German finance minister Wolfgang Schauble left little question about his view of the wisdom of the economic policies of the Obama Administration. Schauble called the U.S. plan to pour trillions of dollars into the bailout fund “stupid” and said it would destroy the AAA ratings for the members — precisely what occurred to the U.S. this year. There is rising criticism of the economic views of Timothy Geithner, who some view as steering the U.S. into massive and unproductive spending.
It is rare to see such a public rebuke in diplomatic circles and highlights the lingering questions of the Administration’s policies of pumping huge amounts of money into the market and into jobs programs.
The Obama jobs plan has received little support on the Hill where critics are charging that the plan will cost $200,000 a job — an assertion defenders have called misleading. ABC News reported “Treasury Secretary Timothy Geithner didn’t dispute a Harvard economist’s estimate that each job in the White House’s jobs plan would cost $200,000, but said the pricetag is the wrong way to measure the bill’s worth.”
I tend to be a bit skeptical of the government being able to prime the pump with huge bailouts and stimulus handouts. Similarly, the last stimulus fund created for shovel-ready projects appears to have been largely a failure from a cost-benefit perspective. That perspective is not helped with President Obama now saying that there is “no such thing” as shovel-ready jobs after using the pitch to sell the last massive fund.
What do you think?
Source: Telegraph
“Another important aspect of depressions is the high unemployment that usually comes with a mass liquidation of productive processes. Like capital goods, labor must be reallocated. However, it is a grave error to prescribe policy based on unemployment alone. Employment of workers toward processes that do not satisfy the highest-valued consumer preferences is either unsustainable or comes at the cost of subpar productivity.
Sustainable employment can only be accomplished by mixing labor with capital goods toward production processes that are based on consumer valuations. Improvement in the labor market, therefore, is unquestionably tied to the capital structure. Without a structural readjustment, there can hardly be a sustainable or economical reduction of unemployment.
This structural readjustment is the Austrian “recommendation” of what needs to occur to restore healthy productivity to an economy. There are two main components: a correction in the pricing process and a readjustment in the capital structure. Whether these would be “unfair” or “painful,” frankly, does not matter. Rather than blaming the readjustment, guilt should be associated with the interventions that made the liquidation and restructuring necessary in the first place — the inflationary policies that led to the depression. Any step taken to avoid the readjustment will at best prolong the recession, or at worst aggravate the problem.”
http://mises.org/daily/5513/Rethinking-Depression-Economics
“Raise it to the point where they’re squealing and have packed their bags to leave the country.”
And you guys wonder why were in the shitter. Tell me loviatar, when all the rich have packed their bags who do you plan to tax to sustain your unprecedented levels of spending and debt now that you have finally achieved your dream of alienating anyone who you could possibly fleece to pay for it? Or will you just print your way out?
On top of that your notion that the economy is in need of “demand” is pure fantasy. Your trying to build a pyramid upside down, capstone first. Who in their right mind borrows money when they just lost their job?! That is absolutely insane. Demand is infinite, I can think of a million things I want off the top of my head right now but no matter how much I really really want a 50 inch plasma, I cannot summon it into existence through an act of will alone. If demand falls prices fall, thats just common sense. There is no vicious circle. The only way prices can rise while demand is falling is through expansion of the supply of money, facilitated by the federal reserve. The same pool of resources being bid on by a larger and larger pool of dollars is the phenomenon we are witnessing right now.
Production and supply are finite and the root problem is temporal coordination of production to meet short term consumer demands and long term consumer demands. Forgoing present consumption for future consumption creates savings. In a normal competitive enviroment, the larger the pool of savings, the lower the interest rate to borrow that money. Addintionally the larger the pool of savings, the larger the pool of long term projects that can be funded to completion. Low interest rates in this enviroment signal to producers that consumers are more interested in spending in the future rather than the present. With this information producers shift their resources to expanding production of capital goods rather than final product consumer goods. For example, low interest rates might mean it is a good time to shift production from manufacturing shoes to manufacturing more machines to produce more shoes, since not only do they take much longer to produce, the returns on those savings that were invested will allow consumers to purchase more shoes in the future than they could purchase with their resources immediately. Expanding productive capacity in allignment with consumer preferences is the only way jobs are created.
When the federal reserve steps in and artificially lowers interest rates by decree, the resulting disruption of the transmission of information from consumer preferences misleads businesses to engage in production along lines that are unsustainable because the future consumption that low interest rates signal, (a preference of consumers to spend in the future instead of the present) is non-existent. Imagine a single shoe company going out of business because of this diruption. Now imagine that flaw is systemic to our entire economy due to the federal reserve’s interest rate manipulation and it becomes very clear why we are in the mess we are in.
SM, WOW! His honesty is refreshing is it not? I’m of a mind that this vid could be re-cycled for the US at some point in the future and probably sooner than later.
That trader in the interview is a soul dead little sociopath is he not? ‘The big traders are pulling their money out of this market and moving it into more secure…’ and ‘I’m a trader, we don’t really care how to fix the problem, our job is to make money off of it’ ‘I’ve been dreaming of this moment for 3 years’ is exactly why serious regulation is needed globally. You just knew that he and his took advantage of every device, instrument and loophole to make money even though it was the fuel for the car driving off the cliff.
Obviously, what we and the world needs is greater deregulation, that’s the ticket.
Thanks for the links. “Excellent” is faint praise for them.
http://www.bloomberg.com/news/2011-09-29/euro-area-s-rescue-options-are-shrinking-fast-commentary-by-anil-kashyap.html
Loviatar, Create *sustained* demand. Massive change in the direction of the country works well to do that. The space program dis that. As well IMO a conversion to green energy and building practices would do that. The Netherlands has embarked on a 20 year plan to start retrofitting their countries water defenses to secure their existence for the next 200 years, Sweden started a program around 2005 to convert to an oil-free country (or as close thereto as possible). Did not Brazil do the same thing? 80% or 90% of their cars now run on Ethanol.
But hat takes vision; our leaders can’t get a budget together, we are living with continuing resolutions. and a perpetual gridlock in Washington.
Woosty’s still a Cat at 7:35 pm: “so, who owns us now????????”
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Same folks, they just change names from time to time to keep us confused. 🙂
*****
How could it not have been WWII that ended the depression? It destroyed our manufacturing rivals and capacitor like, bound up a decade-plus of demand to spur 30 years of relentless need/acquisition. The only event in our history that was a greater economic spur was the completion of the transcontinental railroad. Is that not correct?
@ Bron
I forgot:
Raise taxes on the wealthy.
Raise it to the point where they’re squealing and have packed their bags to leave the country.
Then and only then will you have reached the point of fair taxation.
@ Bron
“How do you fix this mess? There seems to me 2 choices; raise taxes and cut spending or lower taxes and cut spending”
Create demand, the choices you’ve listed would not get us out of our current economic mess. I have to give the Republicans credit, they’ve done a great job of convincing the American people that the finances of the government can be used to fix the economy, in the short term it can’t.
—–
I’ll try and explain it in simple terms, our economy is screwed, but our finances are in not too bad a shape.
Analogy:
– You’ve just lost your job, but you have great credit and your local banks are competing to lend you money.
– Your long term debt is manageable and while you spent the previous few months spending like crazy you still have the ability to borrow at an absurdly low interest rate.
– You’re running a monthly deficit, but once you start working again, you’ll quickly pay down any debt you accrue if you get your mid to long term spending under control.
All of these issues – deficit, debt, borrowing, spending – are primarily financial issues and like I said we’re not in too bad a financial shape.
—–
The economy however is in very bad shape, we are not generating enough demand to soak up the current excess supply, which leads to a vicious circle of continued reduced demand creating excess supply.
Analogy:
– You’re working part time at Walmart, just enough to maybe pay your mortgage and feed yourself.
– You’re part time, so you don’t use health care unless absolutely needed.
– You’re part time, so you don’t buy a vehicle unless absolutely needed.
– You’re part time, so you don’t buy any major household item (appliances, furniture, etc.) unless absolutely needed.
– Your cousin and two of you neighbors have lost their jobs because not enough people are buying the goods they are producing.
– Your sister and her husband are now also working part time because not enough people are buying the goods they are producing.
– Your, brother, two neighbors and you sister and her husband are now in your position and they are cutting back on their spending.
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Of the choices you’ve listed, I would suggest we borrow now and spend like crazy on items that provide a return on investment to the American people. We should not spend any additional funds on 2 wars and a defense and security infrastructure that has no rival in the history of mankind (maybe hyperbole, but its the truth, look it up)
The financial mess left by the Bush administration is more of a mid to long term problem and can be addressed by reforming healthcare (Universal Healthcare), significantly reducing the Defense and Security budgets and making minor, I’ll repeat minor tweaks to Social Security.
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As to how to spend the money, 1/3 block grants to the States, 1/3 Federal programs to meet national needs and 1/3 based upon needs decided through a submission process.
you’re relevant, should be they’re relevant.
Loviatar
1, September 28, 2011 at 11:58 am
Regarding my suggestions as for what would work in both Europe and America:
– Immediate write down of 1/4 to 1/3 of underwater bank held debt
– Bank bailout contingent on accepting write downs
– Return of Glass–Steagall or something similar
– Immediate implementation of CFPB
– Investigations of the Financial industry and jail time for executives who committed wrongdoing (length of time served would be similar to time served for a bank robbery)
==========================================================
add asset forfeiture to the list and you might have something
never happen though, not to the “job creators”
i’m about ready for atlas to shrug, go crawl into a cave somewhere and pretend you’re relevant. they’ll all wind up shooting each other.
Loviatar,
Accepted.
BILviator H.
if that is the case maybe we should change it to BLoviatar?
@ Blouise
That was a mistake, I apologize.
so, who owns us now????????
Loviatar,
let’s see, I said:
lottakatz,
Keep writing, I’ll keep reading … your words help me understand this mess …”It sounds like Giethner is proposing a bailout and calling it a stimulus” is exactly how it sounds to me and thus far no one has provided words that show error in that reasoning.
Then you said:
Loviatar
1, September 28, 2011 at 11:42 am
@ Blouise
And your suggestion is….
—————————————————————–
Hello! What? The moon is waxing crescent so that can’t be the problem ….
BIL a.k.a. Gene H a.k.a. Loviatar,
You need to get help
Loviatar:
since you appear to be someone who has actual financial experience, what in your opinion is the biggest problem? I assume you are for some sort of controlled economy.
How do you fix this mess? There seems to me 2 choices; raise taxes and cut spending or lower taxes and cut spending. Increasing spending seems to me to just put off the inevitable. And at some point you run out of assests or you create funny money to keep it going.
If as you say Krugman is right, how long will it take to pay back 4-6 trillion dollars when tax revenues are 2.2 trillion and federal spending is 3.5 trillion? Keeping in mind that every dollar in extra tax levied is a dollar which cannot be used to generate taxable income. Also keeping in mind that for every dollar of stimulus you are taking capital out of the private sector either directly or indirectly through future inflation.
And just to clear up the confusion, I am actually a guy. Buddha assumed I was a she a long time ago and i never felt it was all that important to correct him.
Loviatar,
Perhaps the regulars here are used to me by now, and Im sure my style could be described generously as… confrontational, however, I sincerely meant that statement as a challenge rather than an insult. I guess what im trying to say is, you translated it as me saying “you agree with krugman, so your stupid”, when it was just my way of saying “dont tell me krugman has a nobel prize. He’s right. Tell me why YOU think he is right”.
I also have to ask how i took krugman’s words out of context when all I did was restate them practically verbatim?