No, I don't blame Obama for the economy crashing. I blame him for keeping us in it.

If he had done nothing, we would have crashed very fast. Where it's going to take us 5 years to get to, we would have gotten to in less then a year. It would have sucked for a year, but then all of it would be behind us, and everything would be growth. Right now, we would be in a growing economy, not in a declining one.

We could have been out of this entire thing in 3-5 years. (1 to crash, 3-4 to totally recover). Now it's going to take 15-20 years to crash/recover.

That's Obama's fault. (and Bush for the bailout in his last year).

Since I don't know fully what you mean by he could have fixed it is a year I ask you to explain further. Also your speculation on how things could have been is inspiring, yet very idealistic considering it never happened. Please don't be a fortune teller and explain further or tell me if its already in the thread.

It did happen. One of the worst economic crashes (if not the worst) was in 1920. It lasted just a year, because our president at the time did nothing. He let it crash. It quickly recovered. 10 years later it crashed again (not as bad), but this time Washington did a great deal, and we didn't fully recover until the 1950's.

http://www.thefreemanonline.org/featured/the-depression-youve-never-heard-of-1920-1921/

A good read about what I am talking about.

agreed

Please explain, how you expected us to get out of this recession QUICKER, by doing nothing O.o

After all we've done. We're at a danger of experiecing deflation still. You guys love to rant about debt, when deflation will make it harder for individuals to pay off their debt. You talk about defeceit. How will we reduce the defeceit when our GDP and tax revenue go down the toilet. Then we will be in risk of actually defaulting, and losing our credibility.

Right, 1 to crash, 3-4 to recover it O.o Because consumers will just regain consumer confidence when they see their wages actually falling, while they refuse to spend because they expect prices to go down even more. Confidence will go up, when a shit load more people would go unemployed O.o

Confidence will go up when firms hire again and invest. Firms will hire again and invest, when they need to increase their inventories again. Inventories will be increased, when excess inventory is cleared and inventory is being demanded. RIGHT NOW, consumers aren't demanding anything. Inventories will be just sitting in storage. Nothing will happen. Who needs to step up? The government. Government to either buy, or give money (to those that will actually buy with the majority of their cash, not save). Once things are better again, then we can save and increase tax.

Britain Reels as Austerity Cuts Begin

By SARAH LYALL

LONDON — Last month, the British government abolished the U.K. Film Council, the Health Protection Agency and dozens of other groups that regulate, advise and distribute money in the arts, health care, industry and other areas.

It seemed shockingly abrupt, a mass execution without appeal. But it was just a tiny taste of what was to come.

Like a shipwrecked sailor on a starvation diet, the new British coalition government is preparing to shrink down to its bare bones as it cuts expenditures by $130 billion over the next five years and drastically scales back its responsibilities. The result, said the Institute for Fiscal Studies, a research group, will be “the longest, deepest sustained period of cuts to public services spending” since World War II.

Until recently, the cuts were just election talking points, early warnings of a new age of austerity. But now the pain has begun. And as the government begins its abrupt retrenchment, the implications, complications and confusions in the process are beginning to emerge.

“It feels like they’re just sticking a finger in the air and guessing,” John Mutton, leader of the City Council in Coventry, said of the government’s methods for deciding which programs to cancel and which to cut.

In June, the government announced its first round of cuts, removing about $10 billion from the current year’s budget.

While that is a drop in the bucket compared to the final goal, the reduction measures have already had severe consequences. Public sector workers across the country, except for the lowest paid, will have their salaries frozen for the next two years. Oxfordshire, facing a nearly $1 million trim in its road safety budget, has been forced to shut down all of its 161 traffic speed cameras.

Nottinghamshire plans to close three recycling facilities and some of its day care centers. The city of Coventry, which already cut spending in January, is trying to find $5.6 million more to cut from its current child services budget.

But far worse cuts await in October, when the government issues its long-term budget plans. Mr. Mutton, the Coventry official, predicted that the next round of cuts would cost the city at least 10,000 jobs. Analysts have estimated that about 600,000 public-sector jobs could be lost nationwide.

Mr. Mutton said that the most recent news — which included the cancellation of a multimillion-pound program to build new schools and refurbish crumbling old ones in Coventry — had come so abruptly that carefully wrought plans and partnerships had to be torn up overnight.

“It’s impossible to plan,” he said. “We believe in trying to plan our budget for three years, particularly in order to give our voluntary and private-sector partners some stability. But we can’t do that at the moment. We haven’t a clue.”

They are not the only ones. The urgency of the task has sent cabinet ministers scrambling to find cuts so quickly that speed may be overtaking sober reflection, critics say.

For instance, the U.K. Film Council is not, in fact, sure whether it is meant to exist or not. Two weeks ago, a Culture Department official told its chief executive, Tim Bevan, that it was being abolished. The next week, the department said in a news release — and the culture secretary said in Parliament — that the abolition was one of a number of “proposed” changes.

A spokesman for the council said that no one from the Culture Department had explained what was going on. But a spokeswoman for the department declared that it was a done deal: the group would cease to exist.

Referring to the word “proposed,” the spokeswoman said: “I can’t account for whether someone thinks the word is ambiguous in our press notice.”

The council, which is financed by the government but operates independently, distributes lottery money to filmmakers and promotes Britain’s $10.8 billion film industry. While it is by no means universally loved, people in the industry say that it serves an important function by removing politics from decisions about which film projects to support.

The government said that the Film Council’s work would be absorbed by another agency. But it has not said how.

Also last month, the government canceled a 20-year, $87 billion program to refurbish high schools and build new ones across the country. While the government said it would immediately stop work on about 700 planned new buildings and services, it said work could go ahead on about 700 others. But it repeatedly failed to correctly identify which schools were on which list, leading to widespread confusion. George Osborne, the chancellor of the Exchequer, and Prime Minister David Cameron have said that almost every function of government will be up for grabs, and that cabinet members will have to make a case for every expenditure. That has prompted a huge round of maneuvering and lobbying from groups that will be affected — just about every group in the country.

The director of the Tate Gallery, Sir Nicholas Serota, warned that “what you will see across the country is organizations closing, theaters going dark, galleries being closed.” The BBC is trying to make the case for keeping the $226 annual license fee that television viewers pay the government each year. The police say that planned cuts in the antiterrorism budget would make it harder to fight Al Qaeda.

Public-sector unions are planning a series of strikes. Charities — which Mr. Cameron has said should take over some of the responsibilities now held by the state — say that they are at risk of collapse because they are so dependent on government money.

And the chief executive of the Supreme Court, the country’s highest, said she did not know whether the court would be able to function at all if its budget were cut by 40 percent.

In Coventry, Mr. Mutton said that the City Council was bracing for an uncertain future.

“The worst bit is yet to come,” he said. “We’re not just talking about cuts in services, but real people losing their jobs, not being able to pay their mortgages, families becoming homeless. I don’t want to be scare-mongering, but these are the kind of consequences we face.”

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Politics May Get in the Way

August 11, 2010

Mark Thoma is an economics professor at the University of Oregon and blogs at Economist's View.

It is unfortunate that economists use the word disinflation to describe a fall in the inflation rate from, say, 2 percent to 1 percent, and the term deflation to describe negative inflation rates. There is nothing special about crossing the zero inflation threshold, and as explained in detail here, both a fall in prices, i.e. deflation, or a less rapid increase in prices, i.e. disinflation, cause problems for the economy.

Actual deflation has not occurred very often in the U.S., the last episode was in the Great Depression, but disinflation has been much more common. For example, Ben Bernanke worried about disinflation during the 2001 recession and wrote quite a bit about how the Fed could reverse the process and stop it from turning into actual deflation.

What were those policies? Although inflation may be, as Milton Friedman famously claimed, “always and everywhere a monetary phenomenon,” it is not enough to undertake standard open market operations to increase the monetary base, i.e. giving households newly created money in exchange for financial assets.

Prices won't rise unless there is an increase in demand. If the new money simply sits in savings -- if it sits in bank accounts, cookie jars, and the like without causing an increase in consumption or investment -- no new demand is created and prices will continue to fall. In effect one form of savings, financial assets, is exchanged for another, newly created money, with no effect on demand at all.

How can new demand be created? One way that is likely to be effective but is also politically infeasible is a helicopter drop. Suppose, for example, that a helicopter flies over depressed areas and begins dropping bags of money (or, more realistically, the money shows up unexpectedly one day in people's mailboxes). Some of that money would be saved, but most would likely be spent driving up demand and prices.

Another way is for the government to bypass individual households and use newly created money to buy the goods and services itself. This will increase demand and drive up prices, but this is also problematic politically, and would take much, much longer to execute than simply printing and distributing more money by helicopter or through mailboxes. Deficit spending by fiscal authorities could also increase demand, but the government is unlikely to pursue a policy that is aggressive enough to move prices given current worries over government debt levels.

Finally, the Fed could announce a higher inflation target, say 4 percent instead of 2 percent, something observers like Paul Krugman have been urging it to do. This works because when people expect to pay more for goods and services in the future, they buy more today to try to beat the expected price increases. The increase in purchases raises demand and produces the increase in prices that people are trying to avoid.

Unfortunately, the Fed's determined effort to build up its inflation-fighting credibility over the past few decades may be working against it here. Even if a higher target is announced, it may not be believed. In addition, there are voices within the Fed that are very resistant to pursuing a higher inflation target because they believe it would undermine Fed credibility and lead to a permanent inflation problem.

Still, pursuing a higher inflation target is politically possible and has the best chance of producing the desired increase in prices. Some members of the Fed's monetary policy committee appear to have forgotten that the Fed has two obligations, stable prices and high employment. The Fed's credibility will not be protected by pursuing a policy that keeps inflation low, but fails to attack aggressively the unemployment problem. By one means or another, policymakers need to take action to generate new demand and offset the disinflationary forces that pose a threat to the economy's recovery.

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Paralysis at the Fed

By PAUL KRUGMAN

Ten years ago, one of America’s leading economists delivered a stinging critique of the Bank of Japan, Japan’s equivalent of the Federal Reserve, titled “Japanese Monetary Policy: A Case of Self-Induced Paralysis?” With only a few changes in wording, the critique applies to the Fed today.

At the time, the Bank of Japan faced a situation broadly similar to that facing the Fed now. The economy was deeply depressed and showed few signs of improvement, and one might have expected the bank to take forceful action. But short-term interest rates — the usual tool of monetary policy — were near zero and could go no lower. And the Bank of Japan used that fact as an excuse to do no more.

That was malfeasance, declared the eminent U.S. economist: “Far from being powerless, the Bank of Japan could achieve a great deal if it were willing to abandon its excessive caution and its defensive response to criticism.” He rebuked officials hiding “behind minor institutional or technical difficulties in order to avoid taking action.”

Who was that tough-talking economist? Ben Bernanke, now the chairman of the Federal Reserve. So why is the Bernanke Fed being just as passive now as the Bank of Japan was a decade ago?

Now, America’s current economic troubles aren’t exactly identical to those of Japan in 1999-2000: Japan was experiencing outright deflation, while we aren’t — yet. But inflation is well below the Fed’s target of around 2 percent, and it is continuing to slide. And Americans face a level of unemployment, and sheer human misery, far worse than anything Japan went through.

Yet the Fed is doing almost nothing to confront these troubles.

What could the Fed be doing? Back when, Mr. Bernanke suggested, among other things, that the Bank of Japan could get traction by buying large quantities of “nonstandard” assets — that is, assets other than the short-term government debt central banks normally hold. The Fed actually put that idea into practice during the most acute phase of the financial crisis, acquiring, in particular, large amounts of mortgage-backed securities. However, it stopped those purchases in March.

Since then, the economic news has grown steadily worse. And earlier this week, the Fed changed course — but barely. It now says that it will reinvest the proceeds from maturing securities in long-term government bonds. That’s a trivial change, basically the least the Fed could get away with without facing a firestorm of criticism — and far short of the major asset-purchase program the Fed should be undertaking.

Back in 2000, Mr. Bernanke also suggested that the Bank of Japan could move expectations by making announcements about its future policies. In particular, he argued that it could make private-sector borrowing more attractive by announcing that it would keep interest rates low until deflation had given way to 3 percent or 4 percent inflation — an idea originally suggested by yours truly. Since we are, if anything, in worse shape now than Japan was in 2000, an inflation target of at least 3 percent would very much be in America’s interest. But as chairman of the Fed, Mr. Bernanke has explicitly rejected any such move.

What’s going on here? Has Mr. Bernanke been intellectually assimilated by the Fed Borg? I prefer to believe that he’s being political, unwilling to engage in open confrontation with other Fed officials — especially those regional Fed presidents who fear inflation, even with deflation the clear and present danger, and are evidently unmoved by the plight of the unemployed.

And in fairness to Mr. Bernanke, discord among senior officials also makes it difficult for policy to change expectations: it would be hard to credibly commit to higher inflation if this commitment were constantly being undercut by speeches out of the Richmond or Dallas Feds. In fact, I’d argue that loose talk by some Fed officials is already having a negative economic impact. But while Mr. Bernanke doesn’t have the authority to stop that loose talk, he could make it clear that it doesn’t represent overall Fed policy.

Last, but not least, policy is suffering from an act of neglect by President Obama, who waited until his 16th month in office before offering a full slate of nominees to fill vacancies on the Federal Reserve Board. If he had filled those slots quickly — his nominees still aren’t in place — the Fed might be less passive.

But whatever the reasons, the fact is that the Fed — which is required by statute to promote “maximum employment” — isn’t doing its job. Instead, like the rest of Washington, it’s inventing reasons to dither in the face of mass unemployment. And while the Fed sits there in its self-inflicted paralysis, millions of Americans are losing their jobs, their homes and their hopes for the future.

As one of those registered Democrats aged 18-30 years old who voted for Obama in 2008, I will not vote for him in 2012. Here is why:

1. Lack of Priorities

I voted for Obama because I thought he would turn the Bush Recession into a boom. Nope, instead Obama's stimulus was a payback to the environmental groups, teacher's unions, trial attorneys, public employee unions, and other liberal leaning interest groups who voted as a bloc for him. Furthermore, after the stimulus he spent a year dicking around with healthcare reform, which is viewed by my private employer and those of my friends as doing nothing but raising healthcare costs on the private sector. Regarding financial reform, Obama has let "too big too fail" to persist.

2. Obama's Hubris

If you think LeBron has an ego, Obama has a better reason to have a larger ego. From every speech I see, Obama has himself convinced that he is living history, a messiah figure, and will go down as one of the top 5 US Presidents along with Washington and Lincoln. I do not respect this, Bush may have been arrogant and single-minded, but Obama's hubris is completely and utterly disgusting.

3. Foreign Policy

We went from the cowboy in Bush to the pathetic apologist. No US President should or ever feel the need to apologize for America's foreign policy. American Exceptionalism is just that, America as a nation of immigrants in a world where past empires have conquered, pillaged raped, sowed salt in Carthaginian lands, is better than those that came before it. Natve Americans, Alaskans, and Hawaiians have legitimate beefs with American colonization and forced assimilation, but besides two nuclear bombs over Hiroshima and Nagasaki, collateral damage in the Middle East, and the use of napalm during the Vietnam War, America has been a far more decent empire than the British, French, Romans, Babylonians, Mongols, Greeks, and on.

Obama just does not get this and apologizes for not having the same opinion as some radical cleric in the Middle East. Obama should never apologize whenever himself or his predecessor has taken action to protect American interests be it exporting Democracy via preemptive warfare or using nations with dictators as an excuse to shore up some oil reserves. America is a strong nation with the will to throw it's strength around. The alternative, the much vaunted United Nations does not have a sterling track record itself other than being a voice box for those with a beeft against the US.

Because if we do nothing, we will hit rock bottom fast. There would be no GM, no Chrysler, no Fanny Mae, No Freddi Mac, no Goldman Sachs, and about 100 other banks. 20% of the people will lose there homes.

All the companies that were poorly run, would disappear. Unemployment would rocket to 15-20% or so.

But after that, the people still in business a the companies who still make a profit, are the ones that are strong. Banks know to lend them money. People who have a job know they will keep there job, and they will spend money.

Strong car company's will take over. Ford, who knows how to make cars without it costing the American people, will make a lot of cars. Small banks who did things right, will become large banks that do things right, and the list goes on.

All we did with the bailouts, it let a shitty systems keep going. It has never worked int he past, so I have no clue why anyone would think it will work in the future.

Oh, and the sad thing about how bad it would get in one year, is that's where we are going to end up anyway. But we are going to spend trillions trying not to get there. Someone has to one day pay that back.

Errr, I'm thinking that a deflationary cycle is more likely. And I don't think that the recession was caused by "inefficient" workers. Your belief is that somehow the efficient workers will remain, and they will spend money. And therefore that'll serve to eventually increase the economy. But the thing is, aren't they spending right now as well? I mean, they're confident that they're going to keep their jobs right? So given that their spending right now, why are we still going through a recession? Are you just saying that the recession is a cutting of jobs?

No, it's FIRST a cutting of spending. Because there's a cutting of spending, firms don't need to invest and don't need to produce as much, if at all. That leads to cutting their capital, which includes labor. It's not that firms decide to cut labor FIRST, and then spending falls.

So this is my line of thinking:

1) Government spendings/ or gives money to spend

2) Firms begin to invest in order to meet that government created demand

3) The money the firms spent as investment goes to other people, consumers, who spend that money

4) That leads to even more increases in GDP

5) Companies, seeing that the GDP is going up, begin to invest even more and begin to hire eventually, thinking that this growth is permanent and not temporary (like we think now, with the threat of a double dip recessions. You are right in a sense, Obama and congress did prolong the recession. But for COMPLTELY OPPOSITE reasons. I say not enough, you say too much).

6) Consumers/Workers seeing that the GDP is going up, and firms hiring, also think that the recovery is permanent

7) Consumers spend more

8) On and on

You think

1) Firms shed inefficient workers, and inefficient firms fail

2) Mass unemployment, and all that bad stuff

3) But on the good flip side, the best and brightest remain

4) They begin to spend more money and produce goods

5) Therefore they begin to hire again, and the inefficient people spend money again

6) Slow but sure recovery

The problem I see, is that how the fuck are there even going to be the best and brightest firms and workers left, when they are going to sell less goods. Why would the "brightest" people spend, if they, being so bright, know their purchasing power will increase due to deflation.

Look if the firms have nobody to buy their goods, then they fail. No matter how innovative or good their products, if people simply don't buy them, they won't make them.

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As for the car bailout, I'm not too sure about that, really dubious and really sorta shaky. I would prefer stimuluses, since then the consumers decide what to buy, and they'll buy what they think are the best according to supply and demand free market.

If government spending can spur a recovery, why has Japan's economy taken so long to recover from their similar financial crisis?

The downturn will continue as long as banks refuse to lend money, foreclosures remain high, and as long as individuals refuse to spend. It may be counter-intuitive, by bailing out the large banks ensured that this recession will last (long) past Obama's presidency. While they have been labeled "Toxic Assets" the mortgage backed securities (which are the core of the problem) are not value-less; the problem is that their real value is far less than their book value. Had the collapse been allowed to happen these assets' book values would have been down-graded to their real value, and they would have been purchased by better run banks; and since it would result in the value of these assets going up, many of these banks would aggressively look to restructure these mortgages in a way that the home owner could afford them.

Basically, when large banks failed smaller banks would have bought their assets up at $0.01 $0.10 for every dollar of their book value because of the expectations of defaults and how little money could be recovered from the sale of their home. This bank could then discount the principle on their mortgage by 25% to 50% and have them refinance at the current rates and return defaults to more normal levels; and therefore increase the value of their assets to 50% or 75% of the previous book value.

The zombie banks that exist today can not make these kinds of deals because it would result in their book value falling far enough to bankrupt the bank.

Japan is in a liquidity trap, where the interest rate is 0.1% and the government can't use monetary policy to stimulate the economy. Japan got out of its recesison, but only by a surge of exports. Germany right now is trying to play that game and looks like it's succeeding. However, this strategy cannot work for all the countries at the same time, in a global recession.