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Forums - General - Why the recession is not gonna be over anytime soon

NJ5 on 11 July 2009
akuma587 said:
NJ5 said:
akuma587 did the stock market fall because of Lehman Brothers's absence, or did it fall because it made people realize just how big a hole the economy was in? By the way it wasn't just LB going bankrupt at that time, so don't blame everything on LB:

http://en.wikipedia.org/wiki/Subprime_crisis_impact_timeline#September_2008

By the way, not all of Lehman Brothers went into bankruptcy. The core business got sold to Barclays.

The bankruptcy of ten to twenty of these financial institutions would have turned that hole into a canyon.  People freak out when banks start failing.  There is a reason why you had a run on the banks during the Great Depression.  When people don't feel like there money is safe, they want it in their hands right now.  When everybody wants their money in their hands right now, banks don't have any money.  Banks really only hold 10-20% in assets of what their liabilities are.  If you would have had a run on the banks, even banks that were perfectly financially sound would have run out of money.

I'm not just making this stuff up.  It already happened once before last century. 

I give credit for Bush and Cheney for having enough sense to do something about it.  TARP was the smartest decision Bush made while he was in office, although I can't say the Bush Administration handled the money as well as they could have.  But they did avert what could have easily rivalled the Great Depression.

It must be possible to close down a bank in a graceful enough way that people don't stage a run on the bank. With all the creativity the administrations have shown in this mess, it should be possible to transfer depositors to other banks, etc. In fact that's what happened with a lot of the bank failures.

I refuse to believe that the only solution to the banking problems was to save most banks and give them massive amounts of money that they can waste doing business as usual (limited by their capital levels of course). There's a lot of evidence to show that most things the banks were doing wrong before the recession, they're still doing (an example is the bloomberg article I posted above).

 



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akuma587 on 11 July 2009

They have to pay the money back.  Some of the banks have already paid back close to $70 billion.  And banks want to pay the rest back because it makes the company look bad when they still have TARP funds.  In fact, Timothy Geithner had to tell them they had to wait to pay back the money, because they wanted to pay back even more than that.

And the alternative you are suggesting would have involved the government getting even more heavily involved in the banks than they already are.  Not to mention it would have taken thousands of people to oversee.

And you are also assuming that people knew what was going on at the time, which they really didn't.  Hindsight is 20/20.  Even smart people and people in very powerful positions had about as much idea of what was going on as an average person on the street.  Nobody had perfect information.  And there really wasn't much time to just sit around.  Given the circumstances, the Bush Administration pretty much made the smartest decision it could have.

 



We had two bags of grass, seventy-five pellets of mescaline, five sheets of high-powered blotter acid, a salt shaker half full of cocaine, a whole galaxy of multi-colored uppers, downers, screamers, laughers…Also a quart of tequila, a quart of rum, a case of beer, a pint of raw ether and two dozen amyls.  The only thing that really worried me was the ether.  There is nothing in the world more helpless and irresponsible and depraved than a man in the depths of an ether binge. –Raoul Duke

It is hard to shed anything but crocodile tears over White House speechwriter Patrick Buchanan's tragic analysis of the Nixon debacle. "It's like Sisyphus," he said. "We rolled the rock all the way up the mountain...and it rolled right back down on us...."  Neither Sisyphus nor the commander of the Light Brigade nor Pat Buchanan had the time or any real inclination to question what they were doing...a martyr, to the bitter end, to a "flawed" cause and a narrow, atavistic concept of conservative politics that has done more damage to itself and the country in less than six years than its liberal enemies could have done in two or three decades. -Hunter S. Thompson

NJ5 on 11 July 2009

How much of the bail out money will be paid back is still unknown. If I recall correctly a lot of it was exchanged for shares in the banks which might be close to worthless.

Thousands of government people to oversee the transfer of some assets to other banks? I don't think so... Just the normal amount of people involved in any bankruptcy or corporate sale.

As for hindsight and smart people in powerful positions... who knows what they knew or thought. But there were plenty of people who understood precisely what the banks' problems were.

 



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Slimebeast on 11 July 2009
akuma587 said:
NJ5 said:
It seems like you should be making the opposite argument. If anything, that means a stimulus package was more necessary than we thought.


That's only true if it gets proven that the stimulus package is the best way to deal with the economic downturn... and that's not proven.

And unemployment is currently around 9.5-9.7%, which means that you are already seeing unemployment reach a bottom.


Why does it mean it's a bottom?

I know that U3 unemployment only increased slightly in the last month, but that's more due to the way the measure is calculated than due to a real improvement in the situation.

Why do I say this? Because the USA job losses in June were not very different from the previous months (around half a million), yet the unemployment rate only increased marginally. The reason is that U3 unemployment doesn't include people who stopped looking for a job and other discouraged workers.

If you want a one way ticket to a depression, allowing the banking sector to collapse is the best thing you could possibly do.


However, the US is repeating Japan's early mistakes when dealing with a banking crisis. Shifting debt around or hiding it under the carpet. That was a one way ticket to a decade of deflation over there.

1)

Well, we kind of did not have many options.  The Fed was loaning out money at almost 0% interest and the economy was still sinking like a stone.  This is what we call a "liquidity trap," which is actually what led to Japan's "Lost Decade" in the 90's.  Our fiscal policy alternatives were tax cuts, which there were $230 billion of in the stimulus package, government spending, or throwing money out on the sidewalk.  In this type of recession, one where you are suffering from a lack of demand and tightening credit, government spending is more effective than tax cuts.  This is because government spends that dollar once and the money is spent domestically.  Then the person who receives that dollar can spend it, save it, etc.  Compare that to what happens with tax cuts.  That dollar gets "spent" more through government spending, thereby creating a greater multiplier effect.

Tax cuts were great for the problem Reagan was facing, stagflation.  But its equally short-sighted to assume that tax cuts are the best fiscal policy solution during an economic downturn such as this one.  With tax cuts, a dollar is "spent" less.  Many of those dollars people will go spend at their local Wal-Mart or retailers, where the money is shipped back to China and other developing nations who manufactures the majority of those goods.  Or they will just save the money and pay down their debt.  The stimulative effect of that is much less because that dollar ripples through the domestic economy less.

I really don't think that is a very complicated concept.

How can you say it is not proven that government spending helps in an economic downturn?  Did you not read any of our discussion of the Great Depression and WW2?  Go back and read through it.

2)

As for your unemployment comment, unemployment has really been measured the same throughout the 20th century.  You are correct that the unemployment number does not tell you everything.  But when that same method has been used to measure unemployment throughout the 20th century, you can make accurate assumptions about overall trends based on past events and how unemployment typically "moves" during a downturn.  So your comment would make a difference if we had ever measured unemployment differently, but we never have.

3)

As for your third comment, you know that if you look at our debt as a percentage of GDP (which is the most important indicator to look at when talking about public debt) that out public debt was actually higher after WW2 than it was now.  Yet that was one of the most prosperous times in the history of this country. 

I find it really ironic that you criticize government spending in your first point, and then mention Japan's crisis in your third point.  Almost all economists agree that Japan was suffering from a "liquidity trap" in which you have loose credit but no investment.  That is when fiscal policy, i.e. government spending, is the only viable option in terms of the government stimulating the economy further.

And Japan's problems are distinguishable from the U.S.'s anyways.  Japan was experiencing a shrinking population (i.e. non-sustainable birth rates) which affected their long term economic growth.  Its really hard to grow your economy when your population is aging and shrinking.  The U.S.'s population is growing (mostly thanks to immigrants and minorities who have high birth rates).  Japan has extremely strict immigration policies.  This really hampered their ability to get out of a recession.

If you want a very in-depth discussion on this third point, you should read this article:

http://web.mit.edu/krugman/www/japtrap.html


lol! So now babies stimulate the economy? Where are these super children that work in factories and raise the GDP?

Everyone knows that Japan went into a recession in the early 90's. But in that time the number of teens and young adults were actually record high, there had never been more young people finished with their education and ready to contribute to the economy!

Meanwhile the birth rates in Japan were record low, which only means that there were less leeches (children) to be fed, and more people were available as labor force instead of home taking care of children. You know, there's a 20 year delay before newborn babies can contribute to economic growth.

You're just assuming stuff because it fits your political agenda.

(and Japan's population has only been shrinking for the last three years, while their economic stagnation started over 15 years ago at a time when not just the total population but people of working age was growing at a healthy rate)



TheRealMafoo on 12 July 2009

God Akuma. Not only can we not convince you that you are wrong, your economic plan in action being completely ineffective doesn't convince you. Talking to you is like a brick wall.

If the market had gotten better, I would say bailing all these people out was I guess the right thing to do. It didn't, so why don't you look at the facts, and reassess your position?

Sometime I think it's just to hard for you to admit you were wrong, so you would rather hold on to what you think is true instead. Open your eyes man.



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sguy78 on 12 July 2009

Please no more bailouts. No company is too big to fail.



akuma587 on 12 July 2009
TheRealMafoo said:
God Akuma. Not only can we not convince you that you are wrong, your economic plan in action being completely ineffective doesn't convince you. Talking to you is like a brick wall.

If the market had gotten better, I would say bailing all these people out was I guess the right thing to do. It didn't, so why don't you look at the facts, and reassess your position?

Sometime I think it's just to hard for you to admit you were wrong, so you would rather hold on to what you think is true instead. Open your eyes man.

Economies just don't recover overnight.  No one ever claimed it would, including Obama.  TARP saved the banks.  It did exactly what it was supposed to do.  Its not my fault you expect miracles when no one ever claimed there would be one.

Apparently you have a crystal ball though that shows you alternate futures where TARP was never enacted and that didn't involve heavily infusing banks with money in some other roundabout way that would have essentially done the same thing.  Its especially hard to take you seriously as you rarely cite to any data or anything else that a rational human being would accept as evidence that your theories are correct.  Just because you say it doesn't make it true.  I hate to have to tell you that.

As for the rest of your post:



We had two bags of grass, seventy-five pellets of mescaline, five sheets of high-powered blotter acid, a salt shaker half full of cocaine, a whole galaxy of multi-colored uppers, downers, screamers, laughers…Also a quart of tequila, a quart of rum, a case of beer, a pint of raw ether and two dozen amyls.  The only thing that really worried me was the ether.  There is nothing in the world more helpless and irresponsible and depraved than a man in the depths of an ether binge. –Raoul Duke

It is hard to shed anything but crocodile tears over White House speechwriter Patrick Buchanan's tragic analysis of the Nixon debacle. "It's like Sisyphus," he said. "We rolled the rock all the way up the mountain...and it rolled right back down on us...."  Neither Sisyphus nor the commander of the Light Brigade nor Pat Buchanan had the time or any real inclination to question what they were doing...a martyr, to the bitter end, to a "flawed" cause and a narrow, atavistic concept of conservative politics that has done more damage to itself and the country in less than six years than its liberal enemies could have done in two or three decades. -Hunter S. Thompson

TheRealMafoo on 12 July 2009

Half the posts in this thread has data. I linked to the best source of data one can find, the economic statistics page that the government themselves releases.

I have posted link after link to discuss that TARP will not effect the economy. TARP did not effect the economy, but somehow I am living in a dream world where I have no clue what's going on, and you have some magical wisdom we all should be listening to.

You were wrong. Obama was wrong. Bush was wrong. None of them (including you) ever said TARP was put into place to save the banks. TARP was put into place to save the economy, and propping up the banks was how you all thought it would be saved.

Myself, and a dozen other people on this site said it will do nothing because it does not solve the problem. It did nothing.

Fuck man, I would hate to be one of your professors in school. No one can teach you a god damn thing. You get a position in your head, and if you think it's right, it can't possibly be wrong.



Slimebeast on 12 July 2009

Mafoo is frustrated lol. Funny comments by him.



TheRealMafoo on 12 July 2009
Slimebeast said:
Mafoo is frustrated lol. Funny comments by him.

lol, yea.

I had an atheist friend once tell me a joke to illustrate why conversations about religion were pointless. It went something like this:

A man walks into a doctors office, and tells the doctor "Doctor, I believe I am a corps". The doctor says "Your not a corps". The man says "No, I truly believe I am a corps". So the doctor thinks for a second, and says "Ok, well, do corpses bleed?" The man says "Of course not". The doctor then took a scalpel an made a small incision on the mans arm, and a small amount of blood came out. The man looked at it in utter amazement, and said "Wow, I was wrong, corpses do bleed".

The point of the joke is that you can't change a belief. Akuma's version of economics is not based on fact, it's a belief based system. No amount of facts can change his view, all it can do is change how he views the world (like the man in this joke).