Housing Bubbles: US vs. Japan Twelve Years In

Nearly three years ago, Deejayoh posted a great comparison chart showing how the US housing bubble compared to the housing bubble Japan experienced in the late ’80s and ’90s. Let’s have an updated look at those charts.

First up, here’s the chart of the straight-up U.S. and Japan home prices, updated through the latest 2011 data:

Comparison: Japanese & US Housing Bubbles

In Japan, nearly twenty years after home prices began their rapid ascent, they were right back where they started. Twelve years into our bubble, we’re running just a little bit ahead of Japan.

Next up, here’s the chart of inflation rates in the two nations:

Comparison: Japanese & US Housing Bubbles

As the bubble has been deflating, monetary inflation in the U.S. has been a lot higher than it was in Japan during the comparable period of their bubble. As a result, home prices in the U.S. have actually fallen a bit faster than their Japanese counterparts when adjusted for inflation:

Comparison: Japanese & US Housing Bubbles

By that measure we’re four to five years ahead of Japan’s price rewind, and the nationwide index has actually dropped to below where it was in 2000.

Here’s hoping that after repeating such a stark lesson in two decades in two nations, people have finally realized that real estate is not some kind of magical foolproof investment.

  

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

133 comments:

  1. 1

    Interesting Charts Tim

    I would gander that the Japanese lower inflation rate is directly tied to a a FAR more stable currency than the dollar. Especially when we print money like mad men for stimuluses and QEs in multiple orders every year. Japan’s stable currency is directly attributed to the fact that THEY STILL MANUFACTURE STUFF.

    America, on the other hand, is a credit slave to the foreign lobbyists [include Japan] and our/their leaders have gutted the dollar’s value and our AAA rating too.

    So yes, there is a common thread on the housing bubble trending as you have so eloquently demonstrated, yet, it also clear that we’re on a service industry sand base and they’re on a much more solid manufacturing base.

    When will we get off this “stay the course” mindset and join Japan?

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  2. 2
    John says:

    With the aging baby boomer population, I am wondering if the population demographics are somewhat similar or very similar when considering these two scenarios.

    For a long time, I have felt that one of the major factors underlying the housing crisis is that aging baby boomers are no longer participating in the buy up trend that has fueled the housing bubble. The generation behind the boomers have not had the same financial success in the the stock market and are not as financially secure as the boomers. The boomers are working longer, taking jobs from the following generations, and there will be substantial financial head winds when taxes increase to pay for healthcare and social security for retiring boomers.

    This would probably further depress the housing market, unless the government causes so much inflation that all asset classes are increased in value. There is obviously population growth with the addition of immigrants, but I doubt that immigrants, gen x, or gen y really have the money to pay what the boomers want for their over priced homes.

    Any thoughts?

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  3. 3
    Pegasus says:

    The amount of personal savings in Japan assisted their government in kicking the can down the road. It made it easier and has allowed them to do so for a lot longer than we will be able to. We have little or no savings and so we are forced to raise our debt needs elsewhere. Those sources are drying up faster now. Thus our time frame will be shorter and more severe when observed over time. Japan’s cycle is finally ending its course as their aging population needs to spend the funds that they placed in government bonds for retirement.

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  4. 4
    Scotsman says:

    “Here’s hoping that after repeating such a stark lesson in two decades in two nations, people have finally realized that real estate is not some kind of magical foolproof investment.”

    http://online.wsj.com/article/SB10001424052702304563104576361522020024248.html

    http://www.cbsnews.com/video/watch/?id=7380879n

    http://finance.fortune.cnn.com/2011/03/28/real-estate-its-time-to-buy-again/

    First three google responses to “time to buy a home.”

    “Dream on, you crazy diamond!”

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  5. 5
    Hu Flung Pu says:

    I have a problem with the “inflation adjusted timeline graph” and its implications. This graph measures inflation-adjusted price increases, but the starting point for overall valuations (in 1985) is assumed to be the same, which it wasn’t. Japanese real estate was already wildly overvalued in 1985, on it’s way to incomprehensibly overvalued. To wit, at their respective peaks (1989 for Japan; 2007 for the US), property market value (residential + commercial) to GDP was 581% in Japan; in the US it was 154%. Likewise, Japan’s stock market was 165% of GDP in 1989 while the US market equaled 124% of GDP at its peak in 2007. Recall that at its peak the real estate surrounding the Royal Temple in Tokyo was worth more than all of the real estate in California… combined. So, while your graph isn’t wrong – per se – one could easily draw the wrong conclusions unless viewed within the wider context of actual valuations relative to GDP. The graph would be more meaningful if it just showed the ratio of RE values-to-GDP from 1985 to 2011 in Japan and the US… but that’s a LOT of work. But the peaks in each country aren’t even comparable…

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  6. 6
    Scotsman says:

    RE: Pegasus @ 3

    Good points. Our current situation is complicated by international economic pressures while Japan’s bubble was more contained to their own economy. They have been able to take advantage or a relatively stable world economy- growth of the euro, China’s momentum etc, When this current round collapses it will do so in an environment of scarce resources in terms of stability and new funding sources.

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  7. 7
    Hu Flung Pu says:

    RE: Pegasus @ 3

    A thought experiment… suppose you’re entering a bubble-bursting phase… would you rather have (a) higher savings, but face an 80% decline in the value of your non-cash assets, or (b) lower savings, but face a 45% decline in the value of your non-cash assets? (Assume for the sake of discussion that your non-cash assets are levered identically in each case.)

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  8. 8

    RE: John @ 2

    You Need To Read the Book “Five Short Blasts” by Pete Murphy

    Unlike MSM economists lead by foreign lobbyist money, Pete is a retired Detroit engineer who analyzed/documented population density effects on decreasing per capita wages in America. He did the PC unthinkable compared to MSM economists; he mixed demography science with economics. Its clear, as population density increases in America, so does unemployment and wages decrease [and home prices].

    Another great read is Dr Mathus from the 1800s….he predicted our current economic/overpopulation mess over a 100 years ago. It’s called the Malthus Point.

    http://en.wikipedia.org/wiki/Thomas_malthus

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  9. 9

    RE: Pegasus @ 3

    Yes Pegasus

    I’d add they can save more with a manufacturing base, they employ higher wages than services.

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  10. 10

    RE: Hu Flung Pu @ 5

    Yes Pu

    IMO, the economic stability differences between America and Japan are like night and day. A comparison of their foreign deficit as a percentage of GNP and ours would be the real evidence.

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  11. 11
    Hu Flung Pu says:

    RE: softwarengineer @ 10

    I realize you said “deficit” but don’t we really just care about total debt-to-GDP, regardless of it’s source?

    We are within spitting distance of Japan on that count – we’re at about 260% while Japan’s at about 250%.

    (In “total debt”, I’m including government, corporate and consumer debt, and eliminating the double-counting of securitized debt.)

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  12. 12

    RE: Hu Flung Pu @ 11

    Assuming Your Numbers are Current

    Interesting data Pu. Still, retaining debt and then further increasing it to “kick the can” still depends on things like your ability to pay it back or credit rating. Throughout the past decades countries had fish, trees and water as “collateral” to borrow; today we’re simply out of fish, trees and water due to current American/world overpopulation.

    Today’s world still dpends on collateral. America’s TOTAL lack of a manufacturing base compared to Japan’s means they have FAR more collateral to borrow per GNP than we do. Your thoughts?

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  13. 13
    Pegasus says:

    By Hu Flung Pu @ 7:

    RE: Pegasus @ 3

    A thought experiment… suppose you’re entering a bubble-bursting phase… would you rather have (a) higher savings, but face an 80% decline in the value of your non-cash assets, or (b) lower savings, but face a 45% decline in the value of your non-cash assets? (Assume for the sake of discussion that your non-cash assets are levered identically in each case.)

    Are you saying Japanese assets were levered the same? Our decline is not over nor is the Japanese decline. My use of the term severe was meant to indicate a more rapid decline and not necessarily the same decline or one that is worse. Rapid declines are harder to deal with but they end the process sooner. Question for you…do you want a seven year decline or one that lasts a generation?

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  14. 14
    Hu Flung Pu says:

    By Pegasus @ 13:

    By Hu Flung Pu @ 7:
    RE: Pegasus @ 3

    A thought experiment… suppose you’re entering a bubble-bursting phase… would you rather have (a) higher savings, but face an 80% decline in the value of your non-cash assets, or (b) lower savings, but face a 45% decline in the value of your non-cash assets? (Assume for the sake of discussion that your non-cash assets are levered identically in each case.)

    Are you saying Japanese assets were levered the same? Our decline is not over nor is the Japanese decline. My use of the term severe was meant to indicate a more rapid decline and not necessarily the same decline or one that is worse. Rapid declines are harder to deal with but they end the process sooner. Question for you…do you want a seven year decline or one that lasts a generation?

    The Japanese were levered *similarly* to us at the peak… which is why the banks were so sick for so long. Also, 97% of Japan’s debt was held inside Japan while *just* 74% of the US’s debt is internal. So, we have exported a large chunk of our credit losses (thanks Japan and Germany!). Currently, Japan’s equity and property markets are within range of fair value and it’s taken 20 years to get there. In the US, stocks are roughly 20% over-valued (normalizing profit margins) and real estate (as a whole) maybe 10% over-valued (normalizing cap rates and rents). So, assuming it takes another few years (with the Govt kicking the can down the road) – let’s call it three – to get back to fair value across the board here in the US, it will have taken about 7 years from peak to trough to “normalize”valuations. Now, this doesn’t solve the debt problem, which suggests sluggish economic growth for probably at least a decade (but nothing like Japan experienced) as we continue to delever. But none of this seems like the end of the world to me… just some much-deserved pain.

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  15. 15
    Hu Flung Pu says:

    By softwarengineer @ 12:

    RE: Hu Flung Pu @ 11

    Assuming Your Numbers are Current

    Interesting data Pu. Still, retaining debt and then further increasing it to “kick the can” still depends on things like your ability to pay it back or credit rating. Throughout the past decades countries had fish, trees and water as “collateral” to borrow; today we’re simply out of fish, trees and water due to current American/world overpopulation.

    Today’s world still dpends on collateral. America’s TOTAL lack of a manufacturing base compared to Japan’s means they have FAR more collateral to borrow per GNP than we do. Your thoughts?

    Banks care about collateral (as a secondary source of repayment – the primary source being cash flow), countries don’t. I agree that we could definitely use more manufacturing in this country, but the collateral issue vis-a-vis international finance is a red herring. What matters is how much our productivity is increasing and can we afford to repay our debt given the terms. Currently we have too much debt, but rates are low so we can service it (and, hey, we own the printing press! but clearly we don’t want to continue abusing this privilege). Now, if rates double in the near future, then we’ll have a real issue. But I suspect rates will remain low for some time and by the time they start rising, the economy will have picked up *a bit* as well (that is, enough to service the higher rates). To be clear, I’m no Pollyanna – I think we’re in for a rough couple of years and a very sluggish decade, persistently high unemployment and the whole bit. But I don’t foresee financial armageddon or a lost two decades as Japan has faced. Our bubble was big, but it wasn’t anything on the scale of what Japan had to clean up – nowhere close.

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  16. 16
    Scotsman says:

    In the end, as we revert to some norm, it’s all about personal income. So, how’s that going?

    “The income of the typical American family—long the envy of much of the world—has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.”

    http://online.wsj.com/article/SB10001424053111904265504576568543968213896.html

    “It’s a great time to buy!- interest rates and incomes are low. . . No, Wait. “It’s a great time to buy!- interst rates and inventory are low (well, except for the huge shadow inventory) and prices are sure to recover. . . No, wait: It’s a great time to buy Seattle’s buy/rent ratios are some of the most favorable in the country. . . OK, OK, it’s not a great time to buy. But it will be soon- Ardell’s gonna call another bottom just as soon as her daughter finishes up that pink pony tattoo! ;-)

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  17. 17
    johnnybigspenda says:

    I thought Japan loans were full recourse and that families were liable for bad loans for generations if left unpaid? This would certainly cause a housing bubble to drag on longer than ours. Atleast here people can cut their losses and start fresh again.

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  18. 18
    Scotsman says:

    RE: Hu Flung Pu @ 15

    “Now, if rates double in the near future, then we’ll have a real issue.”

    Or, conversely, if debt doubles (slightly longer time frame, but same end result), or if debt rises slightly along with rates, or if the rest of the world (i.e. euro) collapses creating huge losses and a shortage of liquid capital (pretty likely) then we get the same result. So many ways to die, no mathematically or politically feasible exit strategy. We really are locked into the end game here by a combination of math and peverse political incentives. Japan’s last twenty years are interesting to study, but certainly not comparable in any meaningful way to the structural situation the world economy now faces.

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  19. 19
    Hu Flung Pu says:

    By Scotsman @ 18:

    RE: Hu Flung Pu @ 15

    “Now, if rates double in the near future, then weâ��ll have a real issue.”
    So many ways to die, no mathematically or politically feasible exit strategy. We really are locked into the end game here by a combination of math and peverse political incentives. Japan’s last twenty years are interesting to study, but certainly not comparable in any meaningful way to the structural situation the world economy now faces.

    Clearly, we disagree on the “end game” that we’re locked into. I think we’re locked into an end game of sluggishness for quite some time, albeit not on Japan’s scale. The debt service math bears that out… so long as rates don’t rise materially for several years. But I agree that there are a lot of potential stumbling blocks… such is the nature of leverage. (I’m in the GMO camp here.)

    But, hey, differences of opinion regarding outcomes and values is why the exchanges open each week day.

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  20. 20

    To Bad Pfft Isn’t Blogging Anymore

    He was a nice antithesis to fiscal responsibility. Now we have Pu.

    I’ll pretend I’m Pfft.

    Hey, the stock market went up 2% because the Greece debt looks better for closure now.

    I’m back to SWE now.

    Greece debt? Wasn’t that an issue about 2-3 years ago? Its still not solved yet? Looks like the stock market operates on hot air psychology, the sheeple will believe any foreign lobbyist MSM fairy tale, if we keep promising happy endings, year after year, after year……etc, etc, .

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  21. 21
    deejayoh says:

    RE: Scotsman @ 16 – w/r/t income – I don’t think real income growth is not really the relevant statistic. Personal incomes dropped in the recession but have picked up in nominal terms. And nominal incomes buy nominally priced houses. Home prices can rise in nominal terms even as buying power falls.

    http://research.stlouisfed.org/fred2/graph/?s1id=PI

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  22. 22
    Scotsman says:

    RE: Hu Flung Pu @ 19

    Fair enough- and I wish you were right. Here’s a quick observation you might think about. I’m sure you’re familiar with “the first rule of holes”, i.e. when you find yourself in one- stop digging!

    We haven’t even stopped digging- nor has the rest of the world with very few exceptions- Iceland, etc. I think it’s a bit- shall we say “occluded” to be fantasizing about the long glide ratio and eventual safe landing of our aircraft while we’re still in a power dive and no one seems to be at the controls.

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  23. 23
    Scotsman says:

    RE: deejayoh @ 21

    Agreed- it’s interesting, but not definitive- too many other variables. The only value is in showing that the trend in real income is not positive.

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  24. 24

    RE: deejayoh @ 21

    Actually Per Today’s News

    “…Unemployment has been hovering at or above 9 percent for more than two years and real average hourly wages for those who have jobs declined 1.3 percent over the 12 months through July. Even with 3 percent growth in the economy last year, real median income for U.S. households dropped in 2010 to the lowest level since 1996, according to a census report issued yesterday….”

    http://finance.yahoo.com/news/Pessimism-Rises-as-72-See-US-bloomberg-450303520.html;_ylt=AgOYk1NZveIFyG_dKQgW3767YWsA;_ylu=X3oDMTE1MmhtNzk5BHBvcwMzBHNlYwN0b3BTdG9yaWVzBHNsawNwZXNzaW1pc21yaXM-?x=0&sec=topStories&pos=main&asset=&ccode

    Both per capita and household incomes have dropped. Couple that with Wash St’s unemployment now worsening worse than the national avg per a recent Time magazine chart….you get the gist.

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  25. 25
    David Losh says:

    RE: Hu Flung Pu @ 19RE: Hu Flung Pu @ 15RE: Hu Flung Pu @ 14RE: Hu Flung Pu @ 11RE: Hu Flung Pu @ 7RE: Hu Flung Pu @ 5

    All of these comments should be high lighted or put into a post.

    These are very clear, and to the point, about not just the differences between the United States and Japan, they do put that argument to rest.

    On a broader note they elude to the very basis of our strong economy.

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  26. 26
    Hu Flung Pu says:

    By David Losh @ 25:

    RE: Hu Flung Pu @ 19RE: Hu Flung Pu @ 15RE: Hu Flung Pu @ 14RE: Hu Flung Pu @ 11RE: Hu Flung Pu @ 7RE: Hu Flung Pu @ 5

    All of these comments should be high lighted or put into a post.

    These are very clear, and to the point, about not just the differences between the United States and Japan, they do put that argument to rest.

    On a broader note they elude to the very basis of our strong economy.

    I wish that were the case, but I wouldn’t go nearly that far (personally). In my view, we do not have a strong economy, but nor do we have an end-of-days economy. We have a sluggish economy that will remain that way for quite some time as consumer debt is paid down (although, clearly the govt is hell bent on offsetting consumer deleveraging)… and one day the govt will have to join that party as well. I think we have some other structural economic issues to deal with (in addition to the debt load), including health care spending and income inequality, to name just two big ones. So, it’s not all puppies and sunshine from where I sit. But nor do I see us falling off another cliff a la post-Lehman. But I’ve been wrong before…

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  27. 27
    Hu Flung Pu says:

    By softwarengineer @ 20:

    To Bad Pfft Isn’t Blogging Anymore

    He was a nice antithesis to fiscal responsibility. Now we have Pu.

    Where exactly did I argue against fiscal responsibility? Inquiring minds and all…

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  28. 28
    Hugh Dominic says:

    Speaking of bad comparisons, Hu Flung is nothing at all like Pfft the Raving Madman.

    Pfft would have you believe that we are just one more borrowed trillion dollar stimulus away from prosperity.

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  29. 29
    deejayoh says:

    By softwarengineer @ 24:

    RE: deejayoh @ 21

    Actually Per Today’s News

    “…Unemployment has been hovering at or above 9 percent for more than two years and real average hourly wages for those who have jobs declined 1.3 percent over the 12 months through July. Even with 3 percent growth in the economy last year, real median income for U.S. households dropped in 2010 to the lowest level since 1996, according to a census report issued yesterday….”

    http://finance.yahoo.com/news/Pessimism-Rises-as-72-See-US-bloomberg-450303520.html;_ylt=AgOYk1NZveIFyG_dKQgW3767YWsA;_ylu=X3oDMTE1MmhtNzk5BHBvcwMzBHNlYwN0b3BTdG9yaWVzBHNsawNwZXNzaW1pc21yaXM-?x=0&sec=topStories&pos=main&asset=&ccode

    Both per capita and household incomes have dropped. Couple that with Wash St’s unemployment now worsening worse than the national avg per a recent Time magazine chart….you get the gist.

    Well, I didnt say anything about unemployment.
    But PCI is up, not down. It is above pre-recession levels in Washington state
    http://research.stlouisfed.org/fred2/graph/?s1id=WAPCPI

    And HHI – well FRED doesn’t provide that. But I already posted the gross national numbers showing income is up – and since HH formation is down, I think we can infer that this must be up as well.

    Lots of misinformation posted as fact.

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  30. 30
    Real World Express says:

    RE: deejayoh @ 29

    Median Household Income Estimates by County: 1989 to 2009 and Projection for 2010
    http://www.ofm.wa.gov/economy/hhinc/medinc.pdf

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  31. 31
    Real World Express says:

    RE: softwarengineer @ 24

    At best incomes went up on average in WA state about 13% percent…and have fallen since 2008…coupled with higher cost of living (case in point…yesterday in QFC, bag of Pepperidge Farm cookies that only recently sold for around $3.00 was sporting a $4.50 price tag).

    Put all that together and no one has any money to live here at today’s prices. Even “cheaper” rentals in any good neighborhood carry a hefty price tag.

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  32. 32
    Scotsman says:

    RE: Hugh Dominic @ 28RE: softwarengineer @ 20

    I fear dear pfffffft has left the building, last seen running into the woods, screaming, after reading this from his idol- Paul Krugman:

    “We are now, I fear, in the early stages of a third depression.”

    Rumor has it he will return . . . as a gold bug. Ack!

    http://dealbook.nytimes.com/2010/06/28/krugman-the-third-depression/

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  33. 33
    pfft says:

    By softwarengineer @ 20:

    To Bad Pfft Isn’t Blogging Anymore

    He was a nice antithesis to fiscal responsibility.

    in a liquidity trap what would be considered responsibility is actually irresponsibility. see greece.

    you guys should know this by now because it’s been 3 years but you still don’t get it.

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  34. 34
    pfft says:

    By Scotsman @ 22:

    RE: Hu Flung Pu @ 19

    Fair enough- and I wish you were right. Here’s a quick observation you might think about. I’m sure you’re familiar with “the first rule of holes”, i.e. when you find yourself in one- stop digging!

    We haven’t even stopped digging- nor has the rest of the world with very few exceptions- Iceland, etc. I think it’s a bit- shall we say “occluded” to be fantasizing about the long glide ratio and eventual safe landing of our aircraft while we’re still in a power dive and no one seems to be at the controls.

    good god you people just don’t learn. greece stopped digging, how is that working out for them?

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  35. 35
    pfft says:

    By Hugh Dominic @ 28:

    Speaking of bad comparisons, Hu Flung is nothing at all like Pfft the Raving Madman.

    Pfft would have you believe that we are just one more borrowed trillion dollar stimulus away from prosperity.

    YES! YES! YES!

    the output gap is $900 billion. a trillion would actually be too much.

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  36. 36
    pfft says:

    I am surprised none of you idiots said the inflation stats were rigged or mentioned shadowstats.

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  37. 37
    Scotsman says:

    RE: pfft @ 36

    Yup, just a little bit more spending and the deficit would fall. The “secret” is in the multiplier!

    Keynes died a long time ago. And now we’ve finally buried him. For ever. It’s time to move on ‘Lil Buddy.

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  38. 38
    Scotsman says:

    RE: Scotsman @ 37

    Oh- the “secret” about the multiplier? No one ever stopped to think it could be less than one. But we’ve discovered it can- and is. Dang.

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  39. 39
    David Losh says:

    RE: Hu Flung Pu @ 26

    I put that as comparative to the global market place.

    I agree each individual needs to deleverage. You can include your home ownership in that process. Mortgages should all be assumable, and Congress should act in order to get banks to engage in fair lending practices, if not debt reduction policies.

    Banks can afford to lose a few billion, and return any tax dollars they may have.

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  40. 40
    pfft says:

    By Scotsman @ 37:

    RE: pfft @ 36

    Yup, just a little bit more spending and the deficit would fall. The “secret” is in the multiplier!

    Keynes died a long time ago. And now we’ve finally buried him. For ever. It’s time to move on ‘Lil Buddy.

    it’s amazing you believe this in the face of current events.

    the multiplier effect is well-known. the prescription for the economy is straight out of the economic textbooks. not to mention it proved itself since 2008 in real-time.

    how’s greece going?

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  41. 41
    pfft says:

    By Scotsman @ 38:

    RE: Scotsman @ 37

    Oh- the “secret” about the multiplier? No one ever stopped to think it could be less than one. But we’ve discovered it can- and is. Dang.

    eh no. like I said before the multiplier effect is not some cooked up 2009 democratic thing. it’s well know. I learned it in college and I didn’t even major in economics.

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  42. 42
    pfft says:

    mark zandi believes in the multiplier and he was one of Mcain’s economic advisors.

    An Analysis of the Obama Jobs Plan
    http://www.economy.com/dismal/article_free.asp?cid=224641

    note his estimate is on the high side for most estimates of the plan.

    basic economics.

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  43. 43
    Hugh Dominic says:

    RE: pfft @ 40

    Greece is terrible. They spent themselves into oblivion and can’t get out. Numerous cash infusions from other nations are simply squandered and have no effect. Greece’s economy is a shambles and they have no productive output to fall back on. Years of graft and waste have led to an economy that is little more than payments to public servants and retirees. Greece is only delaying the inevitable. Fortunately, the US has it’s own currency, and it is not Greece.

    The US restart options look like either: Swedish austerity (mid-1990’s) or Iceland default (2011). Both had or are having strong rebounds now. Both nations had to suck it up and dole out a short burst of pain to its citizens. We will be stuck in Japan-styled malaise for at least several decades unless one of these restart options is taken.

    Sweden:
    http://www.thelocal.se/29794/20101024/

    500,000 jobs were cut (10% of the base), most from the public sector. Benefits were slashed and taxes were hiked.

    “Sweden’s government in the 1990s began cutting public sector jobs, slashing pension and unemployment benefits, selling off publicly-owned companies and hiking union membership fees…”

    “[A]… positive aspect of the Swedish reforms, according to Larsson, was that they were done quickly.

    ‘You have to rip the band-aid off all at once,’ he said, pointing out that nearly all the cuts went into effect in 1996.”

    “‘Since then, Sweden has in general had the strongest productivity in all the OECD. There is definitely a Swedish success story to look back at,’ Johansson told AFP.”

    Iceland:
    http://en.wikipedia.org/wiki/2008–2011_Icelandic_financial_crisis

    The fallout from their bubble – Pension fund assets reduced by 15-25%. GDP reduced by 10%. Inflation of 75%. 14% of the workforce with pay reductions. Unemployment triples. But then they defaulted and:

    “Iceland’s financial position has steadily improved since the crash. The economic contraction and rise in unemployment appear to have been arrested by late 2010 and with growth underway in mid 2011.”

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  44. 44
    pfft says:

    By Hugh Dominic @ 43:

    RE: pfft @ 40

    Greece is terrible. They spent themselves into oblivion and can’t get out. Numerous cash infusions from other nations are simply squandered and have no effect. Greece’s economy is a shambles and they have no productive output to fall back on. Years of graft and waste have led to an economy that is little more than payments to public servants and retirees. Greece is only delaying the inevitable. Fortunately, the US has it’s own currency, and it is not Greece.

    The US restart options look like either: Swedish austerity (mid-1990’s) or Iceland default (2011). Both had or are having strong rebounds now. Both nations had to suck it up and dole out a short burst of pain to its citizens. We will be stuck in Japan-styled malaise for at least several decades unless one of these restart options is taken.

    Sweden:
    http://www.thelocal.se/29794/20101024/

    500,000 jobs were cut (10% of the base), most from the public sector. Benefits were slashed and taxes were hiked.

    “Sweden’s government in the 1990s began cutting public sector jobs, slashing pension and unemployment benefits, selling off publicly-owned companies and hiking union membership fees…”

    “[A]… positive aspect of the Swedish reforms, according to Larsson, was that they were done quickly.

    ‘You have to rip the band-aid off all at once,’ he said, pointing out that nearly all the cuts went into effect in 1996.”

    “‘Since then, Sweden has in general had the strongest productivity in all the OECD. There is definitely a Swedish success story to look back at,’ Johansson told AFP.”

    Iceland:
    http://en.wikipedia.org/wiki/2008�2011_Icelandic_financial_crisis

    Pensions reduced by 15-25%. GDP reduced by 10%. Inflation of 75%. 14% of the workforce with pay reductions. Unemployment triples. But then:

    “Iceland’s financial position has steadily improved since the crash. The economic contraction and rise in unemployment appear to have been arrested by late 2010 and with growth underway in mid 2011.”

    complete nonsense.

    1. We don’t need to default like Iceland, period.

    2. austerity is CONTRACTIONARY. We have an output gap of $900 billion. spending less money now won’t help. just look at the real-time example of Britain.

    http://krugman.blogs.nytimes.com/2011/08/11/the-waste/

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  45. 45
    Hugh Dominic says:

    RE: pfft @ 44

    Re: 1 – We don’t need to, but we can. I mean, it’s an option. When a nation defaults, it’s the creditors who get screwed, not the citizens. Of course, you have to be prepared to do a lot less borrowing, or pay more for it, once the default is complete. So the US could not default and also continue its policy of unsustainable deficits.

    Re: 2 – So how does your Keynesian model explain Sweden’s success? I’m not sure where you come up with this BS to solve your “output gap”. What we have output-wise is a hangover from a massively misallocated workforce. Injecting huge wads of cash will only keep them misallocated and waiting for the next stimulus check rather than modernizing and catering to real private demand.

    Please refer to today’s news about Solyndra to see how poorly government-directed
    investments perform. $535M to employ 1,000 people for two years. Now they are all unemployed anyway.

    Any citations of Krugman are invalid. He is a political mouthpiece, not an economist.

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  46. 46
    Scotsman says:

    RE: Hugh Dominic @ 45

    “Please refer to today’s news about Solyndra to see how poorly government-directed
    investments perform. $535M to employ 1,000 people for two years. Now they are all unemployed anyway.”

    BINGO! But the debt lingers on while individual lives have been wasted in unproductive efforts.

    The less government, the better.

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  47. 47
    Jonness says:

    By Hu Flung Pu @ 19:

    By Scotsman @ 18:
    RE: Hu Flung Pu @ 15

    “Now, if rates double in the near future, then we�ll have a real issue.”
    So many ways to die, no mathematically or politically feasible exit strategy. We really are locked into the end game here by a combination of math and peverse political incentives. Japan’s last twenty years are interesting to study, but certainly not comparable in any meaningful way to the structural situation the world economy now faces.

    Clearly, we disagree on the “end game” that we’re locked into. I think we’re locked into an end game of sluggishness for quite some time, albeit not on Japan’s scale. The debt service math bears that out… so long as rates don’t rise materially for several years. But I agree that there are a lot of potential stumbling blocks… such is the nature of leverage. (I’m in the GMO camp here.)

    But, hey, differences of opinion regarding outcomes and values is why the exchanges open each week day.

    I don’t think you have factored the high-probability of potential future shocks into your forecast. For instance, it’s conceivable when (not if) Greece defaults, the contagion spreads and dominoes the other week nations. Even now, banks are afraid to lend to other effected banks, and these country’s bond yields are increasing. If Greece’ default is not constructed in an orderly fashion (very difficult to do), the 2008 credit freeze will look tame in comparison.

    Many people point out American banks don’t hold many Greek bonds. However, the American banks are the guys who insured the Greek debt. Thus, this situation is extremely ugly for all.

    When Greece goes, it takes Portugal with it. At that point, the disease spreads to the rest of the levered ducks. Add in that Greece is already bankrupt, and the only thing keeping it alive is the rest of the world is scared to death when it goes we could face a worldwide financial collapse… (Poor, poor Germany must continue to bail out the ship knowing it will never get paid back but must choose the lesser of two horrible outcomes)

    So I think a more useful forecast is to assign probabilities of your three most likely potential outcomes. For instance:

    60% muddle through
    30% worldwide financial market collapse
    10% 3%+ GDP 2012 through 2015

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  48. 48
    MichaelB says:

    By pfft @ 40:

    By Scotsman @ 37:
    RE: pfft @ 36

    Yup, just a little bit more spending and the deficit would fall. The “secret” is in the multiplier!

    Keynes died a long time ago. And now we’ve finally buried him. For ever. It’s time to move on ‘Lil Buddy.

    it’s amazing you believe this in the face of current events.

    the multiplier effect is well-known. the prescription for the economy is straight out of the economic textbooks. not to mention it proved itself since 2008 in real-time.

    how’s greece going?

    You are so right! Krugman is a genius. Too bad several people on this site don’t get it. The deficit is a long term problem and is not what caused the current situation! A lack of jobs is the problem. Deficit reduction and austerity results in FEWER JOBS! Attacking the deficit now is like attacking Iraq after 9/11. We need job creation!!! WE NEED JOB CREATION!

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  49. 49
    David Losh says:

    RE: pfft @ 44

    Now you’ve brought in Britain which is another socialist political system. Greece is completely socialist.

    You can talk economics all you want, but as I have pointed out, most people are just looking for food, for that day.

    We have increased the poverty rate while the wealthy “class” swells.

    That is what is unsustainable. No one is going to let the wealthy class keep the money they stole in this last round of economic swindles. No one is going to look at these loans, debts, and debt swaps as anything other than swindles. No one is, no one, but a very few upper class dilitantes.

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  50. 50
    David Losh says:

    RE: Scotsman @ 46

    I read with great interest about Solyndra. Evidently the Chinese can produce solar panels much cheaper, so those are being sold. The price of solar panels should be coming down then, but they won’t.

    Solyndra provided technology that is still viable, and maybe can continue after the bankruptcy.

    Our government did the right thing by making these loans. We need to expand solar, and wind technology. We need to become energy independent, and drilling more wells is a ridiculous gift to give to oil companies.

    We should be giving billions of dollars to fund alternative energy resources in the name of national security.

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  51. 51

    By David Losh @ 50:

    RE: Scotsman @ 46 – I read with great interest about Solyndra. Evidently the Chinese can produce solar panels much cheaper, so those are being sold. The price of solar panels should be coming down then, but they won’t.

    I think the prices have been coming down, and that was part of Solyndra’s problem. Their other problem was a stupid name! ;-)

    There are issues with how the Chinese can produce them cheaper, but they’re probably saying the same thing about us since we gave over $500,000 to a company to produce solar panels too!

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  52. 52

    Hugh Dominic said “Any citations of Krugman are invalid. He is a political mouthpiece, not an economist. ”

    You have every right to disagree with Krugman. But the fact remains that he is indeed an economist. He worked for the Reagan White House as a member of the Council of Economic Advisors. He worked for the Central Bank of Portugal in the early 1980’s. He has a Ph.D in economics from MIT. He’s taught economics at Yale, MIT, Stanford, and Princeton.
    But because he holds opinions that are different than yours, he’s not an economist? And you’re in a position to know who or who is not an economist?

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  53. 53
    No Name Guy says:

    By Ira Sacharoff @ 52:

    Hugh Dominic said “Any citations of Krugman are invalid. He is a political mouthpiece, not an economist. ”

    You have every right to disagree with Krugman. But the fact remains that he is indeed an economist. He worked for the Reagan White House as a member of the Council of Economic Advisors. He worked for the Central bank of Portugal in the early 1980’s. He has a Ph.D in economics from MIT. He’s taught economics at Yale, MIT, Stanford, and Princeton.

    All the above is an appeal to authority (one of the classic logical fallacies).

    Not that Hugh’s slam was much better – it’s irrelevant that he’s a political mouthpiece as well. The only thing that matters is: Can Krugman correctly predict economic matters? The clear answer to that is no, not even close.

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  54. 54
    Dirty Renter says:

    RE: Hugh Dominic @ 43
    Monetize?

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  55. 55
    Scotsman says:

    RE: MichaelB @ 48

    Here’s your job creation:

    “Great news: Green-jobs subsidies created 1 job for every $5.44 million spent”

    http://hotair.com/archives/2011/09/15/great-news-green-jobs-subsidies-created-1-job-for-every-5-44-million-spent/

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  56. 56
    Hugh Dominic says:

    RE: Ira Sacharoff @ 52 – You left out his Nobel prize in economics.

    Krugman was an economist. Now he is an opinion writer for the New York Times. He works in media, like famed “Bear Stearns is a great investment” stock analyst Jim Cramer.

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  57. 57
    Hugh Dominic says:

    By Dirty Renter @ 54:

    RE: Hugh Dominic @ 43
    Monetize?

    Yeah that’s the generation of Japanese malaise solution that we are on right now. It can work if there are no more shocks, though I still prefer a reset-and-grow option.

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  58. 58

    RE: No Name Guy @ 53
    The ability of economists to predict the future seems to have no relationship to their continued employment. Kind of like weather forecasters and stock market analysts. They’re wrong almost all of the time, yet they keep being trotted out to make more predictions in front of a TV audience.

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  59. 59

    By No Name Guy @ 53:

    Can Krugman correctly predict economic matters? The clear answer to that is no, not even close.

    He predicted the prior stimulus not being sufficient to work because it was too small.

    Analogize it to a medical condition, specifically an infection. A Christian Scientist would say that nothing should be done, as is a common position here with what to do about the economy. A doctor might say an antibiotic pill needs to be given 2x a day for 14 days. If the government only gives out 7 pills, and the patient doesn’t recover, that doesn’t mean the doctor was wrong prescribing 28 pills.

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  60. 60
    Hugh Dominic says:

    RE: Kary L. Krismer @ 59 – I also predicted the prior stimulus would not work, not because it was too small, but because it was not a solution to the problem.

    Further, I successfully predicted that it would not snow in LA yesterday due to the workings of the UFO sighted in the area.

    How can you explain that we both seem to have such accurate predictive powers?

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  61. 61

    RE: Hugh Dominic @ 60 – One of you is right as to the reason, and the other isn’t. We’ll never know which one. You were both right as to the result.

    It’s too bad we can’t manage time in a manner that we can try several things and see which works the best.

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  62. 62
    Hugh Dominic says:

    RE: Kary L. Krismer @ 61 – Yes, that would be nice. Not just for trying out different economic policies, but also for trying out different wives.

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  63. 63
    Scotsman says:

    Stimulus might have worked had we not been so far down the road to insolvency. What the “more stimulus!” crowd fails to recognize is that at some point you’re broke, so broke that a restructuring or debt relief program isn’t going to do it. At a certain point chapter 11/13 isn’t going to help- chapter 7 is the best option. No matter how much people raised on credit cards and home atms want to believe, you can’t borrow your way out of debt. And you can’t reinvigorate an economy that is so burdened with debt and inefficiencies it’s collapsing under its own weight.

    Let’s wipe tha table clean and start over.

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  64. 64

    By Scotsman @ 63:

    Stimulus might have worked had we not been so far down the road to insolvency.

    If by that you mean we had to limit what we spent in crisis because for years and years we’d spent more than we brought in, I would agree with you.

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  65. 65
    pftt says:

    By Scotsman @ 46:

    RE: Hugh Dominic @ 45

    “Please refer to todayâ��s news about Solyndra to see how poorly government-directed
    investments perform. $535M to employ 1,000 people for two years. Now they are all unemployed anyway.”

    BINGO! But the debt lingers on while individual lives have been wasted in unproductive efforts.

    The less government, the better.

    solyndra is just one company. the solar industry is in troulbe right now because it’s been too successful. the prices of silicon have fallen a lot. that’s why solyndra went bankrupt. solar installations are booming. this is good as it keeps a lot of money in the US. it reduces global warming and decreases pollution. wins all around

    of course in a new industry firms will fail. how many car companies did there used to be?

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  66. 66
    pftt says:

    By Ira Sacharoff @ 52:

    Hugh Dominic said “Any citations of Krugman are invalid. He is a political mouthpiece, not an economist. ”

    You have every right to disagree with Krugman. But the fact remains that he is indeed an economist. He worked for the Reagan White House as a member of the Council of Economic Advisors. He worked for the Central Bank of Portugal in the early 1980’s. He has a Ph.D in economics from MIT. He’s taught economics at Yale, MIT, Stanford, and Princeton.
    But because he holds opinions that are different than yours, he’s not an economist? And you’re in a position to know who or who is not an economist?

    he also has literally written the textbook on economics. oh, he also won a nobel prize.

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  67. 67
    pftt says:

    By Scotsman @ 55:

    RE: MichaelB @ 48

    Here’s your job creation:

    “Great news: Green-jobs subsidies created 1 job for every $5.44 million spent”

    http://hotair.com/archives/2011/09/15/great-news-green-jobs-subsidies-created-1-job-for-every-5-44-million-spent/

    this is terrible analysis, not surprised you cut and pasted it.

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  68. 68
    pftt says:

    By Hugh Dominic @ 56:

    RE: Ira Sacharoff @ 52 – You left out his Nobel prize in economics.

    Krugman was an economist. Now he is an opinion writer for the New York Times. He works in media, like famed “Bear Stearns is a great investment” stock analyst Jim Cramer.

    uh he is currently teaching at Princeton…

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  69. 69
    pftt says:

    By Hugh Dominic @ 60:

    RE: Kary L. Krismer @ 59 – I also predicted the prior stimulus would not work, not because it was too small, but because it was not a solution to the problem.

    it’s uh standard economics that’s decades old…

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  70. 70
    pftt says:

    By Scotsman @ 63:

    Stimulus might have worked had we not been so far down the road to insolvency.

    it saved jobs and interest rates are at record lows…our debt would have been higher w/o stimulus.

    you were for the extension of the bush tax cuts that added $3 trillion to the deficit so you have no street cred here.

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  71. 71
    pfft says:

    by the way the green sector is BOOMING.

    Study: U.S. solar industry a net exporter
    http://news.cnet.com/8301-11128_3-20098042-54/study-u.s-solar-industry-a-net-exporter/

    Solar Module Price Cuts Stimulate Massive Growth in US Photovoltaic Project Pipeline
    http://solarbuzz.com/industry-news/solar-module-price-cuts-stimulate-massive-growth-us-photovoltaic-project-pipeline

    the pipeline of projects has increased from 17 megawatts to 25 megawatts.

    not only that, most of the money spent on solar STAYS in the country!

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  72. 72
    Jonness says:

    By pfft @ 44:

    2. austerity is CONTRACTIONARY. We have an output gap of $900 billion. spending less money now won’t help. just look at the real-time example of Britain.

    Or the real time example of Greece.

    I think the mistake most amateur economists make is they believe there is a magic bullet that will avoid all pain. The smarter people in the room realize that spending more than you have results in having to pay back the borrowed money eventually, which results in a slowing economy. IOW, the smart people do what Keynes recommended and run surpluses during the good times and run (targeted) deficits during the bad if necessary. When the next business cycle begins, the economy takes a hit while the money is paid back, but the debt is not significant enough to tank the economy back into recession.

    Most amateur Keynesian economists believe countries can spend wildly no matter what, and there are no economic consequences as long as you ever increase the amount you borrow and spend. Greece is telling us a different story. And that story is, it was overspending that got it there in the first place. How on earth is more borrowing going to get it out when it’s two-year bond is yielding 50% interest?

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  73. 73
    David Losh says:

    RE: Jonness @ 72

    I don’t know who lent Greece money, but that was pretty stupid. Greece will never repay the money, neither will Spain, I doubt Britain will, and the Irish have been in a constant state of default since before America was founded.

    Now who would give these socialist countries money? If the money was given, it was a gift.

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  74. 74
    Jonness says:

    By Scotsman @ 46:

    RE: Hugh Dominic @ 45

    “Please refer to todayâ��s news about Solyndra to see how poorly government-directed
    investments perform. $535M to employ 1,000 people for two years. Now they are all unemployed anyway.”

    BINGO! But the debt lingers on while individual lives have been wasted in unproductive efforts.

    The less government, the better.

    A recent study showed Obama’s latest jobs bill, if enacted, would cost $250,000.00 per job.

    A recent study performed by Washington State LMEA showed that 80% of the claimants whose claims were exhausted (fell of the end) are still unemployed.

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  75. 75
    pfft says:

    By Jonness @ 74:

    By Scotsman @ 46:
    RE: Hugh Dominic @ 45

    “Please refer to today�s news about Solyndra to see how poorly government-directed
    investments perform. $535M to employ 1,000 people for two years. Now they are all unemployed anyway.”

    BINGO! But the debt lingers on while individual lives have been wasted in unproductive efforts.

    The less government, the better.

    A recent study showed Obama’s latest jobs bill, if enacted, would cost $250,000.00 per job.

    we get more than just jobs out of the jobs bill. we get all kinds of infrastructure projects and aid to states.

    about half the jobs bill is tax cuts…

    mark zandi who was mccain’s economic advisor came out in support of the bill.

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  76. 76
    pfft says:

    By Jonness @ 72:

    By pfft @ 44:
    2. austerity is CONTRACTIONARY. We have an output gap of $900 billion. spending less money now won’t help. just look at the real-time example of Britain.

    Or the real time example of Greece.

    I think the mistake most amateur economists make is they believe there is a magic bullet that will avoid all pain. The smarter people in the room realize that spending more than you have results in having to pay back the borrowed money eventually, which results in a slowing economy. IOW, the smart people do what Keynes recommended and run surpluses during the good times and run (targeted) deficits during the bad if necessary. When the next business cycle begins, the economy takes a hit while the money is paid back, but the debt is not significant enough to tank the economy back into recession.

    Most amateur Keynesian economists believe countries can spend wildly no matter what, and there are no economic consequences as long as you ever increase the amount you borrow and spend. Greece is telling us a different story. And that story is, it was overspending that got it there in the first place. How on earth is more borrowing going to get it out when it’s two-year bond is yielding 50% interest?

    how is more cutting going to help when that was the solution and yet bond yields subsequently skyrocketing from single-digits to double-digits. austerity did not work. nothing outside of default will probably work.

    Greece has spending problems but it’s mainly the euro and austerity.

    austerity is contractionary. this is not something we just found out. economists have known this for decades. it’s basic economics.

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  77. 77
    Jonness says:

    By David Losh @ 73:

    RE: Jonness @ 72

    I don’t know who lent Greece money, but that was pretty stupid. Greece will never repay the money, neither will Spain, I doubt Britain will, and the Irish have been in a constant state of default since before America was founded.

    Now who would give these socialist countries money? If the money was given, it was a gift.

    I agree it’s a gift.

    There was a chance perhaps Greece could have been isolated a year or perhaps 6 months ago and put into orderly default without destroying its peers. However, the contagion has spread to the point where that is now impossible without tanking everything around it.

    Not long ago, we had a dual economy in Europe. Germany and others were doing well, and Greece etc were hurting. This led to massive social unrest in Germany as it was asked to bail out the spenders.

    However, we now have a single economy in Europe as the whole thing is slowing down including Germany. So Germany and some of the stronger countries must face the dilemma of whether to gift massive amounts of free money or watch all of Europe implode. It’s a very interesting situation. It seems to me they are darned if they do and darned if they don’t.

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  78. 78
    pfft says:

    By Jonness @ 77:

    By David Losh @ 73:
    RE: Jonness @ 72

    I don’t know who lent Greece money, but that was pretty stupid. Greece will never repay the money, neither will Spain, I doubt Britain will, and the Irish have been in a constant state of default since before America was founded.

    Now who would give these socialist countries money? If the money was given, it was a gift.

    I agree it’s a gift.

    There was a chance perhaps Greece could have been isolated a year or perhaps 6 months ago and put into orderly default without destroying its peers. However, the contagion has spread to the point where that is now impossible without tanking everything around it.

    Not long ago, we had a dual economy in Europe. Germany and others were doing well, and Greece etc were hurting. This led to massive social unrest in Germany as it was asked to bail out the spenders.

    However, we now have a single economy in Europe as the whole thing is slowing down including Germany. So Germany and some of the stronger countries must face the dilemma of whether to gift massive amounts of free money or watch all of Europe implode. It’s a very interesting situation. It seems to me they are darned if they do and darned if they don’t.

    don’t forget 3 things.

    1. people knew when the Euro was being enacted that the euro could cause these problems.

    2. the core invested in these countries and caused the high inflation there and subsequent bust.

    3. French and German banks have exposure to Greece and the rest of the countries. they funded this madness. it’s their fault too.

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  79. 79
    Jonness says:

    By pfft @ 76:

    austerity is contractionary. this is not something we just found out. economists have known this for decades. it’s basic economics.

    Yes, but our politicians and voters don’t understand economics, so we find our way into such messes wondering what to do. Then we get all the geniuses who come along and recommend we just keep spending until we eventually default. I find myself in shock that these geniuses have never contemplated how it is we might someday pay back money. It appears their headlights are extremely dim, and they can only see a couple hundred feet into the future.

    Of course austerity is contractionary. That’s why I don’t go out and buy a $5 million house on a $100K salary. Let’s say I’m as stupid as our presidents and treasurers have been and I buy the $5m house. Now what? Well, the only sensible thing to do is default and learn to live within my means. But lets say I only buy a $500K house with 0 down. I can choose to go out and borrow more money to pay the interest on that loan or to practice austerity and make extra payments on the house until I get the principle reduced to a manageable level. If I choose the latter route, in the meantime, I’ll be eating nothing but Top Ramon. But if I take out another big bank loan, I can run down to a fancy restaurant every night until it’s time for yet another bank loan.

    The U.S. is already borrowing at the rate of 40 cents on every dollar it spends. You can’t seriously believe the solution is to borrow 60 cents on every dollar we spend?

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  80. 80
    pfft says:

    By Jonness @ 79:

    By pfft @ 76:
    austerity is contractionary. this is not something we just found out. economists have known this for decades. it’s basic economics.

    Yes, but our politicians and voters don’t understand economics, so we find our way into such messes wondering what to do. Then we get all the geniuses who come along and recommend we just keep spending until we eventually default. I find myself in shock that these geniuses have never contemplated how it is we might someday pay back money. It appears their headlights are extremely dim, and they can only see a couple hundred feet into the future.

    Of course austerity is contractionary. That’s why I don’t go out and buy a $5 million house on a $100K salary. Let’s say I’m as stupid as our presidents and treasurers have been and I buy the $5m house. Now what? Well, the only sensible thing to do is default and learn to live within my means. But lets say I only buy a $500K house with 0 down. I can choose to go out and borrow more money to pay the interest on that loan or to practice austerity and make extra payments on the house until I get the principle reduced to a manageable level. If I choose the latter route, in the meantime, I’ll be eating nothing but Top Ramon. But if I take out another big bank loan, I can run down to a fancy restaurant every night until it’s time for yet another bank loan.

    The U.S. is already borrowing at the rate of 40 cents on every dollar it spends. You can’t seriously believe the solution is to borrow 60 cents on every dollar we spend?

    yes I do. it’s called stimulating the economy in a liquidity trap. it’s basica economics.

    you fell into the classic trap. the government is not a household. period.

    “Then we get all the geniuses who come along and recommend we just keep spending until we eventually default. I find myself in shock that these geniuses have never contemplated how it is we might someday pay back money. It appears their headlights are extremely dim, and they can only see a couple hundred feet into the future.”

    1. we aren’t going to keep spending. we are spending with a specific purpose. we are caught in a liquidity trap. our goal is to spend our way out of it. the current output gap is $900 billion so the president’s plan is actually conservative.

    2. we can easily pay back the money. interest rates are at DECADES LOWS! Interest payments as a percentage of GDP is at levels not seen in 3 decades.

    3. a couple hundred feet into the future is the perspective we need right now. we need jobs now. not in a year or after the election. we need jobs now.

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  81. 81
    pfft says:

    note. if the market is driving greece interest rates sky-high and that is taken as a signal that greece is doing something wrong record low interest rates in the US must be signaling MORE deficit spending. right?

    Treasuries Decline as $21 Billion 10-Year Auction Draws Record Low Yield
    http://www.bloomberg.com/news/2011-09-13/treasuries-decline-as-21-billion-10-year-auction-draws-record-low-yield.html

    the market is saying the economy is slowing please more deficit spending.

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  82. 82
    Scotsman says:

    RE: pfft @ 80

    “1. we aren’t going to keep spending”

    Oh yes we are, and how. The budget hasn’t dropped YOY for over 60 years, has automatic yearly increases on the order of 6% built in, and continues to grow faster than either the population or inflation. All political efforts to curtail spending have failed. Almost half the money we spend we don’t have. Look at the relative exponents- we are most certainly going to spend ourselves into oblivion.

    “2. we can easily pay back the money. interest rates are at DECADES LOWS!

    We will never pay back the money- we won’t be able to. There is a difference between paying the interest and paying the principal. We haven’t made net positive payments to principal since before WW2, easily confirmed by checking the total outstanding national debt. (No, not even during Clinton’s “budget miracle- robbing social security trust funds). If interest rates were to rise significantly we wouldn’t be able to pay even the interest without serious cuts to other programs.

    “3. a couple hundred feet into the future is the perspective we need right now”

    Too late. We need to grow up, suck it up, and start over. If we had favored a longer term perspective starting 30 years ago we wouldn’t be in this mess. One short term “solution” after another is a large part of what got us into this mess.

    Now shake it on over to the donation thread and cough up a contribution to The Tim and Seattle bubble. If you’re gonna drink ya gotta help stock the fridge once in a while. Or are you one of those guys who’s always looking for the free beer?

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  83. 83
    Scotsman says:

    RE: pfft @ 81

    “note. if the market is driving greece interest rates sky-high and that is taken as a signal that greece is doing something wrong record low interest rates in the US must be signaling MORE deficit spending. right?”

    Um, no. Something about a flight to safety, reserve currency, whatever. Just shoot me. Are you really that consistently two dimensional in your thinking? Would asking for a 3 variable analysis be too much? I’m gonna have to take several days off to recover from this.

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  84. 84
    pfft says:

    By Scotsman @ 83:

    RE: pfft @ 81

    “note. if the market is driving greece interest rates sky-high and that is taken as a signal that greece is doing something wrong record low interest rates in the US must be signaling MORE deficit spending. right?”

    Um, no. Something about a flight to safety, reserve currency, whatever. Just shoot me. Are you really that consistently two dimensional in your thinking? Would asking for a 3 variable analysis be too much? I’m gonna have to take several days off to recover from this.

    I get it. you only care about what the market says when it says exactly what your beliefs are. you’re wrong and the market knows it.

    how could iwe be a flight to safety when the economy is supposed to fall apart because of our massive debts? aren’t we supposed to lose our reserve currency status?

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  85. 85
    David Losh says:

    RE: pfft @ 75

    The jobs bill needs to be passed right away. It is tax cuts, and support for schools, and infrastructure.

    The Republicans are going to focus on Solyndra? as an example of how Obama spent a half billion dollars, and didn’t create sustainable jobs. Now Obama wants to spend another half a trillion dollars for another jobs program.

    The Republicans are promising they will get us on the right track with less regulation, tort reform, and more tax gifts to evil corporations.

    Hmmm, In other words the Republicans know best, and will refuse the jobs bill.

    Are you with me so far? Because you seem totally confused about the difference between economics, and politics.

    I’m just going to say, again, that Obama is caught in a political trap. No one, absolutely no one, wanted the Presidency after George Bush. Obama was elected as the scape goat. No one ever figured he would actually do anything, like getting health reform passed. No one ever figured he would put an economic plan in place that is actually working. No one figured he would challenge Israeli policies in the Middle East. No one ever figured that they had elected the best politician that this country had ever seen.

    So the jobs bill will sit there. Yes, we need the infrastructure bought, and paid for, but the Tea Party is in charge. If all goes well this legislation will be the end of them.

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  86. 86
    Jonness says:

    By pfft @ 80:

    you fell into the classic trap. the government is not a household. period.

    And that’s why we are $14 trillion in debt, and nobody on earth has been able to propose a realistic plan of how we are going to get out of debt. If we were a household, we could simply default and get food stamps in order to feed our children. But as a government, nobody will give us free food after we go bankrupt.

    1. we aren’t going to keep spending. we are spending with a specific purpose. we are caught in a liquidity trap. our goal is to spend our way out of it. the current output gap is $900 billion so the president’s plan is actually conservative.

    We just spent $4 trillion+ (debt was less than $10 trillion when this mess began), and we are right back where we started and screaming for more. When does it end?

    2. we can easily pay back the money. interest rates are at DECADES LOWS! Interest payments as a percentage of GDP is at levels not seen in 3 decades.

    So what happens when the bond vigilantes show up like they have in Greece, and the 2 year yield goes up to 50% (I.E. 400 times the current yield of 0.125)?

    3. a couple hundred feet into the future is the perspective we need right now. we need jobs now. not in a year or after the election. we need jobs now.

    Unfortunately, that’s all the further Krugman is capable of seeing. This is the same perspective that got us into this mess in the first place because the politicians got wind of it and implemented it with fervor. It’s called “kick the can down the road,” and we all know the unfortunate outcome.

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  87. 87
    MichaelB says:

    RE: Jonness @ 86

    There’s a big difference between QE and job creation. QE kept us from crashing. Government can create lots of jobs that improve the economy and build the nation. Examples of government jobs that build the nation:

    1. Teachers
    2. Police Officers
    3. Firefighters
    4. Infrastructure – ie bridges, roads, schools – construction workers and engineers
    5. High technology
    6. Alternative energy
    7. Military
    8. Medical
    9. National parks

    Debt is not the problem in the medium term. Jobs are key to paying of the deficit. You can not pay down the deficit with tax revenues from a contracting economy. You have to grow your way out. A US default would cause a global great depression.

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  88. 88
    Jonness says:

    RE: Jonness @ – BTW, we don’t need jobs now. We needed them back when Obama was spending 99% of his time trying to ram through an expensive health care bill that is currently stifling hiring by small businesses do to the uncertainty it has created. We just spent $4 trillion dollars we don’t have to spend and witnessed endless pumping by the Fed. I hate to burst your and Krugman’s bubbles, but the key to fixing the economy is seeing further than 200 feet down the road.

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  89. 89
    Jonness says:

    By MichaelB @ 87:

    RE: Jonness @ 86

    There’s a big difference between QE and job creation. QE kept us from crashing. Government can create lots of jobs that improve the economy and build the nation. Examples of government jobs that build the nation:

    1. Teachers
    2. Police Officers
    3. Firefighters
    4. Infrastructure – ie bridges, roads, schools – construction workers and engineers
    5. High technology
    6. Alternative energy
    7. Military
    8. Medical
    9. National parks

    Debt is not the problem in the medium term. Jobs are key to paying of the deficit. You can not pay down the deficit with tax revenues from a contracting economy. You have to grow your way out. A US default would cause a global great depression.

    The $4+ trillion spent does not count the QE. It was supposedly going to be targeted at everything on your list. It clearly didn’t work.

    I don’t think people are getting this. There is a big difference between what should be done with the money and what the government actually does/will do with the money. That’s why your plan stands a 0% chance of working. The only thing it will do is get us further and further into debt until we become Greece.

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  90. 90
    Jonness says:

    By pfft @ 81:

    note. if the market is driving greece interest rates sky-high and that is taken as a signal that greece is doing something wrong record low interest rates in the US must be signaling MORE deficit spending. right

    Wrong! The bond market is pricing in a Japan-like outcome for the U.S. or worse. It’s also pricing in a potential worldwide financial crisis resulting from way to much leverage and debt in the private, banking, and public sectors.

    So all of this debt is the reason why we are having the crisis, and supposedly increasing the rate of borrowing is going to get us out? Genius, I tell you. Pure genius. But with that mentality, I’d hate to see how much equity you pulled out of your house during the bubble runup. It must be quite painful these days. Wouldn’t it have made a whole lot more sense just to have paid it off while you had the chance?

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  91. 91
    2kt says:

    RE: Jonness @ 88

    Small business hiring or lack thereof has nothing to do with uncertainty caused by healthcare bill. Small business hires when it sees demand for its services rising.

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  92. 92

    RE: Jonness @ 90
    I don’t think increasing government spending right now would be such a huge mistake. The huger mistake was the way government spending got out of control while things were good economically. Maybe I think backwards, but it occurs to me that a lot more prudence could have been used by both parties when unemployment was low, when home prices were high. That’s when they should have been reducing spending, because they didn’t need to spend. They spent so much because times were good and politicians and voters never look around the corner. They think the good times are here to stay and they never are. Had they acted prudently over the last 20 years and squirreled money away, increasing spending now wouldn’t even be an issue. During Republican administrations, spending increased dramatically, and very few were calling for restraint. Now, when what we really ought to be doing is rebuilding our crumbling infrastructure, Obama is bending over backwards to show that he’s not a liberal, he’s stressing how important it is to reduce the budget, as if he’s just found religion. It’s the full of crap versus the gutless.

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  93. 93
    2kt says:

    RE: Jonness @ 90
    The rising bond prices have little to do with expectation of Japan-like outcome in the US.
    Among the factors driving bond prices are :
    1) Asset allocation. Due to increasingly unpredictable stock market institutions allocate bigger percentage of assets to fixed income.
    2) Money flight out Europe.
    3) Banks buying the Treasuries for liquidity and due to the spead between 0%-.25% rates they borrow at the Federal Reserve and the yield from Treasuries.

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  94. 94
    Hugh Dominic says:

    By 2kt @ 91:

    RE: Jonness @ 88

    Small business hiring or lack thereof has nothing to do with uncertainty caused by healthcare bill. Small business hires when it sees demand for its services rising.

    I’m a small business owner (now). My colleagues and I hire cautiously. It is not enough to see demand rise, we have to be careful not to be carrying too much cost if the water goes out. I would rather leave some demand on the table right now.

    A lot of guys in home improvement hired during what turned out to be phony demand caused by the “cash for caulkers” tax credits. When those expired, demand went back to equilibrium and those guys were caught with way too big payrolls.

    Honestly it is really hard to tell real demand from government distortion right now. I can’t make smart bets in this environment.

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  95. 95
    Macro Investor says:

    By Ira Sacharoff @ 92:

    RE: Jonness @ 90
    I don’t think increasing government spending right now would be such a huge mistake. The huger mistake was the way government spending got out of control while things were good economically. Maybe I think backwards, but it occurs to me that a lot more prudence could have been used by both parties when unemployment was low, when home prices were high. That’s when they should have been reducing spending, because they didn’t need to spend. They spent so much because times were good and politicians and voters never look around the corner. They think the good times are here to stay and they never are. Had they acted prudently over the last 20 years and squirreled money away, increasing spending now wouldn’t even be an issue. During Republican administrations, spending increased dramatically, and very few were calling for restraint. Now, when what we really ought to be doing is rebuilding our crumbling infrastructure, Obama is bending over backwards to show that he’s not a liberal, he’s stressing how important it is to reduce the budget, as if he’s just found religion. It’s the full of crap versus the gutless.

    Believe it or not I mostly agree with Pfft.

    1. This isn’t the time for austerity, which everyone knows is contractionary.
    2. As Ira and Losh pointed out, deficit spending is all political. It has little to do with economics or job creation, and everything to do with getting re-elected. That’s why it happens in good times and bad.
    3. Bond yields are telling us nothing, except fund managers would rather make 0.5% than lose 40% in a stock market collapse. It’s mostly fear based. If the vigilantes show their sharp teeth, they know the fed is there to bury them under a snow storm of printed money.

    Why the change of heart? Because it’s free. It’s nice getting twice the gov services than we actually pay in taxes. It’s nice buying oil from the arabs and trinkets from the Chinese and paying for it with printed monopoly money. As many here have pointed out, eventually we will “go Greece”. We can never pay it back. That means either defaulting or devaluing. Eventually. For sure. So we might as well enjoy the steak and lobster feast until then.

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  96. 96
    Hugh Dominic says:

    By Ira Sacharoff @ 92:

    RE: Jonness @ 90
    I don’t think increasing government spending right now would be such a huge mistake. The huger mistake was the way government spending got out of control while things were good economically. Maybe I think backwards, but it occurs to me that a lot more prudence could have been used by both parties when unemployment was low, when home prices were high. That’s when they should have been reducing spending, because they didn’t need to spend. They spent so much because times were good and politicians and voters never look around the corner. They think the good times are here to stay and they never are. Had they acted prudently over the last 20 years and squirreled money away, increasing spending now wouldn’t even be an issue. During Republican administrations, spending increased dramatically, and very few were calling for restraint. Now, when what we really ought to be doing is rebuilding our crumbling infrastructure, Obama is bending over backwards to show that he’s not a liberal, he’s stressing how important it is to reduce the budget, as if he’s just found religion. It’s the full of crap versus the gutless.

    A good but entirely moot point. Republicans are horrible. Both parties want restraint when they are not in power and spending when they are. Result: always spending. It’s sickening. Vote Libertarian, or for anything but coke & pepsi.

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  97. 97
    Hugh Dominic says:

    By 2kt @ 93:

    RE: Jonness @ 90
    The rising bond prices have little to do with expectation of Japan-like outcome in the US.
    Among the factors driving bond prices are :
    1) Asset allocation. Due to increasingly unpredictable stock market institutions allocate bigger percentage of assets to fixed income.
    2) Money flight out Europe.
    3) Banks buying the Treasuries for liquidity and due to the spead between 0%-.25% rates they borrow at the Federal Reserve and the yield from Treasuries.

    All correct. And let’s not forget that #3 is one of our biggest gifts to our banks (and to government sachs). We loan money to them (by printing it) at 0.05% interest. They loan it right back to us for 0.25%. That is free money to the banks, my friends, as much as they can handle. These guys are loving all the income and bonuses they earn playing the middleman – bring on the deficits, right?!

    Think I’m kidding? I am not. The government is not allowed to create new money, it is supposed to borrow it. New money has to be originated by the Fed as a loan. Those loans are only available to large banks. The Treasury is not allowed to borrow directly from the Fed, so the money is laundered to the Treasury through those middlemen-banks. Goldman Sachs is, more or less, the broker.

    When the Fed sets its interest rate at 0.05%, the banks can belly up to the window all day long to borrow, as long as they have an investment they are willing to make. America’s voracious deficit ensures that they always do. They only make twenty cents on every hundred dollars they borrow and loan back to us, but a billion here and a billion there and it adds up.

    Well done, America.

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  98. 98
    MichaelB says:

    RE: Jonness @ 88

    Basic healthcare should be a right. Hopefully you are not part of the the new right-wing tea partiers lacking in the most basic compassion for those with no insurance. How is it that all industrialised countries have better more cost effective healthcare systems than the USA? universal healthcare will be Obama’s greatest legacy.

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  99. 99

    RE: MichaelB @ 98 – You can support universal healthcare without supporting Obamacare. We have an entire thread on that.

    I have a really hard time seeing how that will be Obama’s great legacy, however, since he didn’t seem to care what the legislation was. He just wanted something passed that he could sign. If and when it destroys our health care system, as I predict, it will be known as President Obama’s biggest failing–not being more involved in shaping the legislation.

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  100. 100
    Macro Investor says:

    By MichaelB @ 98:

    RE: Jonness @ 88

    Basic healthcare should be a right.

    Agreed, but what do you define as “basic”? The drug companies and doctors define it as spending hundreds of thousands of dollars for treatments that won’t help most patients. And for the few it does help, they may live 4 extra months. In other words, getting rich selling false hope to the most vulnerable who have an insurance or gov guarantee.

    Unfortunately Obama care is just another industry sellout. It allows the providers to pass on any crazy amount they’d like to charge for their services. However, see my post #95. The gov should provide all the social services it can so long as it can borrow insane amounts of money for very low interest. In the end we’re going to default anyway.

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  101. 101
    One Eyed Man says:

    RE: Hugh Dominic @ 97

    We’re in year 2.5 of the Fed’s 5 yr plan to manipulate the financial system so the banks can earn their way out of the financial/housing bubble losses. It’s not extend and pretend. It’s extend and work out based on the spread.

    Our esteemed leaders can’t acknowledge that the financial system might be bankrupt and have the FDIC nationalize the entire financial system to comply with banking regulations when the bank runs start. That would be an acknowledgment that deregulated financial capitalism bet the farm and lost. The politicians can’t and won’t do that. But they can rig the system to spread recognition of the losses over 5 years and build in a fool-proof revenue stream (even a banker can’t screw it up) so the banks can work them off over that period of time.

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  102. 102
    Pegasus says:

    RE: One Eyed Man @ 101 – Excellent interpretation! Guess who is on the losing end of this under the table bank bailout?

    Rate this comment: Thumb up 0

  103. 103
    Hugh Dominic says:

    RE: One Eyed Man @ 1 – Agreed.

    Rate this comment: Thumb up 0

  104. 104
    David Losh says:

    I’m surprised no one pointed out that the United States of 2011 is much different than Japan of the 1980s. We had a technology revolution since then.

    From 1993 to 2003 the internet, and software development changed all of the financial markets. It’s not just the amount of excess profits, cash, and reserves that were created, it’s also that complex financial engineering is also creating more profits.

    What One Eye Man has pointed out is something that is now possible, globally, from a set of computers, and probably a hundred jobs to make billions of dollars.

    I was surprised today when researching an article about Solyndra that it only took a thousand people to run that company. It’s a half a billion dollar company run by a thousand people. Tell me that was at all possible a decade ago.

    No one has challenged me, or disputed, that there is more than enough maney, cash, and cash reserves in the gloabl economy. It’s just a matter of distributing goods, and services. All of that is also possible with the use of computers, but it would take some cooperation.

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  105. 105
    Pegasus says:

    By David Losh @ 104:

    I’m surprised no one pointed out that the United States of 2011 is much different than Japan of the 1980s. We had a technology revolution since then.

    From 1993 to 2003 the internet, and software development changed all of the financial markets. It’s not just the amount of excess profits, cash, and reserves that were created, it’s also that complex financial engineering is also creating more profits.

    What One Eye Man has pointed out is something that is now possible, globally, from a set of computers, and probably a hundred jobs to make billions of dollars.

    I was surprised today when researching an article about Solyndra that it only took a thousand people to run that company. It’s a half a billion dollar company run by a thousand people. Tell me that was at all possible a decade ago.

    No one has challenged me, or disputed, that there is more than enough maney, cash, and cash reserves in the gloabl economy. It’s just a matter of distributing goods, and services. All of that is also possible with the use of computers, but it would take some cooperation.

    Your kidding, right David? Solyndra? An Obama half billion fiasco. Yes it only took 1000 employees in five years to destroy a billion dollars. Next idea? Thats a million bucks per employee and many of the 1000 workers were there for only two years!

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  106. 106
    Dirty Renter says:

    RE: Hugh Dominic @ 97
    So, are the commercial banks borrowing from the discount window or from fed funds?
    Do you think they are borrowing from the 2 aforementioned variable rate sources to buy fixed rate 30, 10 or which treasuries, given the fungibility of money? What is guaranteed about borrowing from a variable rate source to purchase a fixed rate asset? Which banks, who now mostly have a low loan/deposit ratio, are borrowing from the 2 windows to fund these so called guaranteed Treasury purchases? Possibly the investment banks who do not have a cheap deposit base? I would warn people that the recently published astronomical loan amounts from the Fed are calculated on a daily basis, for example what appears as $30B in loans, could actually be a $1B loan for 30 days.
    The Fed. Res. is a secretive private corporation and I certainly don’t understand all their workings.
    Most commercial banks buy Treasuries because they can’t find good loans to invest in, and they fund it with deposits, not borrowings from the Fed.

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  107. 107
    David Losh says:

    RE: Pegasus @ 105

    The point is ten year ago it would take 20,000 people to blow through $500 million.

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  108. 108
    David Losh says:

    Let’s try this again.

    Does any one remember the first fully robotics auto making plant in Japan? Wasn’t that replacing hundreds of workers with just one? We also have the egineers, and software development, a whole new set of industries were born, but the net loss in jobs was in the thousands.

    Our economy is far past manufacturing because we can make more money by just playing with numbers. We can borrow at .05%, and lend at .25% all day long. It takes very few workers to do that.

    So this idea of comparing economies of the 1980s to today is ridiculous.

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  109. 109
    pfft says:

    By Scotsman @ 83:

    RE: pfft @ 81 Are you really that consistently two dimensional in your thinking? Would asking for a 3 variable analysis be too much?

    remember when your “variables” predicting that economic collapse we were supposed to have nearly a year ago? I do. you’re been disastrously wrong so be humble my friend.

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  110. 110
    pfft says:

    By Pegasus @ 5:

    By David Losh @ 104:
    I’m surprised no one pointed out that the United States of 2011 is much different than Japan of the 1980s. We had a technology revolution since then.

    From 1993 to 2003 the internet, and software development changed all of the financial markets. It’s not just the amount of excess profits, cash, and reserves that were created, it’s also that complex financial engineering is also creating more profits.

    What One Eye Man has pointed out is something that is now possible, globally, from a set of computers, and probably a hundred jobs to make billions of dollars.

    I was surprised today when researching an article about Solyndra that it only took a thousand people to run that company. It’s a half a billion dollar company run by a thousand people. Tell me that was at all possible a decade ago.

    No one has challenged me, or disputed, that there is more than enough maney, cash, and cash reserves in the gloabl economy. It’s just a matter of distributing goods, and services. All of that is also possible with the use of computers, but it would take some cooperation.

    Your kidding, right David? Solyndra? An Obama half billion fiasco. Yes it only took 1000 employees in five years to destroy a billion dollars. Next idea? Thats a million bucks per employee and many of the 1000 workers were there for only two years!

    newsflash, companies will go bankrupt. it does happen. you can’t get away from risk. it’s only 2% of the loans made.

    can we also stop the stupid practice of dividing the amount of money by the number of emoployees?

    1. it’s a dumb way of calculating since their are buildings, equipment, research, skilled employees and etc.

    2. it’s probably not very different than the private sector

    3. solyndra raised $1 billion from the private sector

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  111. 111
    pfft says:

    By Jonness @ 86:

    By pfft @ 80:

    you fell into the classic trap. the government is not a household. period.

    And that’s why we are $14 trillion in debt, and nobody on earth has been able to propose a realistic plan of how we are going to get out of debt. If we were a household, we could simply default and get food stamps in order to feed our children. But as a government, nobody will give us free food after we go bankrupt.

    1. we aren’t going to keep spending. we are spending with a specific purpose. we are caught in a liquidity trap. our goal is to spend our way out of it. the current output gap is $900 billion so the president’s plan is actually conservative.

    We just spent $4 trillion+ (debt was less than $10 trillion when this mess began), and we are right back where we started and screaming for more. When does it end?

    2. we can easily pay back the money. interest rates are at DECADES LOWS! Interest payments as a percentage of GDP is at levels not seen in 3 decades.

    So what happens when the bond vigilantes show up like they have in Greece, and the 2 year yield goes up to 50% (I.E. 400 times the current yield of 0.125)?

    3. a couple hundred feet into the future is the perspective we need right now. we need jobs now. not in a year or after the election. we need jobs now.

    Unfortunately, that’s all the further Krugman is capable of seeing. This is the same perspective that got us into this mess in the first place because the politicians got wind of it and implemented it with fervor. It’s called “kick the can down the road,” and we all know the unfortunate outcome.

    why hasn’t already happened then? it’s because we’re in a liquidity trap. the normal rules don’t apply. if you read krugman you’d know that. it’s basic economics.

    anything you propose will make the situation worse. how is austerity working in spain, greece, portugal and Britain? not very good. here it saved millions of jobs.

    the deficit is about $1.3 trillion this year. do you think we’d be in a better position if we cut that much next year? of course not.

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  112. 112
    pfft says:

    By Jonness @ 88:

    RE: Jonness @ – BTW, we don’t need jobs now. We needed them back when Obama was spending 99% of his time trying to ram through an expensive health care bill that is currently stifling hiring by small businesses do to the uncertainty it has created. We just spent $4 trillion dollars we don’t have to spend and witnessed endless pumping by the Fed. I hate to burst your and Krugman’s bubbles, but the key to fixing the economy is seeing further than 200 feet down the road.

    uh, the health bill will save money. it won’t cost money.

    “we don’t need jobs now”

    yes we do.

    “that is currently stifling hiring by small businesses do to the uncertainty it has created.”

    did eric cantor tell you that? that’s a republican talking about. business aren’t hiring because THEY DON”T HAVE ANY BUSINESS. surveys even say that. if that was the case existing workers would see added working hours and they aren’t. if you read your krugman you would know that unemployment recovers slowly after financial crisises because of deleveraging.

    “We just spent $4 trillion dollars we don’t have to spend and witnessed endless pumping by the Fed.”

    we didn’t spend $4 trillion dollars.

    “I hate to burst your and Krugman’s bubbles, but the key to fixing the economy is seeing further than 200 feet down the road.”

    really? we have really high unemployment right now and it will be that way for awhile but we should wait? it’s like someone is in the hospital with a broken arm and the doctor won’t fix it because the person is out of shape and fixing the arm is just a short-term solution. I guess they should just wait until the person is in shape until the arm is fixed?

    my god.

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  113. 113
    pfft says:

    By Jonness @ 90:

    By pfft @ 81:
    note. if the market is driving greece interest rates sky-high and that is taken as a signal that greece is doing something wrong record low interest rates in the US must be signaling MORE deficit spending. right

    Wrong! The bond market is pricing in a Japan-like outcome for the U.S. or worse. It’s also pricing in a potential worldwide financial crisis resulting from way to much leverage and debt in the private, banking, and public sectors.

    So all of this debt is the reason why we are having the crisis, and supposedly increasing the rate of borrowing is going to get us out? Genius, I tell you. Pure genius. But with that mentality, I’d hate to see how much equity you pulled out of your house during the bubble runup. It must be quite painful these days. Wouldn’t it have made a whole lot more sense just to have paid it off while you had the chance?

    the US is not experiencing a problem. europe is. europe is not suffering a debt problem. it’s suffering a problem specific to the euro. the euro means massive deflation in some countries that mean we spin into an austerity spiral.

    “I’d hate to see how much equity you pulled out of your house during the bubble runup.”

    again a household and a government are two different things.

    “So all of this debt is the reason why we are having the crisis, and supposedly increasing the rate of borrowing is going to get us out? Genius, I tell you. Pure genius.”

    no. a lot of europe didn’t have a lot of debt. Ireland and Greece were running budget surpluses. it’s the deflation demand because of the euro that is causing the crisis.

    increasing the rate of borrowing in a liquidity trap actually lowers the amount of debt you take on. this is basic economics.

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  114. 114
    pfft says:

    By Hugh Dominic @ 94:

    By 2kt @ 91:
    RE: Jonness @ 88

    Small business hiring or lack thereof has nothing to do with uncertainty caused by healthcare bill. Small business hires when it sees demand for its services rising.

    Honestly it is really hard to tell real demand from government distortion right now. I can’t make smart bets in this environment.

    ah right now the government as a whole is subtracting from GDP. it’s not interferring. government is slashing jobs and the stimulus money ended a year or so ago.

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  115. 115
    Pegasus says:

    RE: pfft @ 110 – The administration knew they would run out of money by now when they made the loan two years ago. That does not sound like a smart investment, it sounds like a boondoggle to pay back supporters. Now the supporter is back in front of the taxpayers in getting any assets in liquidation. Its just another crooked deal for the elite. You are just too stupid to understand.

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  116. 116
    pfft says:

    By Hugh Dominic @ 96:

    By Ira Sacharoff @ 92:
    RE: Jonness @ 90
    I don’t think increasing government spending right now would be such a huge mistake. The huger mistake was the way government spending got out of control while things were good economically. Maybe I think backwards, but it occurs to me that a lot more prudence could have been used by both parties when unemployment was low, when home prices were high. That’s when they should have been reducing spending, because they didn’t need to spend. They spent so much because times were good and politicians and voters never look around the corner. They think the good times are here to stay and they never are. Had they acted prudently over the last 20 years and squirreled money away, increasing spending now wouldn’t even be an issue. During Republican administrations, spending increased dramatically, and very few were calling for restraint. Now, when what we really ought to be doing is rebuilding our crumbling infrastructure, Obama is bending over backwards to show that he’s not a liberal, he’s stressing how important it is to reduce the budget, as if he’s just found religion. It’s the full of crap versus the gutless.

    A good but entirely moot point. Republicans are horrible. Both parties want restraint when they are not in power and spending when they are. Result: always spending. It’s sickening. Vote Libertarian, or for anything but coke & pepsi.

    both clinton and carter saw debt as a percentage of GDP go down. it’s the republicans that spend like crazy and cut taxes at the same time. 3/4 of our current debt is due to republicans presidents.

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  117. 117
    pfft says:

    By One Eyed Man @ 1:

    RE: Hugh Dominic @ 97

    We’re in year 2.5 of the Fed’s 5 yr plan to manipulate the financial system so the banks can earn their way out of the financial/housing bubble losses.

    ah also the economy sucks. I’m sure they are only doing it for the banks though. I mean if all the banks went bust the economy probably wouldn’t even notice! like during the great depression!

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  118. 118
    pfft says:

    By Pegasus @ 15:

    RE: pfft @ 110 – The administration knew they would run out of money by now when they made the loan two years ago. That does not sound like a smart investment, it sounds like a boondoggle to pay back supporters. Now the supporter is back in front of the taxpayers in getting any assets in liquidation. Its just another crooked deal for the elite. You are just too stupid to understand.

    so how much did the elite make if you know so much? look, the price of silicon collapsed and they bet on the price of it staying high. bankruptcy is the result.

    how many tens of billions did bush waste in Iraq on contractors and money that just disappeared?

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  119. 119
    Pegasus says:

    RE: pfft @ 118 – So you are blaming Bush for Obama’s fiasco? Small wonder.

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  120. 120
    David Losh says:

    RE: Pegasus @ 115

    I agree, and that was the point of my article. Solyndra, and it’s customers, could have easily floated this enterprise from beginning to end. They didn’t want to. They wanted some one else to pay for the technology.

    The fact is though that the technology now exists, and can be viewed as main stream. I’ll call it a boon doggle only because it was a gift given to huge corporate interests at the tax payers expense.

    In my opinion, if we are going to move forward from here, the tax payers should be making loans to smaller companies so that they can compete.

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  121. 121
    pfft says:

    By David Losh @ 108:

    Our economy is far past manufacturing because we can make more money by just playing with numbers.

    we are the largest manufacturer in the world. our exports are back to record highs.

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  122. 122
    pfft says:

    By Pegasus @ 19:

    RE: pfft @ 118 – So you are blaming Bush for Obama’s fiasco? Small wonder.

    it’s not a fiasco and the bush admin was just about to make the solyndra loan when it was put through review again. the bush admin would have made the same mistake.

    this isn’t going to be the last solar bankruptcy. the price of panels is lowering and the business is booming. 98% of the loans are good.

    a lot of this is just political. bush wasted a lot more money in Iraq. those stories got one maybe two days in the press. usually it was one of those 15 second “updates” masquerading as news.

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  123. 123
    pfft says:

    By David Losh @ 20:

    RE: Pegasus @ 115

    I agree, and that was the point of my article. Solyndra, and it’s customers, could have easily floated this enterprise from beginning to end. They didn’t want to. They wanted some one else to pay for the technology

    huh? the company bet that it could manufacture panels more cheaply. it’s business model failed when the price of silicon fell.

    The second fatal error Solyndra made, according to Cinnamon, was that Solyndra could make up for the cost of producing more expensive solar panels by achieving savings in installation. Solyndra touted its flat panels as being easier to install and rotate.

    Solyndra Bankruptcy Wasn’t China’s Fault, Rival Solar CEO Says
    http://idealab.talkingpointsmemo.com/2011/09/solyndra-bankruptcy-wasnt-chinas-fault-rival-solar-ceo-says.php

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  124. 124
    Macro Investor says:

    By David Losh @ 120:

    RE: Pegasus @ 115
    In my opinion, if we are going to move forward from here, the tax payers should be making loans to smaller companies so that they can compete.

    You are describing socialism. I would argue society should provide a living for the truly disabled. But in a free society, why should anyone be forced to give handouts to able-bodied adults? If a small business has a good enough idea, investment money will literally pour in by folks who want a piece of the action. The fact that they need a gov handout is a laugh — it means they either are mismanaged or don’t have a decent product.

    Forget solyndra. It probably never made sense to even start that. Most alt energy technology only makes sense when oil is expensive, and stays expensive long term.

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  125. 125
    pfft says:

    By Macro Investor @ 124:

    By David Losh @ 120:
    RE: Pegasus @ 115
    In my opinion, if we are going to move forward from here, the tax payers should be making loans to smaller companies so that they can compete.

    You are describing socialism. I would argue society should provide a living for the truly disabled. But in a free society, why should anyone be forced to give handouts to able-bodied adults? If a small business has a good enough idea, investment money will literally pour in by folks who want a piece of the action. The fact that they need a gov handout is a laugh — it means they either are mismanaged or don’t have a decent product.

    Forget solyndra. It probably never made sense to even start that. Most alt energy technology only makes sense when oil is expensive, and stays expensive long term.

    please show your work for all your claims. like this:

    ” It probably never made sense to even start that. Most alt energy technology only makes sense when oil is expensive, and stays expensive long term.”

    keep in mind that solar is competing with heavily subsidized industries like nuclear and oil. they also get to pollute and in general pass on externalities that make their bottom line look a lot better.

    There are many reasons for the federal government to play a role in this part of the market, ways in which the market historically fails to adequately invest in potential technological advances. They come under the rubric of negative externalities—barriers that block market forces from delivering what we need, including barriers to entry, expansion, coordination, and innovation that no single, private firm can solve on its own.

    http://jaredbernsteinblog.com/solyndra-risk-and-risk-aversion/

    companies are going to fail. we used to have dozens of car companies and most of them went broke or were bought up. the private sector invest $1 billion in Solyndra. They had a good model as long as polysilicon prices stayed high. they didn’t. we’d just be talking about
    another company that need low polysilicon prices to stay afloat that went bankrupt.

    the future is difficult to predict. business go under especially in relatively new and fast-growing industries like solar.

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  126. 126
    David Losh says:

    RE: pfft @ 121

    40% of our economy is in financial services.

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  127. 127
    David Losh says:

    RE: pfft @ 23

    it was the drop in the price of oil that lowered any and all profit projections. the company would still be running deficits that would continue to be funded by loans.

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  128. 128
    David Losh says:

    RE: pfft @ 25RE: Macro Investor @ 24

    It’s not socialism when we have already subsidized huge segments of the economy by corporate welfare.

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  129. 129
    Jonness says:

    By 2kt @ 91:

    RE: Jonness @ 88

    Small business hiring or lack thereof has nothing to do with uncertainty caused by healthcare bill. Small business hires when it sees demand for its services rising.

    BS. The current lack of small business hiring is multi-factorial. Yes, it has a lot to do with lack of demand, but it’s also due to the current climate of political uncertainty present in Washington. The health care bill is an extension of this uncertainty. Businesses need to know what their costs are going to be prior to making a decision to hire. When you add the immense economic uncertainty that faces this economy to the uncertainty that Washington has created with it’s current fiscal wars to the uncertainty of future health care costs, you get a drag on hiring.

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  130. 130
    Jonness says:

    By Ira Sacharoff @ 92:

    RE: Jonness @ 90
    Maybe I think backwards, but it occurs to me that a lot more prudence could have been used by both parties when unemployment was low, when home prices were high. That’s when they should have been reducing spending, because they didn’t need to spend. They spent so much because times were good and politicians and voters never look around the corner. They think the good times are here to stay and they never are. Had they acted prudently over the last 20 years and squirreled money away, increasing spending now wouldn’t even be an issue.

    That is extraordinarily backwards thinking compared to the way 99% of everybody else thinks these days. However, I agree with it 100%.

    These days, we have all of these newly indoctrinated Keynesians who simply parrot the latest political propaganda of “spend, spend, spend.” They never stop to wonder how it all fits together. Yet, Keyne’s emphasized a counter-cyclical approach to the business cycle. He believed you should cut back spending and raise taxes during the good times and borrow money and lower taxes during the bad.

    Now-a-days, we have all of these fake Keynesians who advocated borrowing, spending like crazy, and lowering taxes during the good times. And now, they have simply seized on an opportunity to keep borrowing and frivolously spending like crazy without so much as a worry about where it is leading us. They are like heroin junkies fixated on getting their next fix, and they know they need money to get it and don’t care whose life they wipe out to get it.

    In the few short years since this mess began, we increased our national debt by 40%. And people are screaming for more money. But Keynes never advocated spending money in the manner it was spent. According to him, it is best spent in a manner where it will continue to turn over in the economy and aid the growth of long-term potential output. Yet, in the recent round of brainwashing and debt binging, we just pissed $4 trillion away in the wind. And it all came in the name of Keynes.

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  131. 131
    Jonness says:

    By pfft @ 111:

    why hasn’t already happened then? it’s because we’re in a liquidity trap. the normal rules don’t apply. if you read krugman you’d know that. it’s basic economics.

    If you want to know about liquidity traps, go back a few years when you were raving about the stock market shooting up and ranting on about how the stimulus had saved us. Go back a few months to your calls for a bottom in the housing market and how Krugman, Obama, and Bernanke had saved us. Then remember how so many of us called you out on that BS and warned you about the U.S. being in a liquidity trap and how it would all come crashing down when the sugar ran out. How could we have possibly known? Japan had already told us this story.

    Now you ask, “why hasn’t it happened yet?” Once again, look to Japan. They tried everything you are claiming is going to save us, and after 20 years, it hasn’t worked, unless you consider working being a massive national debt.

    anything you propose will make the situation worse. how is austerity working in spain, greece, portugal and Britain? not very good. here it saved millions of jobs.

    You really don’t get it do you. There is nothing that will work. Your short-term sugar high has not worked. It’s simply put a country that was $10 trillion in debt $14 trillion in debt and counting.

    Even if you and I were to figure out the perfect plan, Washington would screw it up. So the best thing you and I can do is sit back, observe the madness, and learn how to profit from the political mistakes being made along the way. Really, do you have a more realistic plan in mind?

    the deficit is about $1.3 trillion this year. do you think we’d be in a better position if we cut that much next year? of course not.

    Once again, you take the position of the heroin addict coming off a binge. “I ate my cake yesterday, and now I want to eat it again and again and again. Just let me eat cake forever.”

    Just what in the heck do you consider to be “better off?” Becoming a country of infinite slow growth so that our children can grow up and have nothing but a mountain of debt and pain? You are like the little kid who has been asked to go cut a switch and come back and get his spanking. You are so afraid of pain, that you put off the spanking hour after endless hour. As you are still searching for a switch, you hear your brothers and sisters bellowing in pain as they take their just deserve. When you finally walk into the house with a flimsy looking little stick that will break in two and not allow a real spanking, your parents have become so angry with you that they beat you 4x as hard as the other kids, who by then are feeling wonderful and simply point their fingers at you and laugh at your misfortune?

    So, do you think I believe the economy would increase in GDP if we didn’t borrow 40% of everything we spend? Of course not. That’s the whole point. Man up and take your spanking. Learn from it, and don’t repeat the same mistakes. If you want to be a Keynesian, great! But practice his entire philosophy, not just the part that allows you to endlessly eat cake until the country blows up and faces a Greece-like default.

    Now if you want to know if I believe the country would be better off if we started living within our means, the answer is yes. It would cause a horrible economic reset, but this generation of economic idiots would learn a lesson, and we could eventually get on to being the greatest economy in the world.

    Guys like you have become like spoiled rotten little kids that want everything but don’t want to be disciplined when they make a mistake. “Give us more sugar mommy!” As you become endlessly distracted eating your sugar and searching for ever more, we get our economic rear ends handed to us, and Rome burns to the ground.

    Instead of whining for more sugar, go out and talk to the old people who lived through the Great Depression and learned ever after to live within their means. Go learn something about the real world we live in instead of just endlessly citing how Krugman wants to give you more cake to eat, and you want to eat it really bad because it’s German chocolate.

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  132. 132

    […] Source:  Seattle Bubble        […]

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  133. 133

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