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Author Topic: Stimulus Musings  (Read 1469 times)

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Offline AviTopic starter

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Stimulus Musings
« on: February 26, 2009, 06:32:18 PM »
Alright, I know that this is pretty much all that the pundits, politicians, and talking heads on the networks have been talking about for about the last month or so, and I'm probably just beating a dead horse here. Regardless, I figured that I should put my thoughts out on paper for people on both sides to know. I have friends who are for both sides, Democrat and Republican, and many who are neutral, who don't identify with either party or who simply try to stay out of political debates.

However, my general opinion on the stimulus bill is this... shut up. Seriously. Both sides are making claims that simply aren't true, either exaggerating flaws or exaggerating projected results. Neither side is completely wrong or completely right, though they have the right to hold their own opinions, and that is what makes the American political system what it is today. However, exaggerating facts and manipulating data is irresponsible, and damaging to the American people.

Factcheck.org, probably one of the best fact-checking sites on the web, recently did a pair of articles about exaggerations from both sides and the realities that they are concealing, or at least overlooking. I highly recommend that you read them before leaving a comment here.

Stimulus Bill Bravado:
http://www.factcheck.org/politics/stimulus_bill_bravado.html

GOP Stimulus Myths:
http://www.factcheck.org/politics/gop_stimulus_myths.html

The one thing that both sides can agree on, though, is that Obama is at least trying. He may not be doing it exactly the way that you think he should, but it's a heck of a lot more than most politicians have been doing lately with all the bickering, name-calling, and finger-pointing. The stimulus bill is not going to be a silver bullet for the economy, but it's not going to be kryptonite either. Whether you agree or disagree with how Obama is trying to fix the problem, at least give the guy the benefit of the doubt. Only time will tell how well the stimulus will work. Until then, people should quit with the dire predictions of economic meltdown or quit singing the praises of the bill, claiming that it's going to save the country. It's getting really irritating.

That is all.

/End rant. Feel free to leave comments, though please, be civil. No name-calling, cursing, or otherwise berating others. Be lucid, polite, and considerate, unlike Limbaugh, Olbermann, O'Reilly, and Matthews. Thank you.

Offline OldSchoolGamer

Re: Stimulus Musings
« Reply #1 on: February 26, 2009, 07:05:50 PM »
The problem I have with the stimulus package is that it approaches the current situation from the flawed perspective that the economic "crash" is in fact a "problem" that must be "solved" so that we can "recover" and return to a "normal" economy.

The economic crash is not a problem.  Indeed, it is much like the "crash" a meth addict gets when he comes off a high.  It is the return to normal conditions.  Pulling $20,000 every two or three years out of your home is not "normal."  Having your home appreciate 10% a year is not normal.  Spending 10-20% more than you produce every year is not normal.  Using natural resources tens to thousands of times faster than nature replenishes them is not normal. 

The current economic "crash" is merely normalcy re-asserting itself.  We're forced to live in a real economy again, not some half-fantasy casino where wizards in suits magically pull hundreds of billions of dollars out of their asses and shuffle them around to produce a "New Economy." 

I saw a TV interview with businessmen who acted indignant and amazed that they could no longer get more loans to restock their shelves and meet payroll.  The very idea of using credit to do these things would have been unthinkable two decades ago.  Back then, businesses actually were expected to have real cash on hand, not just an aMEX card or a sixth or seventh line of credit somewhere.

We don't need a stimulus.  We need to accept reality: the "growth" of much of the last couple decades was in fact largely illusory and unsustainable.  The human standard of living is largely a function of energy available per capita, and that actually peaked in the early Seventies.  It's not an accident that the American standard of living also peaked around that time.

If we want to return to real growth, we need to unlock the secrets of thermonuclear fusion as an energy source, and return to space exploration in earnest.

Offline The Overlord

Re: Stimulus Musings
« Reply #2 on: February 26, 2009, 07:21:29 PM »
My biggest issue with the Republican rebuttal is really, what do they suggest we do instead?

I watched their take on Obama's speech the other night. OK, so they think throwing more money into the system to fix it is a mistake, OK, what then? We sit back and do nothing and hope it gets better?

What I am seeing from the economic experts here is that Obama's solution isn't going to spike the economy back up; it too fracked up for that. What he's organizing is a controlled fall, instead of a freefall.

But the GOP held the highest office in the land for the past two terms, and for most of it they held a majority in the house and senate. Under that 'leadership' we went from a national surplus to the worst deficit in our history.

Why then would I give a crap about the GOP rebuttal? They were given the keys to Uncle Sam's Corvette and they drove it into a wall and totaled it...do they expect an apology to be enough?

Offline The Overlord

Re: Stimulus Musings
« Reply #3 on: February 26, 2009, 07:25:23 PM »


The current economic "crash" is merely normalcy re-asserting itself.  We're forced to live in a real economy again, not some half-fantasy casino where wizards in suits magically pull hundreds of billions of dollars out of their asses and shuffle them around to produce a "New Economy." 


We don't need a stimulus.  We need to accept reality: the "growth" of much of the last couple decades was in fact largely illusory and unsustainable.  The human standard of living is largely a function of energy available per capita, and that actually peaked in the early Seventies.  It's not an accident that the American standard of living also peaked around that time.


Without actually coming out and saying this directly, I think that's the general area some of them (the financial experts) are aiming at. But they're trying to find a way to quietly take some of Billy's excess toys away without forcing him into too much of a tantrum.

Offline Nessy

Re: Stimulus Musings
« Reply #4 on: February 28, 2009, 05:37:18 PM »

I saw a TV interview with businessmen who acted indignant and amazed that they could no longer get more loans to restock their shelves and meet payroll.  The very idea of using credit to do these things would have been unthinkable two decades ago.  Back then, businesses actually were expected to have real cash on hand, not just an aMEX card or a sixth or seventh line of credit somewhere.

First, rarely do people who have jobs and/or are in school think things need to be fixed.

Second, this is completely inaccurate. Cash Flow and Profits are not the same thing. You can have a cash flow problem and still be profitable. Business 101. Credit helps with the cash flow problems, and if viable businesses don't have access to credit, that's a problem. It's also not new. Ever hear of the SBA (Created 1953), they've been giving out loans for years. Some of the largest corporations today were given access to these loans in their ealry years. It's not like a business starts a international corporation. And this doesn't even address the problems businesses are facing in non-contracting sectors of the economy getting loans. This idea that all businesses should be debt free... is a general misunderstanding of the power of debt. You can sell every product you manufacture, assuming that is your business, at an expected profit and still go down if you don't handle your cashflow issues. This because most businesses don't pay up-front. They might have a 60-90 day window to pay you for your services, products, whatever, and not surprisingly, employees don't get paid every 90 days.

I 100% agree that credit was too readily used and easily accessed worldwide for a number of years, but the reverse is not a cure and the days of cash upfront is over. Thank god for that.  Maybe the 50s have rosy memories for some people, but it's pretty easy to to have those memories when nations ignore entire minority populations, the female gender and are completely inward focused.

Offline SakiaWarner

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Re: Stimulus Musings
« Reply #5 on: March 09, 2009, 12:13:24 PM »
I run a small business.

We have NO lines of credit anywhere. NONE!

I pay for what I can afford, when a client orders something, I pay for it in cash with my cash on hand.

When I need equipment, I buy it when I have money. I do advertising when I have the money for it.

You do not need credit to run a successful business. You need supply and demand.

true, our business has little overhead in the actual service I perform but my equipment costs more than some used cars... so yeah.. its hard but we do it.

The idea of only spending what you have was lost somewhere in the 70s.. we're getting it back now, but only after thousands are going to be jobless/homeless or both

Offline RubySlippers

Re: Stimulus Musings
« Reply #6 on: March 09, 2009, 04:36:36 PM »
My three problems with this:

1. Obama skipped the traditional committee processes and rushed this to Congress with little debate and proper input from the public in each area affected at the proper Congressional committee. And this is the biggest spending bill ever put out there it deserved longer and more detailed input.

2. Bailing out big business I'm sorry for that but Capitolism demands these go into banruptsy and then perhaps reorganization. I would for AIG transfer all good debts and insurance holding to other companies and let them fall as for banks transfer good debts to community and regional banks, savings & loans and others that are sound shore them up if needed and let the big banks fold. Same with car companies let them enter the system and let a Federal Judge restructure them and alter contracts.

3. Did anyone ever think this could be done without money or much less? Take mortgages why not offer special term 60 year fixed-rate notes that have to be held for at least ten years. That would lower the monthly payments and later if the people get on their feet then can always refinance. That would cost not one Federal dollar. There are other measures I'm sure that could be done as well.

Frankly I would let the dummies get hurt, shore up the good businesses and homeowners a bit with simple changes and would have let the system readjust. It would hurt now, hurt for awhile but the economic system would eventually recover.

Offline Apple of Eris

Re: Stimulus Musings
« Reply #7 on: March 09, 2009, 04:44:27 PM »
Most manufacturing firms need credit to survive. The short term credit pays for labor and supplies until their products sell and the recieve income which in turn pays off their debit and provides profit.

Do all businesses need credit? No. Is there sectors of the economy that rely on it in their business cycle? Yes.

To assume all business models are alike is foolish.

And letting these big banks/business fail would probably send the US into something akin to the great depression in the 30s. The govt failed to act then and the economy melted down pretty horribly. If 9 or 10% unemployment is causing panic imagine a return to the days of 25-30% unemployment.

I think the govt is doing the right thing, keeping the major banks/lenders operatig to try and offer stability in an unstable economy. The thing that needs to be done next is offer a consistent, clear message to calm down consumers. RIght now the economic climate is one of fear, if we can return to one of optimism, then spending (albeit within more responsible means) resumes and the economy will recover faster.

Offline Apple of Eris

Re: Stimulus Musings
« Reply #8 on: March 09, 2009, 05:32:55 PM »
I found this article arguing china should help bail out the west interesting:
http://www.good.is/?p=15709&gt1=48001

Offline RubySlippers

Re: Stimulus Musings
« Reply #9 on: March 09, 2009, 06:15:17 PM »
Most manufacturing firms need credit to survive. The short term credit pays for labor and supplies until their products sell and the recieve income which in turn pays off their debit and provides profit.

Do all businesses need credit? No. Is there sectors of the economy that rely on it in their business cycle? Yes.

To assume all business models are alike is foolish.

And letting these big banks/business fail would probably send the US into something akin to the great depression in the 30s. The govt failed to act then and the economy melted down pretty horribly. If 9 or 10% unemployment is causing panic imagine a return to the days of 25-30% unemployment.

I think the govt is doing the right thing, keeping the major banks/lenders operatig to try and offer stability in an unstable economy. The thing that needs to be done next is offer a consistent, clear message to calm down consumers. RIght now the economic climate is one of fear, if we can return to one of optimism, then spending (albeit within more responsible means) resumes and the economy will recover faster.

Going into failure doesn't mean the end Federal judges can reorganize and adjust contracts odds are if supported AIG cold break up leaving a core business that is leaner and meaner.

And I think the economy may shift to a needs based economy that is producing goods mainly as they are needed, want will be less of a factor. And businesses could go to a cash based model again they oddly could do that up to the middle 20th century and survive if we talk small to mid-sized companies.

It may not be all bad people will just have to rethink how they live and the economy will contract to meet those new models.

Offline Nessy

Re: Stimulus Musings
« Reply #10 on: March 09, 2009, 07:55:13 PM »
The failure of AIG would be the failure of pension funds across the world. AIG is knee deep in insurance products, some of which were compeltely unregulated, ithe scope of which is beyond comprehension. Credit default swaps (CDS) are a new financial tool a lot of people are unaware of. AIG isn't being supported for fun, they are being supported because they have to be. Some people here seem think a USA size Iceland problem would be a lot of fun, I don't.

Offline RubySlippers

Re: Stimulus Musings
« Reply #11 on: March 10, 2009, 06:51:32 AM »
This AIG concern is global then why is just the US propping them up I would cover US held insurance and move that to other more sound smaller companies, then tell the other nations with AIG interests to cover their end.

As for the credit swaps almost everyone I think knew about them and they were poor business holdings, I tend to agree the government should have banned them years ago. In fact the state of New York did right after these helped cause the 1938 Crash and the Federal Government in some sneaky few lines of legislation on a vital bill removed state bans. So one could make a case the US government should help rescue those parties harmed by this since they failed miserably to do their job, to regulate business fraud, but pooring good money to save a company that should and I say must fail to be an example to other companies is another matter.

I would prrefer to call this a controlled fall plan I have transfer assets in the US that are sound, let other nations do the same in their nations then let them go off and die. The economy will recover eventually it will take longer and may hurt more but the businesses might finally get it the government will not bail them out if they screw up they are going to fall, their competitors get their good assets and if they will be regulated properly I hope in the future.

I never believe any company is too big to fail, and that the government should have intervened early to prevent this or at least demand full disclosure of risks. This goes with the legal mortgage packages to if the government states these were unprotected and unstable investments but legal do you think overseas interests and domestic people would have bought them?

Offline Nessy

Re: Stimulus Musings
« Reply #12 on: March 10, 2009, 02:00:45 PM »
This AIG concern is global then why is just the US propping them up I would cover US held insurance and move that to other more sound smaller companies, then tell the other nations with AIG interests to cover their end.

As for the credit swaps almost everyone I think knew about them and they were poor business holdings, I tend to agree the government should have banned them years ago. In fact the state of New York did right after these helped cause the 1938 Crash and the Federal Government in some sneaky few lines of legislation on a vital bill removed state bans. So one could make a case the US government should help rescue those parties harmed by this since they failed miserably to do their job, to regulate business fraud, but pooring good money to save a company that should and I say must fail to be an example to other companies is another matter.

I would prrefer to call this a controlled fall plan I have transfer assets in the US that are sound, let other nations do the same in their nations then let them go off and die. The economy will recover eventually it will take longer and may hurt more but the businesses might finally get it the government will not bail them out if they screw up they are going to fall, their competitors get their good assets and if they will be regulated properly I hope in the future.

I never believe any company is too big to fail, and that the government should have intervened early to prevent this or at least demand full disclosure of risks. This goes with the legal mortgage packages to if the government states these were unprotected and unstable investments but legal do you think overseas interests and domestic people would have bought them?

I am afraid you are mistaking one financial tool with another. Credit DEFAULT swaps were created in the 90s. They are unregulated because there was a fear that if we regulated, they would be traded offshore which means they would be unrequlated anyway and USA businesses would be left out of the action. Most assuredly, there will be regulation in the future. I am not sure how familiar you are with the Fed, or the Central Banks, of other countries, but they don't report to the masses or answer to the government for their actions. Centrals Banks across the world are propping up financial institutions to make sure that when you go to the ATM and use your bank card, there is actually money there for you to get.  There is a fundamental misunderstanding in the general populace about the depth and expansive nature of the financial markets, and that is largely at fault of the government by not doing more to educate people.

AIG is insolvent. AIG is the largest private insurer in the united states and there reach goes well beyond our boarders. We, the USA taxpayers, owns almost 40% of Citigroup. CitiGroup is well on its way to becoming a nationalize bank.  This isn't some moment for people who dislike the government to start clapping their hands and saying this is what I wanted to happen, let them fall. This is serious business. And that is without even touching the mortgage crisis.

There are several situations causing this economic turmoil, and they are not all linked together but they are happening at roughly the same time and having cascading effects.

Oh and since these tools were created in the 90s, they had nothing to do with anything in 1938. Not all recessions or even depressions are alike.
« Last Edit: March 10, 2009, 02:03:57 PM by Nessy »

Offline RubySlippers

Re: Stimulus Musings
« Reply #13 on: March 10, 2009, 02:18:43 PM »
Credit DEFAULT swaps were created in the 90s.

I agree after checking but the US could have just banned these monstrosities for any US held company or party, here or overseas. Libertairan or not the regulation of business to prevent fraud is a necessary government fuction if they simply said this is insurance and must meet all insurance regulations it would have been fine if the risks were fully disclosed. The same with mortagage packages they are legal but the quality of the packages were fraudulantly rated and sold without full disclosure of the contents and the crazy mathematical models necessary for them to earn a profit. The US government again had every duty to say they were junk investments, legal, but highly risky.

I never said let them fall transfer asset to responsible regional and community banks, responsible insurance companies then let the rest fall in a controlled way under a Federal judges care. All we are doing is reqarding stupidity and telling these fools if you take big risks you will have the taxpaers bailing you out. I want them to get themessage you do this you will go to prison, lose your company and these others who were respectable will benefit at your expense.

And must I add I have little sympathy for other countries their banks should have dug into these investments and made informed choices. My view is as aninvestor myself if I don't understand how this investment earns me money I won't invest in it. Its common sense if they were foolish its not my responsibility.

I don't understand the problem the governments and citizens will have to rethink our lives, simplify and maybe switch to a needs based economy. Where production is there to meet the needs of another a common model in the period before the 1950's. If a company made say ,clothes, it was to clothe people. If a company made cars they made enough to meet demand, not more. Think of the WW2 war economy its odd people could do without frills then in the US and the UK it lasted years after the war I would think a downshift would at this point be necessary. Maybe we can push for a part-time hour workweek as standard supported by practical reforms and government policy now to say small homes and less - things not necessary.


Offline Nessy

Re: Stimulus Musings
« Reply #14 on: March 10, 2009, 03:30:49 PM »
So despite the fact there was a fundamental flaw in what you think was happening with AIG, and even after finding out the truth, your logic doesnt' change at all? See I think the problem with people looking at the financial problems from the outside is they investigate with a preset opinion that will not be changed by something as annoying as facts. It doesn't matter if it was AIG who did it, or some bank in China, everyone was involved in the trading of these things and everyone would have been involved if they were created somewhere else. There is always someone who says "yeah, guess we should have regulated those" after the fact.

As for pre-WWII generally people who have that kind of nostalgia are white, because frankly if you were not white before WWII the government and its resources pretty much ignored you and opportunities were pretty limited.

I am sure during the Savings and Loan Crisis, people were saying the same thing. Let's return to a simpler time. I can't believe regulators didn't catch this. This is a sign of our overproducing downfall. Those kind of arguments aren't even original, and as you can see, production led to creation of things like this, message boards on the internet. The mistake people make, and will always make, is that we have somehow evolved to the point where we can't make mistakes anymore. That never happens.

Mistakes were made, several of them and the results of those mistakes happened to hit about the same time thus we have a strong economic problem. Having a strong economic problem does not erase the progess we have made since WWII, doesn't erase the techonologies created since then, some of which are linked to military spending believe it or not, doesn't erase the increase of diversity in academia and the workplace, doesn't even erase the remarkable effeciencies we have achieved. Some form of social injustice has always existed and going back in time doesn't fix anything. Going forward smarter can.

As for stockholders in AIG and Citigroup and mortgage companies that played fast and loose, I'd like to see their value wiped out as the return should pretty much be 0 at this point, and I would like to see management replaced. They made the calls and the calls were bad.

Offline OldSchoolGamer

Re: Stimulus Musings
« Reply #15 on: March 10, 2009, 07:01:07 PM »
Almost all the banks are insolvent.  Most people don't realize that derivatives undergird most large financial institutions...approximately $440 trillion in derivatives.

If the true value of derivatives has declined even 10%, we're looking at a $44 trilllion hole in bank ledgers.  And 10% is probably way too low of an estimate, since the derivatives likely never even had the value they were claimed to have when they were foisted onto the banks.  No, we're probably looking at a $60 to $80 trillion hole, at least.  It's unstoppable. 

The banks need to be allowed to fail.  They WILL fail, whether we like it or not.  We need to focus on containing the damage, not trying to piss into the wind and stop the inevitable.

Offline Nessy

Re: Stimulus Musings
« Reply #16 on: March 11, 2009, 12:23:11 AM »
You're not making a difference between cash flow insolvency and balance statement insolvency. They're not the same. For instance, there was no reason that WAMU had to fail. That was a modern day bankrun by people who are ignorant about how the FDIC works. In fact, that is a case where the FDIC stepped in and brokered a deal to cover most the depositors in WAMU (not the stockholders).
When a company suddenly has to change the way they account something, such as "take a hit" on investments in a particular month or quarter, that doesn't mean the company is suddenly worse off than they were yesterday, it means that they had to account for, in this case, a loss differently.

None of the banks have the cash onhand to cover all their deposits, they never have and aren't supposed to, that's why there's credit available. So I am assuming when you say banks will fail, you are not accounting for the fact that most the time the FDIC steps in to broker the seling of the banks deposits and assets to another bank and therefore a bank fails but depositors aren't going to notice the difference. I am also making the assumption you are not lumping Citigroup with WellsFargo, Credit Unions, and small local banks because none of the four mentioned have the same issues as the others do. Most credit unions weren't involved with what we are talking about and the one's in trouble would be in troubled area, such as Fort Meyers Florida maybe, same with local small banks. Wellsfargo's situation is completely different than Citigroups and different from BofA for that matter.

It's just unwise to lump all financial institutions together and then make a blanket statement that suggests they will or have to fail. People said the same thing during the Savings and Loan crisis and guess what not all of them did.

Offline RubySlippers

Re: Stimulus Musings
« Reply #17 on: March 11, 2009, 03:33:59 PM »
My logic isn't flawed its simple and fundamental. The system cannot be sustained and it is likely shifting to a needs based economy and really has to. For example if the automakers made say 1/3 the cars and workers worked part-time to build them at their standard wages, the automakers would not be in this fix. Its basic supply and demand and costs of doing business nothing more. The same for expensive luxuries people don't really need but bought, houses far larger than they need to live in and appointed far over what a human needs to live in. Banks commited fraud and why the authorities are not taking every employee in each state that foisted these mortgages on people knowing they couldn't pay and were lying on applications should be in prisons. And big companies allowed to fail under a Federal judge and reasonable measures to transfer good assets to responsible companies, here and if necessary abroad. All of this is common sense you reward good behavior and give these institutions that are sound benefits and let the others that deserve to fail do so.

As for cash flow its odd mu uncle runs a rather robust small business and pays cash for everything never tapping his line of credit, most businesses could shift tot he same model only paying what they can afford or if on credit on the value of their assets. I'm of the mind a creditor is a master to the debtor, and that is just a bad model to base an economy on. But if you have creditlines it should be on the value of assets and only say a third of that in credit, not in making up questionable models to enrich themselves or give over that limit.

And another thing where in the US did electronic money come from nowhere in the Constitution is the government allowed to do more than "coin money" even classic letters of credit of the period were private and backed by real coin somewhere. A local bank for example holding the issuer of the credit up to $100 on his account which were on hand. What is wrong with that as a model to use. It may mean an end of the consumer culture but maybe it should end, for all this progress if its not broken don't fix it seems to be a rather practical approach.

As for credit unions and smaller banks that should be how business is done, a local bank giving fixed rate mortagages with 20% cash down for a note and that bank holding it or clearly transfering it legally to one other party. Its good banking and there were government programs for first time home buyers and veternas that altered this a bit but they still had to have good credit and a job.  :o

I never lumped these together sound institutions with government support could have the good assets and then let the rest fall, what matters its a banking institution structure that can be trusted remains standing. Most community, savings & loans and well run regional banks fit that.

Offline Nessy

Re: Stimulus Musings
« Reply #18 on: March 11, 2009, 04:04:14 PM »
We learned as a race that the concept of money never needed to be limited to some material, gold, silver or copper or even paper money, a long, long time ago. As soon as we learned that, the fight between trying to export as much as we can and import as little became less an issue than innovation and the creation of new markets.

As for your uncles business. Let him run the business the way he wants to. Not all businesses need credit but some do, and I am not going to fault a business for that or limit the concept based on one business i have personal experience with.

Credit is not the enemy here, and, without a doubt, quality of life has increased over the years, not decreased. And when I saw increased, I don't mean with a starting point when xyz was in school, I mean in the long-run. I know there are a number of students on this board and a fair amount of them are using federal loans that have nothing to do with what assets they have or what assets even their parents have that are backed by the garauntee of the US government. You take away unsecured credit and you take away their ability to go to school, and an unedcuated workforce is not a cure for economic trouble.

Again, credit is not the enemy, unsecured debt is not the enemy, expanding beyond the limitation of gold resources is not the enemy (don't even get me started as to why people think gold is so valuable in the first place when its not even a rare element).

As for banks failing, you aren't the only one posting in the topic and that was actually addressed at someone else's topic.