700 Billion divided by.....

[bokworker]

quote:Originally posted by Neptune

Fighting deflation in housing with purposeful inflation sounds an awful lot like what the Wiemar Republic did.  Sounds dangerous, though the makers of wheelbarrows should be happy.



This lady is fueling a furnace with cold hard cash.  It burns longer than the amount of wood it can buy.

Neptune.... spot on. We currently have a situation where the range of outcomes is VERY wide. If the Fed/Treasury don't do enough we have the risk of a massive deflationary spiral. YT is correct that we need to reduce the "excesses" of leverage but I fear that a "little" deflation is very hard to properly manage. On the flip side, the more money the Fed/Treasury continue to throw at this problem the less that money is worth. We find ourselves in this situation because of the amount of debt we have outstanding. Both personal and public. As we all know, or should, debt magnifies retunrs if you make good decisions yet severely punishes bad decisions.

In my mind, the Fed/Treasury need to come out and state with confidence that they feel they have done enough. It will take some time for the benefits of all of the monetary and fiscal stimulus to work but it WILL work. The markets can be extremely emotional and they can move much faster than the economy and the responses to the stimulus already in place. Hence, the risk that I see now is that the Fed/Treasury/Congress may do too much (as an aside, did I read that Pelosi is now calling for an additonal $165 billion stimulus package and that she may call a special session to get it done??). Overaction carries many of the systemic risks that underaction carries. It is time to step back, take a deep breathe, and let time pass before we assure ourselves that we have effectivly jumped out of the frying pan and directly into the fire....

[iplaw]

BOK:

I was speaking with a CFP friend the other day and he agreed with you that these measures will work EVENTUALLY...i.e., within 3 to 5 years that most of these investment houses will post record profits because they've been allowed to write down this bad debt.

Unfortunately, as with all crises, we will probably forget the lessons we're learning now.  If we are learning lessons at all...I'm afraid we're too busy finger pointing rather than everyone accepting their share of the blame and promising to reform their bad behavior, and that goes for the guy on the street all the way up to the guy in oval office.

[bokworker]

iplaw... agreed. Hence my statement earlier in this thread that we are looking at an extended period of time with a lower standard of living. The responsibility, both personal and public, of repaying our existing debt down to more manageable, and prudent, levels requires a reduction in current spending. This will result in fewer retail sales, less eating out, even smaller Christmas'. Many retail stores and restaraunts are going to close... more banks are going to fail and yet, this is the price that has to be paid. Our biggest risk as a society is if we have a mass rejection of our responsibility to repay the obligations we have. Even if you are upside down in your house it does not mean you don't have that responsibility. If we continue to play the victim card we will assure ourselves that we are all the victim. If we continue to blame others instead of looking in the mirror and deciding what we as indivuduals are going to do then we are surely looking at the end of our system as we know it....

[Conan71]

quote:Originally posted by iplaw

BOK:

I was speaking with a CFP friend the other day and he agreed with you that these measures will work EVENTUALLY...i.e., within 3 to 5 years that most of these investment houses will post record profits because they've been allowed to write down this bad debt.

Unfortunately, as with all crises, we will probably forget the lessons we're learning now.  If we are learning lessons at all...I'm afraid we're too busy finger pointing rather than everyone accepting their share of the blame and promising to reform their bad behavior, and that goes for the guy on the street all the way up to the guy in oval office.

If history is a good teacher, it's taught us we've learned nothing from our mistakes of the past. []

[iplaw]

I couldn't agree more.  What is going to irritate me to no end is when the ripple effects like store closings, restaurant closings begin.  I'm afraid people won't see it as a positive thing and the blame game will begin again.  

Yes.  It will be painful, but it IS necessary if we are to learn to behave ourselves fiscally.  We can't have it both ways, unlimited spending proping up every business and personal excess while simultaneously reigning in spending and reforming our love of debt.

We need to get back to believing that the borrower is slave to the lender, both nationally and personally.

I though Dave Ramsey was spot on the other day when asked about the current crisis and what these two candidates economic plans will do to our economy.  He said that the country is like a patient laying in a bed with pneumonia and the proposals these two idiots are putting forth would be like a doctor suggesting that we cure the patient by giving him a brain tumor and hemroids...

[YoungTulsan]

Maybe we will learn, maybe we wont.

All manipulation of the Fed and government aside, there is a very basic doctrine of economics we should go back to.  When times are tough, you are supposed to cut back on excesses.  Tough it out and only spend what money is necessary.  Save, not borrow.

Bush's basic message whenever times got tough, was the opposite.  He wanted us to do our patriotic duty and spend, borrow, and consume.  When we only engage in economically justifiable consumerism, it strengthens the economy.  When we do it beyond our means, it sets the nation as a whole backwards.  The parts of the economy he was being protective of with his "go out and spend money" speeches, tax rebate checks, economic stimulus checks, bailouts, and record deficit spending were in large parts the ones that were probably in excess of our means as a result of the unlimited ability to create new money.  That's where Bush was wrong.

We would still be the strongest economy on the planet if we only bought what we needed.  There needs to be some value restored in saving money.  A fundamental change in how we value sustainability over debt creation would also solve many of the problems we argue about here on the Tulsanow Forums.  It is reckless monetary policy that makes teardowns and poorly constructed big-boxes seem like a good idea to the movers and shakers today.

[iplaw]

quote:Bush's basic message whenever times got tough, was the opposite. He wanted us to do our patriotic duty and spend, borrow, and consume. When we only engage in economically justifiable consumerism, it strengthens the economy. When we do it beyond our means, it sets the nation as a whole backwards. The parts of the economy he was being protective of with his "go out and spend money" speeches, tax rebate checks, economic stimulus checks, bailouts, and record deficit spending were in large parts the ones that were probably in excess of our means as a result of the unlimited ability to create new money. That's where Bush was wrong.

I agree totally, but you do realize that that is what Obama means by a "tax cut" for the middle class.  It's essentially another worthless stimulus check doled out to people who don't pay income taxes in the first place in hopes that they will spend that money on gasoline, goods, etc.

[Neptune]

It is true to say that we're seeing record revenues out of the Federal tax system right now.  With average inflation, that should almost always be true.  With hyperinflation, we could see numbers out of the Federal tax system that are beyond all imagination.  The dollar won't be worth much, but there will be plenty floating around, for what it's worth.

Everyone contributes to the tax system in their own way.  I'm not sure that raising rates on the bottom 80% of the population is particularly helpful.  It might be.  It depends on what type of economy we want.

The gov't is trying to prevent or at least slow a cascade of "cash-flow" related collapses.  Since most of the companies rely on revenues from the bottom 80%, raising rates there may be counter-productive.  

On the other hand, it depends on what type of economy we want.  Raising rates on the lower 80% would likely have a serious effect on basic consumption.  Yes businesses would likely collapse, yes jobs would likely be lost, yes it would likely contribute to inflation, and yes it opens the door for more gov't intervention.  The aftermath of these types of hikes are a little unknown.  Not really sure what it would look like, but our economy would be something completely different then.

When billions are cut out of the tax system sending us into debt, the effect is inflationary, and looks very similar to a flat tax hike.  In essence, the taxes of the bottom 80% have already been raised.  They're certainly paying more, it just takes an indirect path getting to the IRS.

[iplaw]

Wow.  It's almost as if you believe that those effects on the middle class trickle down, or possibly "out."  By taxing the middle class, businesses suffer from reduced revenue because people don't spend as much.  On the other hand, by taxing businesses, employment figures and the middle class suffer because an employer is more likely to cut a job or reduce salaries/benefits to cover the difference.  Doesn't sound like increasing taxes benefits anyone...other than the government.

That's why I think that the activities of the Federal government should be as minimal as possible.  The more we can do for ourselves with our own money the better.

I can balance my own budget.  Can the government?

[Neptune]

There is no known relationship between taxing the wealthy and job losses.  We have had plenty of jobs under much higher taxes than are currently being charged.  Conversely, we've had huge job losses during times where less has been charged.  Our last two recessions were during periods where the wealthy gained from massive tax cuts, and when our country was taking massive debt.

There is, however, a relationship between taxing the wealthy and inflating the stock market.  Very few believe that the previous years market gains were based in technically sound stock.

[iplaw]

quote:There is no known relationship between taxing the wealthy and job losses.

Nonsense.  You raise taxes on small business owners, many of whom would be considered "wealthy" under the Obama plan, and they will have no alternative other than to cut positions or reduce salaries and benefits.  

Furthermore, increases in capital gains taxes ALWAYS fosters less participation in the market.

quote:We have had plenty of jobs under much higher taxes than are currently being charged.

Do you have anything to back this up?  We have had record low unemployment for the last several years in concert with lower taxes.

[Neptune]

http://www.bls.gov/cps/cpsaat1.pdf

Unemployment rates

1951 3.3
1952 3.0 - Lowest rate under Truman
1953 2.9 - Lowest rate under Eisenhower
1955 4.4
1956 4.1
1957 4.3
1965 4.5
1966 3.8
1967 3.8
1968 3.6 - Lowest rate under LBJ
1969 3.5 - Lowest rate under Nixon
1998 4.5
1999 4.2
2000 4.0 - Lowest rate under Clinton.
2006 4.6 - Lowest rate under Bush.
2007 4.6

Every single one of our "record low" unemployment rates, have been under significantly higher tax rates.  Also notable, the only time our unemployment rates went over 9% were in 1982 and 1983, under lower tax rates.

Currently, the 2008 unemployment rate is being tracked at about 6.1 by BLS.
http://www.bls.gov/news.release/pdf/empsit.pdf

There is no known correlation between tax cuts for the wealthy, and employment gains.

[iplaw]

I think you're reaching too far and drawing conclusions that are unwarranted.  There are far more cogs in the wheel than we're discussing.

BTW, I found a great quote from the last messiah of the democratic party vis-a-vis raising taxes and generating revenue.

Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits... In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now. -- J.F.K.

Man, I miss Democrats like that.

[Breadburner]

Put kids to work...And start taxing them mega churches.....

[Jonette]

I remember back in 1993 my husband and I were trying to buy our first house.

The bank said we qualified for $50,000.00.(I know that doesn't sound like much,but it was a lot to us at that time.) We knew we could not afford the payment on that amount. We really tried to get them to understand that we didn't want to spend that much, but they pressured us the whole way. We were determined to stay under $25,000.00. They said we were crazy. We knew if we bought as much house as they wanted us to, then we would be house poor. We did not want to be that close each month with our money.

We did find a house for $22,500.00 and bought it. We really got the feeling that there were people at the bank and at the realtors office that were angry at us, you shoulda been there, it was not a nice environment. We felt so much pressure to buy something larger, but we did not buckle.

I really think that there are so many people that fell for the crap that the banks "pre-approve" people for, large ammounts and they just kept telling them everything was going to be alright.It was a lie, but the banks and people getting commissions didn't care.

About 3 years ago my sister and her husband were trying to refinance their house. When they intitially applied they were approved for and accepted a fixed rate loan at 5.75%. The finance company tried everything they could to get them to go for a variable rate loan with a 3 year balloon payment. The mortgage guy said "no problem, after 3 years, you refinance, it's so easy, everyone does it" Even to the point that the day they were to close on the new loan, they tried to slip a variable rate loan in on them at the last minute, my brother-in-law stood up and slammed his fist on the table and told the mortgage guy that he had told him several times that he was not going to fall for the variable crap and they better get the deal fixed or they were walking out!

If they would have taken the variable rate loan with the balloon payment, then they would be stuck right now. But he stood his ground and walked out that day with the loan he wanted and saved hiw own butt from the nightmare so many Americans are facing today.


The banks are being bailed out for bad decisions they made on their own. If I make bad financial decisions no-one bails me out!!

I have to suck it up and deal with it on my own.



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