't work.

I guess this is another way to say we need to move from FIRE to production based economy. The only question is how do you stop rampant build-up of "paper men" who will take over the show before long?

I am seeing regular Joes I work with (tech solution consultants, software programmers, QA people) selling their 401K and becoming more and more suspicious of 'big men' with big mouth and lots of paper in their hands.

I see that sentiment getting louder and louder over the next year.

As Reagan said, 'Trust but verify'. There has to be something hard and fair that everyone can think of. Gold is probably the way to go, as there is no time to repeat collective 10,000 year history of human kind and come up with some other universally accepted notion of IOU. Otherwise, America or not, free spirit or not, it will all fail.

The bitch of it is, it's not that hard to do (don't ask me how, but I have a gut feeling), but there are so many hot heads incited spuriously by lobbyists of all kinds. Politics. Nero fiddling. Great.

cjppjc
03-07-09, 05:46 PM
Where are the show trials?

metalman
03-07-09, 06:07 PM
As a small business owner I can tell you that you are wrong. Many business use lines of credit and confuse the crdit with income. But a business can only hold so much cash as a cushion. I keep a years worth of basic overhead as savings. But if I can't generate revenue then what is he point of running a business out of past profit
As far as leases go, you don't want to use all your cash on hand for every cApital improvement. Equipment generates revenue over time And you get to depreciate it. And it is the right thing for the interest to be deductable because it encourages growth. As a business you are always. Caught between recievables and expenditures. You never want to be caught without enough to cover expenses. The problem isn't debt or credit. The problem is bad judgement. I keep my business small because I don't want to grow my way to bankruptcy. But I do use leases and depreciation as part of my business.

who is wrong? i can't connect your comment with anything in the article or anything anyone has said in response to it...

goadam1
03-07-09, 08:02 PM
This statement is wrong:
Agreed - also, in my opinion it is what is wrong with business as well. Instead of saving money in good times and avoiding debt as much as possible businesses have become used to leasing buildings, vehicles and even production equipment rather than paying for them - when the economy goes south their overheads end up killing them off. Governments are doing the same thing.

goadam1
03-07-09, 09:09 PM
sorry to hear you will be losing your job.

metalman
03-07-09, 09:22 PM
sorry to hear you will be losing your job.

enjoy your posts but have trouble figuring out who you are replying to... pls use the 'quote' button that quotes the post you are answering... else hard to follow. thx.

Spartacus
03-07-09, 10:02 PM
What to do to build for the future? How to finance it?

Turn the military into a strictly defensive one

that will free up enough resources to pave the US with roads 10 times over,
then bury the US in a foot of electical wire and fiber optics
then bury the US in dams and windmills and solar panels
put enough money into education to produce 10 times the number of engineers and researchers and so on (although they'd be out of work after the infrastructure push is done ...)

And that's in the first year alone ; )

Yes, I exaggerate. So sue me. God knows there's enough lawyers to sue everyone 100 times over ; (

jandkmeyer
03-08-09, 12:38 AM
We are going to need both capital and the profit motive of entrepreneurs to move us forward. Rather, we need a simple tool and a simple philosophy behind it to guide its use: that we're all in this together, that we need to transition from a FIRE to a Production based economy, and some of us are more able than others to help finance that transition, and at the moment there is no way anyone can help do so even if they wanted to.[/QUOTE]

jandkmeyer
03-08-09, 12:55 AM
A common theme I am seeing in the responses is that people see the obvious crony capitalism, are repulsed by it and won't come together as a cooperative mass until they believe it is gone. I thought the new administration would identify that problem and deal with it, but it hasn't happened. If/when they fix that problem, the challenge will be keeping the not-so-obvious crony capitalism from derailing the solutions. Obvious recent examples: War on Terror, Iraq war, ethanol, "clean" coal, bailout, bailout, bailout...

I think we need to focus on things larger than a few banks or even a few economies. We need to bail out the planet - our entire life support system with planetary scale projects that work.

PS - Sorry for the sloppy work - first time poster

goadam1
03-08-09, 10:38 AM
Lol. I can't figure out the quote system. Plus I was writing from the playground on my iphone while my kids climbed trees.

ricket
03-08-09, 12:28 PM
Lol. I can't figure out the quote system. Plus I was writing from the playground on my iphone while my kids climbed trees.


It's quite easy actually. Take the text you want to appear as quoted, and add a "[ quote ]" before-hand, and when you want to finish quoting text, add the ending tag "[ /quote ]". (Be sure to remove the spaces)

You can actually type them yourself as many times as you want.


This is a quote
And so is this one...
You can even add in your own source too!

LazyBoy
03-10-09, 11:53 AM
As a small business owner I can tell you that you are wrong. Many business use lines of credit and confuse the crdit with income. But a business can only hold so much cash as a cushion. I keep a years worth of basic overhead as savings. But if I can't generate revenue then what is he point of running a business out of past profit


I've never run a business, but it seems to me that the advantages would be


being able to run for a year without revenue if you choose to (Can you get enough credit to do that?), or
being able to call it quits while you've still got some profit, instead of going under owing other people and jeopardizing their businesses.

LazyBoy
03-10-09, 12:25 PM
On the plus side:


We have a surfeit of human capital, millions of well educated people who are willing to work hard



I worry about assumptions like this. It seems a little rah rah. I think Americans have gotten lazy. I know, I'm one of them. I'm lucky enough to have a career that pays well and involves sitting at a desk (knock wood). I'm 45, overweight and out of shape. If I had to physically work hard for a living, like my father did, I wouldn't last a week.

My mom lives in an area that's been depressed for years. There are a lot of people there that have been sitting around not working for years. Maybe actual hunger will change this, assuming there are opportunities. Maybe it will turn a large percentage to crime.

This is not the greatest generation anymore.



Everyone will be quite shocked by how quickly the US can recover once the right people with the right philosophies take charge of those institutions.

Who are the right people and how would they possibly get in charge?

phirang
03-10-09, 01:08 PM
Yes, I'm being intentionally provocative here, and glad I've smoked out comments from members of the community we have not heard from before.

Consider our unfortunate situation.

On the minus side:


The FIRE Economy is collapsing
Unemployment is rising rapidly
We have minimal savings
Our credit is in question

On the plus side:


We have a surfeit of human capital, millions of well educated people who are willing to work hard
We have strong institutions that took generations to develop, albeit under marginal management lately
We have a strong rule of law, although poorly enforced as of late, especially for property rights, which is why so much is invented here

What to do to build for the future? How to finance it?

Plus side:

1) China and India also have plenty of human capital. Thanks to GATT/WTO, we now have slave wages for both blue(if they can even find a job) and white collar workers. Working hard is irrelevant: no one works harder than slaves in a Liberian diamond mine.

2) I really don't understand point #2. Maybe you're hoping to get a job from Obama or something. Seriously ridiculous, but wtf do I know... :D

3) We have a VERY strong rule of law for those who not of the $1M+ campaign contribution club: for the plebes, it's fear and intimidation as usual. For the oligarchs, well, they write the laws, and so how can they break them??? :rolleyes:

How to finance it? Infrastructure bonds? You realize that even WITH retrenching entitlements and empire, we'll need very high interest rates to pull money back in from our QE? That'll cause a SECOND recession if this current collapse doesn't swallow us whole.

So long as US workers make "too much money" for US companies to invest domestically, there's 0 incentive to upgrade infrastructure: there's already massive overcapacity in every industry globally. The only possible catalyst to saturate that capacity would be a major war.

Finally, the social engineering/trade tax using carbon credits is asinine: collapsing industry alone will sort out our CO2!