How To Fix The Economy

[Ken White]

I just don't see how you can say that.....have you read what has been happening along the border with Mexico.

this:

Since the mid-19th century, the United States has frequently employed the US Army on its southern border to perform various roles in support of the Nation—from outright war, to patrolling the border, to chasing bandits while securing persons and property on both sides of the border, and most recently to supporting civil law enforcement and antidrug efforts.

LINK

Two very different nations that share a border that's been bloody for its entire existence. Yes, things are different today -- but not really all that much.

[jmm99]

Thou shalt now and forever be The SGM - despite your plural CsM.

Seriously, on stupidity and damage to others, there should not be either a free pass or a "bye", even from the first round. What should be is not necessarily what is - that I have to admit.

Also thanks for this:

from Ken
Thanks again for all your posts and particularly the legal updates. They're more appreciated than you may know.

Slogging through the detainee, and associated cases, has been a learning experience for me (and hopefully for others here, as well).

And, bye the way, we managed to bye out of the first round of playoffs. So, we had to face off Mon nite against ourselves. Todd (my retired E-7 sans CsM) and I held the table for two hours - so, a good nite for the good guys.

[Schmedlap]

I just don't see how you can say that.....have you read what has been happening along the border with Mexico.

Yes. And even judging by the worst-case scenario, most pessimistic reports, this country is pretty darn safe. And, even if it weren't, what on Earth does that have to do with the money supply? Even if I were to concede your point, it would still bolster my argument - that we've used the luxury of prosperity, safety, security, and stability to generate more leisure time with which to ponder bad ideas, implement them, and raise an entire generation of morons who have no concept of personal responsibility or foresight. Any real or imagined security threat on the Mexican border that has been discussed of late is the result of the drug trade (Americans who demand narcotics because they don't give a damn about our laws), willfully lax immigration enforcement (from elected officials pursuing a political strategies to shore up hispanic voters), and multicultural BS (Americans with too much education, free time, and bad ideas).

I'm not knocking your concept of revising monetary policy. I think you're going too far in selling it. It is not the cure for most, many, or even a significant number of our ills. The best monetary and economic policies matched with the wisest financial regulations and system of incentives will still be useless if the population whom those policies, regulations, and incentives are directed towards are a fundamentally depraved people. So long as people care about me and mine more than right and wrong, we're a mile down #### creek, with a giant hole in the middle of the canoe, and no paddle or paper. Immoral people cannot be governed. They must be coerced and imprisoned or rehabilitated and socialized. Given the rate at which we're throwing people in jail, I fear that the former will be our medicine of choice. On the other hand, maybe this economic "crisis" will be a good thing because it will influence more people to choose the latter.

That is why I continue to see this as a moment of opportunity - not for monetary or regulatory reform so much as for moral reform that will hopefully occur within each person's thick skull, as they slowly realize that they've been behaving in a manner that is not only socially destructive, but self-destructive.

[jmm99]

although its 100+ pages of US-Mexican military encounters are a bit of a slog. I didn't slog through it today - been there, done that - and I think I cited it elsewhere (re: treaty law, perhaps).

[slapout9]

Schmedlap, it's is not my idea, it has been around for some time, starting with the Constitution, it is just that people are starting to question the whole idea of who we are paying our money to and why do we have to do it. I have attached a link to a detailed explanation on monetary reform and the effects it can have on the economy. I agree with you that no monetary policy will correct or fix bad people, but while we are figuring out what to do with them I see no need for me to pay private bankers personal profits with my tax dollars, which in effect means I get to pay the bill twice, once to the government and then a certain cut (interest) to the Talli-Banksters.

http://www.themoneymasters.com/printable-mra.htm

I also disagree on mission accomplishment of the 6 core missions. As long as the US exists they are likely to be enduring missions, not ones that have a stopping point only continuous progress toward the goal of a safer, better and more prosperous country for now and in the future.

[slapout9]

Latest interview with James Galbraith at Truthout magazine on the state of the economy....how it was a planned criminal event and what should be done.

http://www.truthout.org/050609J

[slapout9]

Latest from James Galbraith on how to fix the Economy....1st put the Tal-Banksters in jail (Justice) and then restore by using modified Keynesian economics. Some really good stuff in here about how the economy has NOT been fixed and what we need to do about it. Galbraith is one of the few Economist with an almost perfect record of economic analysis and what is going to happen.

http://www.tnr.com/article/economy/7...emble?page=0,0

[Fuchs]

This article covers one aspect very well.

How Inequality Fueled the Crisis
Raghuram Rajan

http://www.project-syndicate.org/com...rajan7/English

[slapout9]

Latest James Galbraith Interview from Bloomberg. Until you fix the Banks nothing will change.

http://www.bloomberg.com/video/62193196/

[Presley Cannady]

Economics is alchemy with a cheaper tool box.

[Fuchs]

Economics is alchemy with a cheaper tool box.

You resurrected this thread for such a useless statement?

Did you want to entertain us by repeating nonsense about economic science that almost no actuale conomist agrees with?

[GPaulus]

It is interesting to note that through this economic crisis everyone missed the root cause of the world wide economic collapse. What is the root cause of the global economic contraction? We tend to blame things that are intuitive like banks, Wall Street and private business layoffs but they are all symptoms. Financial Markets are the prime target because we associate dollars with the economy, as we should, but they are symptomatic of a much larger crisis. A crisis that we have to articulate before we can solve it. Einstein said that if he had one hour to save the world he would spend fifty-five minutes defining the problem and only five minutes finding the solution. This quote illustrates an important point: before jumping to conclusions regarding the economic meltdown, we must step back and invest time and effort to determine the real problem within the economy.

US banks, AIG or any other financial institution could not have caused an economic collapse of global proportion. The banks were second to the auto industry to feel the economic contraction. What common worldwide resource could have caused this crisis. At the time of the economic collapse late 2008 oil was tipping the scale at $130/bbl. The only thing that can cause a WW collapse is a WW inelastic commodity that is powerful enough to affect all countries WW. I beleive that the smoking gun is OIL.

Everything in life has an energy component (cost) associated with it--food, fuel, electricity, water, production, etc. People use disposal (fungible) income to meet small periodic swings in energy cost, but when the short term volatility of energy swings more than 20% and stays there for several months, people and businesses have to make hard choices. Do I pay for gasoline to get to work or run my process or deliver my product, do I put food on the table, do I keep the electric and water on, do I pay my credit cards, my home loans ...? At first they begin to borrow (take from Peter to pay Paul) and that works for a short period but at the end of the day after making these choices and runnning up the debt, those on the margin (large debt to equity ratios) did not have sufficient money remaining to pay the mortgage, or the car payment, or the credit cards, and the financial markets reacted as delinquincies mounted.

The result, I believe appeared to the neophyte that it was the banking and financial market who were at fault. We blamed 0 interest loans, brokers, etc. But I submit to you that they were only the tipping point, they were the first after automotive to see the train wreck coming. As soon as energy prices fell, the economy began its slow recovery. In my small mind, I am convinced that the cause of the economic collapse was volatile (out of control) energy costs of the past 8 years. At the time of the economic collapse, oil was heading above $130.00/barrel. And, it is not over by any stretch. Oil prices have topped $90.00/bbl last week and they continue to rise.

If energy does not stay below $75.00 per barrel the economy will not recover on its own. We will see a second 2012 contraction. With higher prices will come additional economic burden and a contracting rather than expanding economy will result. Energy Drives the Economy, Period.

[Fuchs]

Hardly. For one, many symptoms can be traced back to the financial issues.

Second, several nations have taxes on energy/oil that led to an effective market price higher than the one to be paid in the U.S. today. These other countries would have entered the crisis decades ago - but some of them are doing fine even today.

I pay 1.5€ per litre gasoline. That's 5.7 €/gallon which in turn is 7.8 US-$/gallon, for example. U.S. retail price: 3.1 US-$.
My country - Germany - is doing fine, albeit there's still a slight loss of growth to catch up to.


It makes more sense to look at the roots of the financial crisis in order to identify a bigger truth than just the symptom. I don't mean a political or law-wise look, but a macroeconomic look.
One could for example ask why the U.S. consumed and invested a fifth more goods before the crisis than it produced (after counting the small service trade balance surplus as goods production).
Meanwhile, resources were squandered on a colossal scale by building more houses than affordable, not pushing for energy efficiency, allowing the resource allocators in the financial sector to go mad and leech on the whole economy, neglecting infrastructure, spending much on the military, keeping up an incredibly inefficient and deficient healthcare system and maintaining a third world level of income inequality.

A crash was predictable, unavoidable - and the roots for this are still in existence, so there'll be another crash (or a long suffering) in this decade.

[GPaulus]

Hardly. For one, many symptoms can be traced back to the financial issues.

Second, several nations have taxes on energy/oil that led to an effective market price higher than the one to be paid in the U.S. today. These other countries would have entered the crisis decades ago - but some of them are doing fine even today.

I pay 1.5€ per litre gasoline. That's 5.7 €/gallon which in turn is 7.8 US-$/gallon, for example. U.S. retail price: 3.1 US-$.
My country - Germany - is doing fine, albeit there's still a slight loss of growth to catch up to.

We may have to agree to disagree on this one. I am not saying that higher energy prices will collapse an economy but what I am saying is that Volatile
Energy Prices will collapse an economy. Energy in the economy is "normalized" and products, transportation construction etc can adjust to inflationary (controlled) price increases because energy is in the baseline of their price for the product. But when 20 - 30 % swings occur or the prices climb too fast, the markets cannot react quickly enough. The result is usually double digit inflation. This time things were quite different and extranalities controlled inflation. The result was a deflation in the economy, a collapse.

Given enough time and stable energy pricing, the economy will recover.

[Fuchs]

Show me your "double digit inflation".
I have yet to see a statistic showing such a thing for an economy because of oil price hikes.

Hint: The consumption of energy isn't a large-enough share in any country's economy to produce double-digit inflation.

U.S. inflation rate has been single digit in this crisis.

[GPaulus]

Show me your "double digit inflation".
I have yet to see a statistic showing such a thing for an economy because of oil price hikes.

Hint: The consumption of energy isn't a large-enough share in any country's economy to produce double-digit inflation.

U.S. inflation rate has been single digit in this crisis.

The only periods in time energy prices became really volatile were in 1974/75oil embargo (quick and short duration) follow by 12% inflation, and 1980/81. follow by deregulation and again inflation. Since that time energy as a commodity has dropped except 1998/2000 Enron and 2006,7,8 OPEC. In the early 1990s we had some of the lowest normalized energy rates in our history and the economy took off. This time things were very different, the FEDs introduced extranalities into the economy, lowering interest rates to compensate and to thwart inflation. Priming the engine with massive stimulus money/projects.

The result of volatile enegy was an implosion and a contraction of the economy and everything lost value. That started an economic collapse and downward spiral --business cut jobs, production of non-essential products ceased, housing dropped, car industry slumped, people on the margin failed to pay their loans, credit cards, utilities, and foreclosures occurred. The banks and credit card companies became the bad guys. But, they were a symptom! And it will happen again if energy continues to move at a rate greater than the inflation rate. In November oil was $77 and now it is 95. How can that be? A 20% increase. Has oil demand risen by 20 percent?

[Fuchs]

In November oil was $77 and now it is 95. How can that be? A 20% increase. Has oil demand risen by 20 percent?

The very question already shows that you have no clue about economic theory. The correct question would have asked for the price elasticity of demand for oil. That's 1st or 2nd semester microeconomics.

You asserted

But when 20 - 30 % swings occur or the prices climb too fast, the markets cannot react quickly enough. The result is usually double digit inflation.

and the graph proves you wrong. There was no double digit inflation in decades despite such crude oil price spikes.

Earlier spikes of the inflation coincide with world wars (and their aftershocks) and earlier recessions (which happen to involve high crude oil prices).

A global or a national economy has many more variables than energy cost and inflation rate. Federal reserve bank policies allowed high inflation (not this time) in the 70's, but not this time. In fact, there were huge deflation tendencies which were counteracted by expansionary federal reserve bank policies - the end result was a moderate inflation.
The whole link between energy costs and overall inflation/economic crisis is rather weak and indirect. Other variables can easily overcompensate the link.


The increasing energy costs of the mid-2000's did not help, but they're not the root of the global economic crisis. Likewise, subprime mortgages and CDOs were merely symptoms.
The crisis was a a correction movement against unsustainable imbalances with lots of secondary effects.
A high crude oil price is easily sustainable, as evidenced by the fact that some economies already pay a high price for crude oil products due to high crude oil-specific taxation.
The corrections of unsustainable imbalances happened at the weak spot of obviously unsustainable resource mis-allocations; distorted housing sectors (market price bubbles). Secondary effects rippled through an unproductive financial sector which had grossly neglected the management of systemic risks.
Finally, financial sector problems and their bandaging led to the fiscal de facto collapse of several states (Iceland and Ireland experienced economic nightmares because of out-of-proportion financial sectors, Greece/Portugal experience(d) fiscal nightmares because of unsustainable fiscal deficits).

High oil prices alone would merely have sufficed to challenge the viability of some products/business models and have caused some adaption processes in economies. In worst case, some countries would have felt a substantial change in terms of trade - comparable in aggregate effect to a changed rate of currency exchange. That's what we saw in 73/74.

Our economic crisis looked VERY differently this time.

[bourbon]

In November oil was $77 and now it is 95. How can that be? A 20% increase. Has oil demand risen by 20 percent?

The very question already shows that you have no clue about economic theory. The correct question would have asked for the price elasticity of demand for oil. That's 1st or 2nd semester microeconomics.

Gentlemen,

Market fundamentals are less and issue than index speculation, which has driven a premium of 15% by conservative estimates, to as high as 50%. NYMEX recorded record net long positions in crude futures and options. Its paper, just like it was in 2008.

There have been several posts and links in other threads about record commodity prices from excessive speculation.

Note: I should add that chapter four in Matt Taibbi’s book Griftopia explains the 2008 commodities bubble in the simplest terms possible. Taibbi does a superb job of explaining complex financial, political, and economic issues to the lay-reader, with remarkably less vulgarity. This book should be required reading for every American.

[slapout9]

Link to Real News Network interview of Yves Smith from nakedcapitalism.com on the true story of President Reagans economic policies.



http://www.youtube.com/watch?v=0FAZG...&feature=feedu

[GPaulus]

[QUOTE=Fuchs;115081]The very question already shows that you have no clue about economic theory. The correct question would have asked for the price elasticity of demand for oil. That's 1st or 2nd semester microeconomics.

Let’s go to 3rd semester economics. But before we get there we will talk about externalities, then we can talk about oligopolies. In each case where energy prices increased "wildly" relative to a gradual free-market price increase (price increase because of supply and demand, and price inelasticity), price volatility was caused by a market externality. In 1973, Oil Embargo, in 81, deregulation of energy, in 95-00 (consolidation of marketers) Enron index manipulation, in 2006,7,8 manipulation by commodity speculation.

The ability of this to happen is because of the relative perceived inelasticity of energy. Everything in life has an energy component and if you were to add up the real cost of energy in a delivered commodity and life, you would see what the true impact of volatile energy prices have on an economy. And, because of the relative inelasticity of energy the externalities induce the price swings.

But there are forces greater than the inelasticity of energy. In reality although less elastic than other commodities, load destruction will occurs when a commodity price becomes unstable and overal demand will drop regardless of the perceived inelasticity. We saw this occur in the early 2002/05s within the natural gas industry after Enron. Larger industrial users will switch or discontinue their processes, or close down, or move off shore to lower cost of production areas--they in essence switch (oil fired to coal, natural gas to nuclear, gasoline to natural gas vehicles, etc.) and load distruction (reduced demand) will occur regardless of the elasticity profile.

The primary cause of "wild" price swings in energy has less to do with elasticity and everything to do with a concept known as Oligopoly Markets. These markets act more like Monopolies. Oligopolies have many suppliers (supply) and many end-use buyers (demand). But in between, unlike many other markets, they have few large aggregators, a limited number of refineries, and few marketers to end-use markets. Take Enron for example, they accounted for nearly 80% of the aggregation natural gas market until their demise. In energy, there are many producers--small, medium and very large but they feed their supply into a small number of refinery and/or marketers (the big supplier pipeline gets restricted before it goes to the big end-use demand) that feed the end-use market. These marketers control the major portion of energy that flows into commodity market hubs and the end-use market. This is why volatility of energy prices can swing more than 10% in a few weeks.

What will it take to wake us up to the ever-tightening grip of oligopolies over ever more of our global marketplaces? Even though their power manipulates and warps our production, and our free market system, no one sounds the alarm. Experts go back to their paradigm of supply, demand and price. But and oligopoly market warps the Keynesian model paradigm.

Oligopolies induced volatility and the collapsed of our economy in 2008 did not set off any bells. Nor did the revelation come to the experts addressing the economic collapse. They blamed financial, housing, auto and lending, and anything else they could point at that fit the paradigm. In oil 10 groups account for 90% of all WW retail down-stream sales, with single aggregating companies often capturing more than 75 per cent of particular energy markets. These markets will not act according to second semester economics and our economy will not improve until we control energy prices by control the oligopolies behind it.