Rolling US Economy Into The Shitbin Thread

What sucks is that I have a friend with a cushy top tier job at a corporation that probably has more money than they know what to with. So he gets a huge paycheck doing little to nothing while his corporation isn't hiring anyone but actually had layoffs last year (my friend got to fire people).

I have no job and it might take forever to work my way up to a high tier position even if I had a job. Meanwhile it's hard to even hang out with my friend because he has the cashflow to eat at any restaurant and I have to be picky with where I eat and how often I can go to the movies etc. What I hate the most is that I feel belittled even though I'm doing my near best at trying to find a job while he acts like a pompous ass when he occasionally says things like "I get invited to VIP sections at clubs all the time where I can drink as much as I want for free but I don't drink" (and he would never be caught on a dancefloor).

I don't have many friends so sometimes I take what I can get even if my friend can be annoying

I was going to say, exactly why is he your friend again?

i hope you lol at that kind of nonsense talk from your friend.

Or else just make sure he picks up the bar tab at least.

lol at him, then hand him the bar tab.

Then pick his pockets, then steal his identity.

I hope your friend is saving money.

^^^^^^^^^^^^^^^ ominous.

1) get him to post to ILX
2) we'll schedule a FAP at an expensive restaurant
3) Daniel will hand him the tab
4) Ned will pick his pockets
5) Alfred will walk up to him and "ominously" say "I hope you're saving money."
51) we'll suggest ban him

i'm just a reporter from rolling stone
http://www.thedailyshow.com/watch/thu-october-7-2010/mortgage-bankers-association-strategic-default
i blame the poor for all this tbh

this editorial in today's nyt caught my attention, mostly for what i don't understand. here's the key paragraph:

The betting is that the Fed will soon start buying up Treasury bonds to push down long-term interest rates. That would weaken the value of the dollar, increasing exports and cutting imports. The Fed’s overarching goal is to head off deflation — a sustained period of falling prices like the one that has stalled Japan’s economy since the 1990s.

every step in the chain is a mystery to me. if anyone can explain the following, in layman terms, i'd appreciate it.

• does the fed "buy up T-bonds" from those who now hold them (like redeeming them early at a discount to the gov't)?
• why does buying up T-bonds push down long-term interest rates?
• why does pushing down long-term interest rates weaken the dollar?
• why does weakening the dollar increase exports/cut imports?
• why does this proposed solution prevent deflation?
• all deflation can't be bad; people like lower prices. what turns falling prices into a crisis?

<3 wyatt cenac

I can sort of answer a couple of those questions although I'm still confused about some of it (and anyone more financially savvy than me can feel free to correct)

- Buying T-Bonds pushes down long-term interest rates because the more demand there is for a bond the lower the yield needs to be to attract buyers. I don't know the exact mechanism of bonds but I'm pretty sure this is the basic idea.

- Lower interest rates weaken the dollar because cheaper money = greater money supply = pressure in the direction of inflation

- hence it reduces deflation

- the danger of deflation is a "deflationary spiral" -- as assets and goods get cheaper people and institutions sit on their money expecting a lower price tomorrow than today, causing prices to get cheaper, causing money to stay put and not get spent, etc.

- weak dollar increases imports because if, e.g., the Euro is worth more in dollars, you can get more American stuff for the same amount of Euros. Weaker dollar = weaker versus other currencies = other currencies can buy more American stuff.

The thing I never get about this is that I thought we were a very import heavy country, in which case you'd think the benefit of increased exports would be canceled out or outweighed by the higher prices Americans would pay for foreign goods (although I guess the hope is that we'd start importing less and exporting more).

It is important to note that when the Fed buys any asset, including but not limited to T-Bonds, it does so by simply creating the money it spends, thus injecting new money into the system. This injection is immediate. It's kind of like a shot of B-12 for the economy.

Injecting instant money does not instantly inject more goods and services into the economy, so it can create more demand without increasing supply. When demand is weak, this is not a bad thing.

Part of what is going on right now is that money already in the system is being used to retire debt, most notably paying off credit card debt, rather than buying things. Retiring debt (somewhat paradoxically) removes money from the economy.

This sort of thing is what drives the business cycle. The Fed is supposed to smooth out booms and busts by acting counter-cyclically, adding money when credit contracts and sopping up money when credit expands. As you may have noticed in the past boom, the Fed did a shit poor job of damping down the boom in housing credit. Few people in the USA understand the degree to which the Fed is complicit in the recent bubble and bust and how blindly and badly it performed. Of course, the wealthy understand this stuff, but they benefitted enormously, so they aren't complaining.

Part of what is going on right now is that money already in the system is being used to retire debt, most notably paying off credit card debt, rather than buying things. Retiring debt (somewhat paradoxically) removes money from the economy.

right. and, as i understand it, much of the money that was handed to, say, banks in the broader bailouts of the past few years was -- contrary to its intended purpose (lending) -- used to pay down debt or accumulate cash. i heard an economist discussing this, who said, "right, well, that's really what they should do, isn't it? we justifiably criticized banks for making imprudent loans, and now they're overall just less likely to loan, as the citizen is less likely to spend." there's certainly an internal logic to it. it also makes me think of an episode of the west wing, when the president intervenes on behalf of a staffer who has some tax difficulty. the president works out the numbers, and the staffer is overjoyed that he's actually getting a rebate. he says, "i think i'll save it!," to which the president replies, "well, we'd prefer you spend it, but okay."

Esquire:
The Commission to Balance the Federal Budget: The Results
How to Balance the Federal Budget (in Three Days)
http://img685.imageshack.us/img685/3383/budgetresultschart1110x.jpg
they didn't even touch universal health care

google "the paradox of saving"

most salient thing for average Joe re deflation: part of the costs being reduced will be their paycheck (including any benefits). which will make paying off their debts more onerous.

reading a book that came our earlier this year, winner-take-all politics, by two poli sci professors, jacob hacker (yale) and paul pierson (berkeley), who claim ~
"The top 0.1 percent-—one out of every thousand households—-received over 20 percent of all after-tax income gains between 1979 and 2005, compared with 13.5 percent enjoyed by the bottom 60 percent of households. If the total income growth of these years were a pie, in other words, the slice enjoyed by the roughly 300,000 people in the top tenth of 1 percent would behalf again as large as the slice enjoyed by the roughly 180 million in the bottom 60 percent."
no wonder we're so fucked. not entirely brand new news to me, but its reiteration makes me want to go mug some rich asshole

color me surprised

i'm still waiting for it all to start trickling down

maybe we need to lower taxes

esp on the wealthy, cuz, y'know, they already pay so much it's not fair to them

they are the job generators. taxes hurt their feelings

Speaking of deflation:

http://www.nytimes.com/2010/10/17/world/asia/17japan.html?_r=1&src=me&ref=homepage

The thing I never get about this is that I thought we were a very import heavy country, in which case you'd think the benefit of increased exports would be canceled out or outweighed by the higher prices Americans would pay for foreign goods (although I guess the hope is that we'd start importing less and exporting more).

The idea is to make the US less import dependent, although the problem is twofold: 1) there aren't easily accessible substitutes for a lot of US imports; 2) Every other economy is working hard to make their currency weaker.

Point 1 is structural and is what happens when you spend 30 years with a laissez fair attitude to maintaining competitive advantage wrt other countries.

Point 2 is a sign of the times and a macroeconomic game of chicken, which will end in tears (probably inflationary tears in the US and a real estate crash in China)

xxp Aimless and Daniel

The article is about a month old, but the statistic of Americans off debt is mostly due to some of them defaulting and the credit asset being written off:

Defaults Account for Most of Pared Down Debt

0.08% — The annual rate at which U.S. consumers have pared down their debts since mid-2008, not counting defaults.

The sharp decline in U.S. household debt over the past couple years has conjured up images of people across the country tightening their belts in order to pay down their mortgages and credit-card balances. A closer look, though, suggests a different picture: Some are defaulting, while the rest aren’t making much of a dent in their debts at all.

http://s.wsj.net/public/resources/images/OB-KB753_number_E_20100917220343.jpg

Something that's just occurred to me and now seems amazing that I'd never thought about before:

I know basically two things about Japan -

It has been for many years in 'a cycle of delation'.
Tokyo is incredibly expensive to visit or live in.

How can the two co-exist? I get that a cycle of deflation also deflates wages, but wouldn't these 'downwards pressures on prices' also have affected rents, pints of beer, etc?

Imagine what it was like in 1989 before the cycle of deflation.

Gravel Puzzleworth: inflation/deflation often refer to money supply growth/contraction, rather than price increases/decreases. The commentators I read often make the distinction explicit as "monetary inflation" or "price inflation" to reduce confusion.

Japan's main mistake was to prop up de facto insolvent banks, rather than allow them to enter bankruptcy and be restructured.
So they've languished with technically insolvent banks with huge non-performing loan portfolios they refuse to write off, and the banks are hence reluctant to lend and the money supply has hence barely grown, even declined. See how M2 (currency + a variety of bank accounts) has had little year to year growth in many years:

http://www.garynorth.com/public/images/5921a.gif

Instead, they've chosen for twenty years to stimulate their economy by government deficit spending. Sound familiar?

Some of the Japanese government's stimulatory infrastructure projects were just absurd - lining their rivers and streams with concrete was a big one. And now their national debt is twice their GDP, their aging population has stopped saving (so there's no one to buy the postal bonds), and I've read a 1% increase in government bond yields would increase their interest service to 60% of their national government revenue.

Some commentators say the reluctants to write off loans in default, and restructure the banks, is due to both the Asian aversion to "losing face", as well as the incredibly interlinked (and hence vulnerable) capital structures of the keiretsu (groups of corporations with reciprocal share holdings). The American acceptance of the process of bankruptcy in enabling fresh starts is actually a huge cultural advantage.

Japan's also suffered from imported wage deflation. As Korea and later China undercut both their heavy industry and consumer products manufacturing, their main hope was to remain a big producer of higher margin capital equipment (from automated machine tools to wafer fab equipment) to mainland Asian manufacturers. But capital equipment has also become pretty competitive.

The bank restructuring could be done. Japan's central bank can get heavily into quantitative stimulus to increase money supply (at a cost to savers). Japan's huge, insoluble problem is their aging demographics. Retired people don't produce much, indeed they're a liability for national income.

I see Japan as the canary in the Keynesian coalmine.

I wish Obama had the balls to tax the rich

xpost -- wait, you're linking a graphic from Gary North?

http://www.wired.com/science/discoveries/news/2000/01/33445

(Among many other things.)

Honestly, I didn't check the site. It was just a GIS on "japan monetary aggregates".

Here, is this better?

http://lh5.ggpht.com/_H262-zY4QpU/TDLxgcgpaQI/AAAAAAAAFQY/oFi7wFRtpv8/s1600/clip_image001%5B3%5D.jpg

don't you KNOW about ggpht.com??? j/k

japan concreting their rivers might sound like exaggeration but seriously, you have to see the destruction to believe it. ldp in bed with the construction industry hasn't helped the country these past 20 years

Japan's Concrete Coast - surfing here may be a bad idea.

How can the two co-exist? I get that a cycle of deflation also deflates wages, but wouldn't these 'downwards pressures on prices' also have affected rents, pints of beer, etc?

― Gravel Puzzleworth, Monday, 18 October 2010 21:17 (1 week ago)

Q: is this because there's a difference between deflation in terms of Japanese assets against Japanese Yen and the strength of the Yen versus the dollar? Or is Tokyo really expensive for Japanese people too?

depressing

i'm taking the day off, and should know better than reading the news/op-ed pages.

Concluding para from Friedman column linked by Daniel, Esq:

A dysfunctional political system is one that knows the right answers but can’t even discuss them rationally, let alone act on them, and one that devotes vastly more attention to cable TV preachers than to recommendations by its best scientists and engineers.

Hello, Tom? Just want to point out that this system is functioning just fine for a select handful of people, mostly very, very rich and very selfish, and those who do their dirty work for them to keep them that way. They don't see the problems in your column as being problems, so much as business opportunities that pour money in vast sums directly into their bank accounts.

Now, go forth and expose these people, Tom. Or is that just not how it's done in the fourth estate thes days?

"Fun Size" candy bars are way smaller this year.

"We love wealth and we hate poor people."
much love to m. taibbi
http://www.gq.com/news-politics/politics/201010/griftopia-matt-taibbi-breaking-america?printable=true¤tPage=2

i try to stay-away from contemporary political books, but i'm definitely getting taibbi's book.

lol
In your book, the second chapter is on Alan Greenspan and his mentor Ayn Rand—it's called 'The Biggest Asshole in the Universe.'

I was a touch unsettled last week when a generally apolitical but conservative-leaning person I know from work sent me and some others an article saying how about it was interesting reading regarding the Tea Party, I feared some sort of NRO-like thing. Turns out it was Taibbi's Rolling Stone piece ripping into it all, so I took that as a good sign.

According to Glenn Beck and his research into inflation, a bar of Hershey's chocolate is going to cost $15 and a single ear of corn will cost $11 next year. IS THIS TRUE?

Yeah for him.

he just told me to DVR this whole week of his show because it will all become clear by the time he's done. also included: how the world is being trained to hate america because of this.

yes, he may be right.

. also included: how the world is being trained to hate america because of Glenn Beck.

Fixed.

It is a SOP for media types to View With Alarm anything which does not Warm The Cockles of Their Hearts.

taibbi for commerce secretary
http://www.rollingstone.com/politics/news/17390/232611?RS_show_page=0
Nowhere else on the planet is it such a crime to be down on your luck, even if you were put there by some of the world's richest banks, which continue to rake in record profits purely because they got a big fat handout from the government. That's why one banker CEO after another keeps going on TV to explain that despite their own deceptive loans and fraudulent paperwork, the real problem is these deadbeat homeowners who won't pay their fucking bills. And that's why most people in this country are so ready to buy that explanation. Because in America, it's far more shameful to owe money than it is to steal it.