[y66]

Now that's what I call a bold move. Good idea.

[Al_U_Card]

Boy, I sure wish that we had some hindsight to figure out where this is leading us...


RICHARD!!!!! Find some references, willya?

[Winstonm]

This is simply monetizing debt, purchases utilizing the authority to print money into being, and the goal is inflation to combat deflationary forces. It should not be a surprise to Wall Street or the bond markets or anyone else as Bernanke has made it clear that he feels the greatest threat is deflation and deflation can always be stopped by an aggressive government using inflaiton.

[blackshoe]

Okay. How then do we stop the inflation from getting out of hand? Burn a bunch of cash?

[Winstonm]

IMO, this whole episode has been handled the wrong way from its inception due to the underlying misconception that banking and credit are the crucial elements that must be fixed, and that the economy will work fine once banking and credit works.

But banking and credit don't work because the consumer is tapped out and cannot afford more debt. The stagnant wages of the past decade created a necessity to buy on credit to sustain an illusion of prosperity - any hiccup at all in the economy would have to lead to collapse, just as any Ponzi Scheme must collapse once rising prices and increasing debt hit their limits.

But banking cannot force people to borrow, cannot force businesses to start, cannot force businesses to hire, and cannot control the amount of wages that are paid.

We are witnessing an absolute collapse of peronal and business credit - with the Fed taking on the role of sole lender rather than last resort lender - but the reason for the collapse is unsustainability. No one can afford to pay back the loans, from new shopping mall owners to office building owners to homeowners to new car buyers to credit card users.

The reason this money won't be permanently inflative is because it is being poured into a black hole of collapsing debt. It may temporarily affect bond prices; it may temporarily affect MBS values; it cannot make houses affordable; it cannot create new, higher paying jobs.

I would not say we are in a depression or will mimick the Great Depression, but these are surely depressionary forces at work, brought about by the same reckless credit expansion and deregulation of finance that preceded the GD.

[hrothgar]

Al_U_Card, on Mar 19 2009, 12:20 AM, said:

Boy, I sure wish that we had some hindsight to figure out where this is leading us...


RICHARD!!!!! Find some references, willya?

All sorts of noise out there.
I am still trying to amke up my mind about stuff.

The following post has some interesting comments

http://delong.typepad.com/sdj/2009/03/the-...r-plan-faq.html

[Al_U_Card]

Thanks (I guess). IF we replace the word "government" with "us" or "the suckers" it seems to make more sense....

I used to be able to "program" my computer too (config.sys etc.) now it is incomprehensible, daunting and very frustrating....much like the "economics" that were referred to in the article.

Makes one long for "supply and demand" and "value for money", no?

[kenrexford]

I'm not sure where this line of thinking leads anyone, me included, but, just to make sure I understand this correctly...

The government has debt. That debt is in the form of T notes. If we print money to buy back the T notes, we reduce the national debt. We do that by printing money. Printing money eventually devalues held money. Thus, this devaluation is essentially a tax on money. The tax is 100% in sync with assets. However, the tax also devalues debt held by others (and is a tax on creditors for those assets).

Hence, this tax also distributes value to people who owe money, perfectly in sync with how much they owe.

All of this is ultimately reflected in inflation. Inflation, however, somewhat redistributes wealth inequitably, as some may not know how to perfectly negotiate pay increases, or they cannot accomplish this.

[jdonn]

I misread the title of this thread as "Fred to Buy $1 Trillion in Securities". I was VERY impressed!

[hrothgar]

Al_U_Card, on Mar 23 2009, 08:23 PM, said:

Thanks (I guess). IF we replace the word "government" with "us" or "the suckers" it seems to make more sense....

I used to be able to "program" my computer too (config.sys etc.) now it is incomprehensible, daunting and very frustrating....

And yet, for some reason you chose to upgrade to a new operating system...

You can still get copies of MS-DOS, DR-DOS, or whatever you damn well please.

You're more that welcome to run Linux, UNIX, or any one of a variety of operating systems that you can configure to your hearts content.

You choose to run some new, exciting version Windows...
This would seem to suggest that you prefer said operating system (warts and all) to DOS, Linux, whatever.

Nothing in life is perfect.
The sooner that you grow up and learn to accept this, the happier you will be...

In a similar vein, mark me down as one of those folks who believe that Collaterized Debt Obligations are actually a good thing. (Unfashionable, I know).

The system that was built up around these instruments was completely dysfunctional. However, I believe that to be a function of the incentive structures and the regulatory oversite rather than a flaw with the instruments.

[Al_U_Card]

Hmmmnnn....rather than saying "We had 10tr in GDP (or whatever) last year and this year we have 11tr so we will print up 1tr more greenbacks to cover what is now in existence".... they want to borrow the cash at interest (a 0% now but not before) and then take our tax dollars to reward the wizards that conjured up a hellmouth so that we can then pay more tax for what we need AS WELL AS what we paid to the wizards....

[Gerben42]

1,000,000,000,000 used to be known as an astronomical number. Now it's an economical number. That's the real crisis, as an astronomer I want my monopoly on incomprehensibly large numbers back!

[Al_U_Card]

I am neither reactionary nor recidivist nor especially a luddite. The problem, as you say Richard, is not in the instruments but rather how they were (mis)used.

It was the elevated leveraging and the insousiant betting on performance that led to the problem we see. The application of stringent and sensible controls on the greedy nature of man are apparently a necessity in the financial community too (duh!).

New, innovative and effective is what is needed while we rely on the traditional, time-tested values to ensure that things don't get out of hand (again for the nth time) like they keep doing once we let conflicts of interest dictate how we control the system and keep it safe from abuse.

[luke warm]

on a related issue

[Winstonm]

I get tired of the characterization as a financial problem - AIG had a gambling problem.

For the record, there is nothing wrong with CDOs or CDSs until you stop treating them as hedges or insurance, and thus allowing speculation with no other financial interest other than price move. It is like allowing the Gold or Wheat Pit to operate totally unregulated and with opaque contracts.

To be fair, the push for non-regulation in these products can be traced back as far as Bill Clinton and his Treasury Secretary Ron Rubin (also of Goldman Sachs, I might add), so it is a non-partisan blame - unless we consider a cadre of bankers a political party, which may well be closer to truth than we wish to know.

[kenberg]

In the last six months or so I have learned a lot of economic terms and possibly even some economic concepts. When I was twelve I used to bicycle to the public library to read about human reproduction. It was similarly confusing.

While fully aware that not everything reduces to simple terms, it seems important to distinguish between creating wealth and creating money. The Fed can create money. Wealth is created through mining, manufacturing, farming, and so on. I guess the Fed is creating money hoping that this will facilitate the creation of wealth. I hope they are right.

[Winstonm]

kenberg, on Mar 25 2009, 07:08 AM, said:

In the last six months or so I have learned a lot of economic terms and possibly even some economic concepts. When I was twelve I used to bicycle to the public library to read about human reproduction. It was similarly confusing.

While fully aware that not everything reduces to simple terms, it seems important to distinguish between creating wealth and creating money. The Fed can create money. Wealth is created through mining, manufacturing, farming, and so on. I guess the Fed is creating money hoping that this will facilitate the creation of wealth. I hope they are right.

You are exactly right, Ken. Creating money to buy assets or government debt actually does the opposite of wealth creation as it dilutes the value of the currency used to make the purchases.

[hrothgar]

kenberg, on Mar 25 2009, 03:08 PM, said:

While fully aware that not everything reduces to simple terms, it seems important to distinguish between creating wealth and creating money. The Fed can create money. Wealth is created through mining, manufacturing, farming, and so on. I guess the Fed is creating money hoping that this will facilitate the creation of wealth. I hope they are right.

How quaint...
How very, very quaint...

When people talk about thermodynamics they make a lot of effort to differentiate between open and closed systems. The same basic principles can be applied to economics.

It is certainly true that some one, somewhere in the closed system that is the economy of planet earth needs to produce goods. It does not necessary follow that individual societies need to be involved in mining, manufacturing, etc in order to accrue "wealth".

[kenberg]

hrothgar, on Mar 26 2009, 07:57 AM, said:

kenberg, on Mar 25 2009, 03:08 PM, said:

While fully aware that not everything reduces to simple terms, it seems important to distinguish between creating wealth and creating money. The Fed can create money. Wealth is created through mining, manufacturing, farming, and so on. I guess the Fed is creating money hoping that this will facilitate the creation of wealth. I hope they are right.

How quaint...
How very, very quaint...

When people talk about thermodynamics they make a lot of effort to differentiate between open and closed systems. The same basic principles can be applied to economics.

It is certainly true that some one, somewhere in the closed system that is the economy of planet earth needs to produce goods. It does not necessary follow that individual societies need to be involved in mining, manufacturing, etc in order to accrue "wealth".

Sure, but we have to be producing something of value don't we? Intellectual property, Google for example, might be a partial replacement for automotive production. But it would seem we have to produce something if we wish to maintain our wealth. Can we really, as a nation, maintain and advance our collective wealth over the long haul by mouse clicks and making deals? We are the investors, the rest of the world can do the day to day work? Fine if we can pull it off, but I am not so sure this is stable.

[PassedOut]

kenberg, on Mar 26 2009, 08:52 AM, said:

Sure, but we have to be producing something of value don't we? Intellectual property, Google for example, might be a partial replacement for automotive production. But it would seem we have to produce something if we wish to maintain our wealth. Can we really, as a nation, maintain and advance our collective wealth  over the long haul by mouse clicks and making deals?  We are the investors, the rest of the world can do the day to day work? Fine if we can pull it off, but I am not so sure this is stable.

There would certainly be no wealth without goods produced. We depend upon valuable services provided by those who distribute the goods, build things, repair things, and so on. We also depend upon those who teach others the skills needed to produce, distribute, and repair the goods we need. And we rely upon the skills of those who keep up with science to keep us healthy.

Beyond that, people contribute to society by creating the art, literature, music, dance, and other things that make life enjoyable. Sports and games add to our quality of life. And yes, those who make the market work efficiently also contribute to society.

In my view, our global economic systems need to provide sufficient goods and services to support the population and also to make sure that everyone shares equitably in that wealth.

It is an article of faith with some that the money people make directly reflects their contribution to society as a whole. That's nonsense, of course.

Financial services are truly needed, but the amount of wealth sucked up by people speculating with financial instruments is way out of proportion to their contributions to society. I hope that better regulation will help to correct the situation.