What Now Seems Unwise Could Be Rationalized Then
Readers suggested a topic on policy responses to recessions. “It seems to be an article of faith amongst many that if we had just ‘let it all fall’, then we’d be done with this economic crisis, or at least a lot further along, with less money spent, and moving on in a better direction. I’m curious what they base this on, since GD1 was essentially ‘allowed to happen’ at first, and it became a cascading worldwide crisis that seemed to never have an end until we had a devastating world war. I assume people will say the New Deal caused the crisis to continue, but how, specifically, which programs, and why?”
“In short, why would it be ‘different this time’? Because the last time we ‘let it all fall’ it turned into an unimaginable disaster.”
A reply, “That premise might have to be drilled into a bit. Leveraged high rollers got taken to the cleaners, and farmers in the midwest got busted by a weather event. I don’t think any of my family called it an unimaginable disaster. Half of them farmers and half steel mill workers. The horrors of WWI/WWII, that they called unimaginable. 25% unemployment, we’ve had that for six years now if taken by the same measure.”
“The problem I see with how we have responded so far to the economic problem, is that we have not made any progress at correcting the causes. If too much credit was a primary cause, we are only encouraging more credit. If banking rules was a primary cause, we have not reformed the banking rules. If globalization was a major cause, we are still pushing the globalization thing. If legislative capture by big money was a cause, we are further along down that path.”
“No one should wish for catastrophic crash, but continuing along the paths away from sustainability is going to make the payback only worse.”
One said, “The problem here is too much debt in the hands of too few people. The solution is to inflate the currency (more available dollars to pay the debt) and get that debt spread around across more people. I’m also not blind to the fact that with currency that has no backing value (gold), there’s no real ‘debt crisis’ possible on a national level. We can print as much as we want/need to pay off debts. The only question is how much pain will that cause the country/world and, right now, the answer is ‘more than letting the debt default.’”
A reply, “Well…. not really. When you hear some loon yammer ‘they’re printing money!’ the follow up question should always be, what are they doing with it??? What if they were stockpiling it in Fort Knox? Would there be any inflation? Not really. Inflation requires the $$$ get in the hands of people to spend and that’s not happening. Granted, it is clear the fed is targeting various commodities in order to support prices (housing and oil), presumably to continue chasing the fantasy of ‘jump starting the economy’. It might have worked if their media machine were able to convince the public to become debt junkies again but I don’t see the public buying into that lie again.”
“And always remember, when the Fed’s media machine invokes the word ‘confidence,’ they’re talking about the public ignoring risk and jumping on the debt train to hell.”
And I say, “The only ‘article of faith’ I see is the faulty recall of what happened in the 20’s and 30’s. Start from an imaginary point and recreate history to support a political policy. But all this talk about ‘what would have happened if we let it fail’ is just a set up to excuse the current economic disaster, and the sh*t-storm that’s coming. Because we went down the Keynesian road on this one, just like we did in the Great Depression. The United States and 14 other countries, at the same time. And we know who to blame for where we are and what’s to come.”
From Mises.org. “It has today been completely forgotten, even among economists, that the Misesian explanation and analysis of the depression gained great headway precisely during the Great Depression of the 1930s — the very depression that is always held up to advocates of the free-market economy as the greatest single and catastrophic failure of laissez-faire capitalism. It was no such thing. Nineteen twenty-nine was made inevitable by the vast bank credit expansion throughout the Western world during the 1920s: a policy deliberately adopted by the Western governments, and most importantly by the Federal Reserve System in the United States.”
“It was made possible by the failure of the Western world to return to a genuine gold standard after World War I, and thus allowing more room for inflationary policies by government. Everyone now thinks of President Coolidge as a believer in laissez-faire and an unhampered market economy; he was not, and tragically, nowhere less so than in the field of money and credit. Unfortunately, the sins and errors of the Coolidge intervention were laid to the door of a nonexistent free-market economy.”
“If Coolidge made 1929 inevitable, it was President Hoover who prolonged and deepened the depression, transforming it from a typically sharp but swiftly disappearing depression into a lingering and near-fatal malady, a malady ‘cured’ only by the holocaust of World War II. Hoover, not Franklin Roosevelt, was the founder of the policy of the ‘New Deal’: essentially the massive use of the State to do exactly what Misesian theory would most warn against — to prop up wage rates above their free-market levels, prop up prices, inflate credit, and lend money to shaky business positions. Roosevelt only advanced, to a greater degree, what Hoover had pioneered. The result for the first time in American history, was a nearly perpetual depression and nearly permanent mass unemployment. The Coolidge crisis had become the unprecedentedly prolonged Hoover-Roosevelt depression.”
“Ludwig von Mises had predicted the depression during the heyday of the great boom of the 1920s — a time, just like today, when economists and politicians, armed with a ‘new economics’ of perpetual inflation, and with new ‘tools’ provided by the Federal Reserve System, proclaimed a perpetual ‘New Era’ of permanent prosperity guaranteed by our wise economic doctors in Washington.”
The Wilson Quarterly. “The great economic and financial crisis that began in 2007 has stimulated an outpouring of books, articles, and studies that describe what happened. What it hasn’t done is explain why all this happened.”
“People were conditioned by a quarter-century of good economic times to believe that we had moved into a new era of reliable economic growth. Homeowners, investors, bankers, and economists all suspended disbelief. Their heady assumptions fostered a get-rich-quick climate in which wishful thinking, exploitation, and illegality flourished. People took shortcuts and thought they would get away with them.”
“The most obvious explanation of why so many people did not see what was coming is that they’d lived through several decades of good economic times that made them optimistic. Prolonged prosperity seemed to signal that the economic world had become less risky. Of course, there were interruptions to prosperity. Indeed, for much of this period, Americans groused about the economy’s shortcomings. Incomes weren’t rising fast enough; there was too much inequality; unemployment was a shade too high. These were common complaints. Prosperity didn’t seem exceptional. It seemed flawed and imperfect.”
“That’s the point. Beneath the grumbling, people of all walks were coming to take a basic stability and state of well-being for granted. Though business cycles endured, the expectation was that recessions would be infrequent and mild. When large crises loomed, governments—mainly through their central banks, such as the Federal Reserve—seemed capable of preventing calamities. Economists generally concurred that the economy had entered a new era of relative calm. A whole generation of portfolio managers, investors, and financial strategists had profited from decades of exceptional returns on stocks and bonds. But what people didn’t realize then—and still don’t—is that almost all these favorable trends flowed in one way or another from the suppression of high inflation.”
“From 1981 to 1999, interest rates on 10-year Treasury bonds fell from almost 14 percent to less than six percent. Lower rates boosted stocks, which became more attractive compared with bonds or money market funds. Greater economic stability helped by making future profits more certain. Lower interest rates increased housing prices by enabling buyers to pay more for homes.”
“Millions of Americans grew richer. From 1980 to 2000, households’ mutual funds and stocks rose in value from $1.1 trillion to $10.9 trillion. The 10-fold increase outpaced that of median income, which roughly doubled during the same period, reaching $42,000. Over the same years, households’ real estate wealth jumped from $2.9 trillion to $12.2 trillion. Feeling richer and less vulnerable to recessions, Americans borrowed more (often against their higher home values). This borrowing helped fuel a consumption boom that sustained economic expansion. Disinflation had, it seemed, triggered a virtuous circle of steady economic and wealth growth.”
“Finally, government economic management seemed more skillful. The gravest threats to stability never materialized. Faith in the Fed grew; Greenspan was dubbed the ‘maestro.’ Well, if the real economy and financial markets were more stable and the government more adept, then once risky private behaviors would be perceived as less hazardous. People could assume larger debts, because their job and repayment prospects were better and their personal wealth was steadily increasing. Lenders could liberalize credit standards, because borrowers were more reliable. Investors could adopt riskier strategies, because markets were less frenetic. In particular, they could add ‘leverage’—i.e., borrow more—which, on any given trade, might enhance profits.”
“Bear Stearns, Lehman Brothers, and other financial institutions became heavily dependent on short-term loans (In effect, firms had $30 of loans for every $1 of shareholder capital.) Economists and government regulators became complacent and permissive. Optimism became self-fulfilling and self-reinforcing. Americans didn’t think they were behaving foolishly because so many people were doing the same thing.”
“What now seems unwise could be rationalized then. Although households borrowed more, their wealth expanded so rapidly that their net worth—the difference between what they owned and what they owed—increased. Their financial positions looked stronger. From 1982 to 2004, households’ net worth jumped from $11 trillion to $53 trillion. Ascending home prices justified easier credit standards, because if (heaven forbid) borrowers defaulted, loans could be recouped from higher home values. Because the rating agencies adopted similarly favorable price assumptions, their models concluded that the risks of mortgage-backed securities were low.”
“No less a figure than Greenspan himself dismissed the possibility of a nationwide housing collapse. People who sold a house usually had to buy another. They had to live somewhere. That process would sustain demand. ‘While local economies may experience significant speculative price imbalances,’ he said in 2004, ‘a national severe price distortion seems most unlikely.’”
“The great delusion of the boom was that we mistook the one-time benefits of disinflation for a permanent advance in the art of economic stabilization. We did so because it fulfilled our political wish. Ironically, the impulse to improve economic performance degraded economic performance.”
“That premise might have to be drilled into a bit. Leveraged high rollers got taken to the cleaners, and farmers in the midwest got busted by a weather event. I don’t think any of my family called it an unimaginable disaster.”
My family weathered GD1 just fine out in the Midwest farm country. I guess they must not have mortgaged themselves to the hilt. And my maternal grandfather managed to snap up enough stocks during the 1930s at fire sale prices to provide for my grandma’s long life until age 97; she outlived him by forty years!
Are you anticipating fire sale prices in the future?
I really have no clue about whether housing and stock prices can be propped up forever or not.
But if indefinite price support truly is possible, I have to wonder why the Fed allowed both the stock market and the housing market to crash during the 2008 episode. Did they temporarily abdicate their duty to support prices?
“I really have no clue about whether housing and stock prices can be propped up forever or not.”
You just don’t know how free markets function. Relax, listen to the music, take this blue pill and lay back down in your pod.
Are you anticipating fire sale prices in the future?
I often think the let-it-all-fall philosophy is based on little else.
I always thought the let it all fall meme reflected the need to get back to basic principles and organic growth vs the present government/Fed manipulated markets. People are getting older while the detritus is not being cleared and the risk takers are still at the helm. We personally will not be taking on any additional risk until the clearing happens. After the last 3 years I fear we may be dead before that happens. I guess I’d better my tutor my children how to spot opportunity when it finally returns.
There was a very brief opportunity to buy houses at decent prices in some of the hardest hit markets, but that window quickly passed as massive numbers of speculators converged to drive prices back to stupid levels.
Yep. Nothing like a new wave of residential real estate investors with buckets of money and boxes of stupid to screw up the nascent trend towards affordable housing prices.
And my maternal grandfather managed to snap up enough stocks during the 1930s at fire sale prices to provide for my grandma’s long life until age 97; she outlived him by forty years!
Same story with my great-grandfather, PB. Those were years when one with an income and a long view could do might well. My great-grandmother was very well taken care of.
Too bad there appear to be no similar opportunities to be had here during GD-II.
My grandfather was an “English professor” and debate coach at a private religious high school in the Midwest. He kept his stock buying activities during GD1 secret from his community, as financial speculation was viewed as “gambling” back then in the wake of the Great Crash of 1929. Apparently society has come a long way, as everyone is either a real estate or stock market investor nowadays.
Sadly, I never knew my grandpa, as he passed away before I was born. But he must have been quite a colorful character. Among other interesting perspectives, he claimed WPA stood for “We Piddle Around,” and he thought the OASDI Act of 1935 was a big mistake. One of his former students became an economics professor at a prominent West Coast university.
My family weathered GD1 just fine out in the Midwest farm country.
Hmm. Anyone in your family involved in World War 2? Because that was a result of the no-big-deal Great Depression. 60 million people died- but hey, as long as your family had an apple tree and a milk cow, I guess it was no biggie.
PB, your grandparents were like my great grandparents. Mine on my dad’s side had a big midwest farm during the GD. They were millionaires until GD 1 though. My dad told me all about the hobos who in those days were anything but evil. They would help on the farm for a day in exchange for food.
your grandparents were like my great grandparents. Mine on my dad’s side had a big midwest farm
GD1 was destructive enough, even though half the country had a ‘family farm’ they could return to and at least produce their own food.
Not really a similar situation today.
My 92-year-old mother and 66-year-old sister insist in staying on their 2+ acres in the hills north of San Diego.
My sister maintains that in case of national emergency, rioting, etc., they could be self-sustained and grow their own food.
Problem is, the only thing currently planted are some fruit trees.
How long does it take to starve?
All they need is a shotgun. There is plenty of game around San Diego County for the taking.
Do some canning of the fruit to preserve it and trade canned fruit for other food. Also be well-armed.
canning of the fruit to preserve it and trade canned fruit for other food. Also be well-armed.
Sounds like fun! Much better than paying the thugernment 25% of your (tax-payer funded) income.
I see a lot of hobos today who don’t seem too threatening, especially when you give them a buck.
“Hoover, not Franklin Roosevelt, was the founder of the policy of the ‘New Deal’: essentially the massive use of the State to do exactly what Misesian theory would most warn against — to prop up wage rates above their free-market levels, prop up prices, inflate credit, and lend money to shaky business positions. Roosevelt only advanced, to a greater degree, what Hoover had pioneered.”
And this time is different because…?
Roosevelt only advanced, to a greater degree, what Hoover had pioneered.”
In this article we see two of the Austrian School’s grand dodges:
The first is historical revisionism- Hoover and Coolidge become welfare-state socialists. Who cares if no historian to the left of Archie Bunker thinks this is so? It’s true, by golly!
The second is essentially the No True Scotsman strawman. When faced with evidence that their theory is wrong (we had two massive, long-lasting, non-self-correcting, depressions during our free market hayday) they simply say ‘well, they weren’t truly free markets. It was in some way not perfect’.
Of course, there will never be a perfect free market, so this is a great continuing excuse.
Who cares if no historian to the left of Archie Bunker thinks this is so?
I realize I’ve slandered Archie Bunker. Even he agrees with me! Remember the great opening song?
Those were the days…
Didn’t need no Welfare states
Everybody pulled his weight
gee our old LaSalle ran great
Those were the days
And you knew who you were then
Girls were girls and men were men
Mister, we could use a man like Herbert Hoover again
People seemd to be content
$50 payed the rent
Freaks were in a circus tent
Those were the days…
So when these policies you promote (not that you thought of them, but because you adore any sentiment that worships the government and makes it grow) prove to be another colossal failure, what will you say? I suspect you’ll parrot the Krugman line; ‘we didn’t print enough money…it’s the rich people… we need space aliens!’
Get your excuses ready, cuz it’s already here:
‘Three and a half years after the worst recession since the Great Depression, the earnings and employment gap between those in the under-35 population and their parents and grandparents threatens to unravel the American dream of each generation doing better than the last. The nation’s younger workers have benefited least from an economic recovery that has been the most uneven in recent history.’
‘Only one-fifth of those who graduated college since 2006 expect greater success than their parents, a Rutgers survey found earlier this year. Little more than half were working full time. Just one in five said their job put them on a career path.’
‘The same housing crash that hammered young architects and loan officers also slammed lawyers. Law schools are turning out about 45,000 degree holders a year for about 25,000 full-time positions available to them, according to the National Association for Law Placement Inc. in Washington. The class of 2011 had the lowest placement with law firms, 49.5 percent, in 36 years.’
http://www.bloomberg.com/news/2012-12-21/american-dream-fades-for-generation-y-professionals.html
‘we didn’t print enough money…it’s the rich people… we need space aliens!’
Any failed policy can be defended by claiming ‘we didn’t do enough of it.’
Which is why I believe QE-to-infinity-and-beyond is doomed. There is no way they can claim an open-ended, unlimited policy failed because they didn’t do it enough.
Any failed policy can be defended by claiming ‘we didn’t do enough of it.’
Just as any example of the unregulated free market not working efficiently can be defended by saying it wasn’t a ‘perfectly’ unregulated free market.
“Any failed policy can be defended by claiming ‘we didn’t do enough of it.’”
Does that go for tax cuts on “producers” too?
What I see happening here and around the world is a breakdown of the borrow your way to prosperity model of the precceeding decades. Individuals and communities exceeded their natural credit limits. Governments are doing nothing to return us to a more sustainable model. They are trying to make a train wreck better by pushing on the back of the train, forcing the country to continue to consume more than it produces. Government is not behaving like a benign facilitator, it is acting like a huge parasitic goad.
It is not whether government could have navigated the country to a sustainable position, it is that they have done everything imaginable to drive us in the other direction. We are to believe that what we need is more government intervention by the very same ole boys?
forcing the country to continue to consume more than it produces
Isn’t that what the entire global economy is predicated upon? That unemployed first worlders consume goods made in third world sweat shops?
What I see happening here and around the world is a breakdown of the borrow your way to prosperity model of the precceeding decades. Individuals and communities exceeded their natural credit limits.
Exactly. We deregulated the financial system- just like Reagan et al told us to- and we reignited the old credit bubble and bust cycle that we continually had back in the ‘good’ old days of unregulated financial markets. (Just like those of us who opposed Reagan et al predicted.)
The problem with the old credit boom/bust cycle was that in the busts, many people and businesses who had nothing to do with the bubble were wiped out anyway. There was no escaping the collapsing credit bubble, as I believe Mises said. The rich (they always seem somehow to survive the bursting credit bubbles) would then step in snap up the bargains for pennies on the dollar. People got sick of this happening, and we began regulating the markets to lessen the cycle. Until the Reagan Revolution turned us in the other direction.
What the gov/Fed is doing now (in addition to bailing out the fatcats- which is deplorable but understandable given our ridiculous campaign finance system), is lessening the bust so fewer innocent people are wiped out. Alas, this means those of us who were ‘thinking like the rich’, and expecting to snap up some bargains, are probably out of luck. But given that the last time we had a major depression, we didn’t climb out of it until we had a world war, maybe it’s not such a bad break after all.
“The rich (they always seem somehow to survive the bursting credit bubbles) would then step in snap up the bargains for pennies on the dollar.”
For this reason, I’m happy the Fed has intervened to engineer a false bottom in housing prices. It’s definitely better to outsource further housing market investment losses than to have them hit home. I’m gonna split a gut laughing when the all-cash investors from China and Canada take a bath in the next leg down.
I don’t think that entering WWII got the US out of the depression per se.
“I don’t think that entering WWII got the US out of the depression per se.”
Just a Keynesian broken window economics myth…
I don’t think that entering WWII got the US out of the depression per se.
Well, everybody else does. What do you have to dispute it?
“I don’t think that entering WWII got the US out of the depression per se.”
But we picked-up a few countries at the colonialism auction.
“Well, everybody else does.”
The history of science has shown the consensus to be wrong so often that it hardly seems worth producing contrary evidence. I would think that a majority of the economics profession agreeing on something would be sufficient reason to suspect a group think error.
‘everybody else does. What do you have to dispute it’
Typical. No proof provided, but a demand that it be disputed. This is more Keynesian witch-doctorism. Wars are economic miracle cures (because the government borrows and spends a lot of money). The same ‘economists’ then tell us to dig ditches and fill them in to boost the economy. Any child can see this is nonsense.
What ended the Great Depression, then?
The history of science has shown the consensus to be wrong so often that it hardly seems worth producing contrary evidence.
That’s an amazing misunderstanding of scientific history, from one who often poses as a scientist/mathematician.
Contrarians are occasionally- not always, or as a rule- proven right.
“No proof provided, but a demand that it be disputed.”
One of the oddest things I have noticed about the economics profession is that if a majority of economists agree on something, they collectively pat themselves on the back and conclude they are right.
True story: Once I had an economics course where my professor and I got in a disagreement on a basic mathematics question. Let’s say that his grasp of linear algebra left a little to be desired.
Rather than working with me directly to clear up his misunderstanding, he held a faculty meeting to decide who was right. The faculty committee ruled in his favor.
Even though I was right, and could have produced a mathematical proof to demonstrate it, I saw no purpose in pushing my point any further once I was overruled by the committee.
‘What ended the Great Depression’
How could anyone say for certain? What ended the black plague?
I’m pretty sure that digging ditches and filling them in, or a phoney space alien war threat isn’t going to solve our current problems.
“No proof provided”
Every single encyclopedia will repeat what I said. The Great Depression ended at the advent of WW2, thanks to monstrously wasteful government spending on armaments. (Some will take their stimulus no other way.)
I thought it too tiresome to provide infinite links.
‘Every single encyclopedia will repeat what I said’
Well that solves it then doesn’t it. Two or three lines in Websters makes it a fact.
Two or three lines in Websters makes it a fact.
Until proven otherwise.
‘Until proven otherwise’
You haven’t ‘proven’ anything. Not one thing. You represent a bunk theory that is leading us to decades of misery. I hope you realize the economic pain we are in for because of what you support. And I’ll be here to remind everyone of what made this possible.
Too funny. No matter those who wish to control the masses buy up the news media. If it was in print, then it is settled. No need to think about it.
I wonder what people mean by the “end of the Great Depression”. Unemployment dropping beccause we were at war? GDP not dropping? Prosperity for the masses?
By some measures the GD ended in the 50s. I remember things were still very depression like in the 50s.
By some measures the GD ended in the 50s. I remember things were still very depression like in the 50s.
Sounds about right…
Does anyone believe that we’ll be done with this go-around in less than 20yrs?
“Contrarians are occasionally- not always, or as a rule- proven right.”
I believe this depends heavily on the discipline in question. I’ve been repeatedly amazed by how often a consensus of economists is flat-out wrong about something, and never notices.
As for what I am or pretend to be, I will let that remark slide, as you really have no idea. But I can tell you are an economist, because you constantly defend patently idiotic ideas.
“Does anyone believe that we’ll be done with this go-around in less than 20yrs?”
It depends; does ‘being done’ include papering over the problems with a blizzard of printing press money?
Unemployment went down because Uncle Sam shipped 10 million people out of the country to Europe and the Pacific.
Hmmm…that could work now.
Here is a great example of how a “scientific” consensus can be way off:
There was this ginormous bubble in the U.S. housing market over recent years, the start of which could be traced back to at least 1992 by some measures, such as housing starts. By the early-2000s, it was as obvious to the naked eye of anyone who had a clue as an approaching tornado would be to a Kansas farmer. But most amazingly, nearly the entire economics profession, from Federal Reserve Chairman Alan Greenspan down the chain to lowly assistant professors at second-rate universities, completely missed it.
How could the consensus view of an entire profession be so clueless to something happening right under their oversized proboscises?
. I remember things were still very depression like in the 50s.
Well, you need to call the encyclopedia writers and tell them they’re all wrong. You remember better!
nearly the entire economics profession, from Federal Reserve Chairman Alan Greenspan down the chain to lowly assistant professors at second-rate universities, completely missed it.
But a bunch of well-connected financial guys made big bucks shorting it, so I guess it wasn’t a secret known only to a tiny handful of freethinkers.
When Greenspan admitted to ‘a little froth’, was he not responding to someone who was saying we were in a bubble? There was plenty of debate about it at the time, don’t flatter yourself that you were one of the elite few who saw it coming.
And again, just because contrarians are right once in a while, doesn’t mean they are always right. That idea would be ‘patently idiotic’, as I hope you realize.
So when these policies you promote… prove to be another colossal failure, what will you say?
If we slip back into recession, I will repeat my point that monetarism (low interest rates coupled with strong support of the banking/financial system) is no long-term substitute for a secure middle class.
The fact that today’s kids are getting skrewed doesn’t disprove my point, it proves it. In a ‘free market’, our wages are set in third world sweatshops.
In a ‘free market’, our wages are set in third world sweatshops.
Only if you have no skills other than working in a sweat-shop.
Only if you have no skills other than working in a sweat-shop.
What skills are there that a Chindian is incapable of acquiring?
Indeed. I recall images of Indian “software engineers” working elbow to elbow in crowded sweatshops.
“…(low interest rates coupled with strong support of the banking/financial system) is no long-term substitute for a secure middle class.”
Sounds to me like a great recipe to enable banksters to bleed the middle class dry.
‘Japan’s next premier, Shinzo Abe, renewed pressure on the central bank to adopt a 2 percent inflation target, saying that he will try to revise a law guaranteeing its independence if his demand is not met. ‘At this month’s policy meeting, the BOJ said it would examine (setting an inflation target) at its next meeting’ in January, Abe said on television on Sunday. ‘If it doesn’t, we’ll revise the BOJ Law and set up a policy accord with the central bank to agree on an inflation target. We may also seek to have the BOJ held accountable for job growth.’
‘Abe has put the BOJ at the center of political debate, urging bolder monetary stimulus to beat deflation. He wants the BOJ to share with the government a binding 2 percent inflation target, double the central bank’s current goal, and ease policy “unlimitedly” to achieve it. There is no specific time frame.’
‘Under pressure, the central bank loosened policy on Thursday for the third time in four months by boosting asset purchases.’
‘Some central bank policymakers, notably the conservative Shirakawa, have been reluctant to set a 2 percent inflation target in a country which has been mired in grinding deflation for more than a decade.’
‘Countries around the world are printing more money to boost their export competitiveness. Japan must do so too” to keep the yen from rising, Abe said.’
“What skills are there that a Chindian is incapable of acquiring?”
A “BAD ASS” attitude?
http://www.everseradio.com/wp-content/uploads/2010/11/ba-baracus.jpg
I pity da fool!
Good Reading on Law School Scam
insidethelawschoolscam.blogspot.com/
Supply and demand hits the legal profession?
Good to see you again, RoyG.
“Millions of Americans grew richer. From 1980 to 2000, households’ mutual funds and stocks rose in value from $1.1 trillion to $10.9 trillion. The 10-fold increase outpaced that of median income, which roughly doubled during the same period, reaching $42,000.”
A very small percentage of people benefited from that massive run-up in stocks. Most people didn’t own stocks, a 401k, or an IRA.
Many 30-something engineers and 20-something engineers I knew in the late 80s working for the federal government at below the private sector salaries owned stocks and talked stocks during lunchtime or snack time gatherings back in those days. Where were you? All these were college-degreed people. I wish I got into stocks earlier than I did. I’d be in Alaska thumbing my nose at the thugernment and with enough financial arrangement to not show much of an AGI.
Alaska?
Biggest welfare state in the union.
Biggest welfare state in the union.
Welfare state?? Nah…
I would instead say “most socialist state in the union.” After all, they send out those oil revenue dividend checks like clockwork to EVERY citizen who qualifies! Talk about sharing the wealth…
All the teabillies up there brag about how THEIR state has cash left over to send to them. It’s surreal.
Anyone catch that show “Buying Alaska”?
Unreal how much money shacks with no indoor plumbing go for in the middle of now where Alaska.
Wilson Quarterly article = Long winded version of “nobody saw it coming”
All the housing bubble did was hide things that were well underway by 2001-2002……..outsourcing (first to non-union Southern States, then to Mexico, China, India, etc), stagnating/dropping real wages, the transformation from a manufacturing economy to a money-shuffling/”Want fries with that?” economy.
Whether this was accidental or on purpose, depends on how many tin-foil hats you have.
Wow. He utterly and totally missed the underlying driver behind the housing bubble - bad mortgage debt. Enabled by loan originators’ ability to sell debt and wash their hands of repayment risk.
Which is ultimately why you had the curious situation of lenders making loans they didn’t care about having repaid.
“…you had the curious situation of lenders making loans they didn’t care about having repaid.”
Still do, apparently.
American Banker
Sunday, December 23, 2012
Blackstone Bets on Failed Loans as FHA Bailout Looms
Hedge funds and private-equity firms are betting on delinquent home loans being sold by the Federal Housing Administration as the government agency accelerates debt sales to avert a bailout and stem foreclosures.
Investors including Lewis Ranieri’s Selene Investment Partners and One William Street Capital Management LP paid an average of 36 cents on the dollar in an FHA auction of 9,500 nonperforming loans, the Washington-based agency said this month. Bayview Financial LP, a firm backed by Blackstone Group LP, paid as little as 26 cents.
The FHA, which faces a projected $16.3 billion shortfall because of failing loans made during the housing crash, is preparing to sell more than 40,000 delinquent mortgages next year to fortify its insurance fund after disclosing it may need a Treasury Department subsidy for the first time in its 78-year history. The FHA doesn’t have the legal authority to use some workout tactics investors employ, such as principal forgiveness.
“We’re seeing between a 15 and 20 percent better recovery than we would if those same loans went all the way through to foreclosure, and that’s a pretty big change,” Carol Galante, acting commissioner of the FHA, said in a telephone interview. Private buyers “have more flexibility in how they can resolve this situation to be positive for the borrowers and for them financially.”
The FHA, a division of the U.S. Housing and Urban Development Department, had 734,290 seriously delinquent loans in its portfolio at the end of November, a default rate of 9.6 percent on the agency’s 7.62 million loans. That’s higher than the 7 percent serious-delinquency rate — those mortgages more than 90 days late or in foreclosure — for the 50 million U.S. home loans tracked by the Mortgage Bankers Association.
“The FHA could easily be the largest seller, if they sell 40,000″ mortgages, Louis Amaya, chief investment officer for National Asset Direct Inc., a nonperforming loan investment firm with offices in San Diego and Stamford, Connecticut.
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‘Hedge funds and private-equity firms are betting on delinquent home loans’
Check out the cheer-leading in this article:
‘In a world where virtually every major economy is being flooded with cheap liquidity, investment professionals can only muster one solution: don’t fight your central bank. The practical application of this philosophy means that investors should invest their money in markets where these central banks are most active -or markets that stand to benefit the most from massive monetary easing - rather than trying to reap returns elsewhere.’
‘The Federal Reserve is leading the charge with its unlimited bond buying targeted toward mortgage markets, its third iteration of quantitative easing in four years. Meanwhile, the European Central Bank, the Bank of England and the Bank of Japan are taking similar actions, all in an effort to re-inflate stagnant economies.’
“Respect what the Fed, ECB and BoJ are telling us,” Pimco CEO Mohammed El-Erian told CNBC this week. “They are all in, and they are going to be in there supporting asset valuations.”
‘In a normal world, stock and bond prices would not be rising in tandem. This being the new normal, however, both asset classes are being inflated by monetary policy -which means investors should go along for the ride, analysts say.’
OK, so does resemble what’s posted above:
‘Though business cycles endured, the expectation was that recessions would be infrequent and mild. When large crises loomed, governments—mainly through their central banks, such as the Federal Reserve—seemed capable of preventing calamities. Economists generally concurred that the economy had entered a new era of relative calm. A whole generation of portfolio managers, investors, and financial strategists had profited from decades of exceptional returns on stocks and bonds.’
‘Lower rates boosted stocks, which became more attractive compared with bonds or money market funds. Greater economic stability helped by making future profits more certain. Lower interest rates increased housing prices by enabling buyers to pay more for homes.’
The complacency surrounding this stuff amazes me:
‘In a world where virtually every major economy is being flooded with cheap liquidity’
Have we ever heard things like this said in history? And what is the potential downside of a world flooded with new paper money? From the CNBC piece:
‘Yet over the last several weeks, (Gold) has been pilloried by investors nervous about the outcome of the U.S. “fiscal cliff”. That makes even notorious gold bulls such as Jim Rogers sound more cautious.’
So the only negative mentioned is holding gold! Nothing else could possibly go wrong, huh?
Is there a single voice of reason in the media, devoid of corrupt moral fiber, asking why the government is hell-bent on destroying its citizens financial futures?
‘The practical application of this philosophy means that investors should invest their money in markets where these central banks are most active -or markets that stand to benefit the most from massive monetary easing - rather than trying to reap returns elsewhere.’
I can’t wait to hear these central-bank-encouraged greater fools sobbing into their beers over future investment losses…
I think Bernanke and Kanye West collaborated on West’s song, “Clique.” Lyrics from the song:
“You know white people get money don’t spend it
Or maybe they get money, buy a business
I rather buy 80 gold chains and go ig’nant
I know Spike Lee gon kill me but let me finish
Blame it on the pigment, we living no limits”
The powers that be want the public once again to get loaded up with debt and ‘go ig’nant’.
As always, follow the money. Who makes money went the public is deeply indebted? The Fed’s crony sectors.
“Congress is paralyzed, they want us to do something!”
“Aww yeah, we gonna do something all right. Inject that public money into the Clique.”
“Nineteen twenty-nine was made inevitable by the vast bank credit expansion throughout the Western world during the 1920s: a policy deliberately adopted by the Western governments, and most importantly by the Federal Reserve System in the United States.”
It’s amazing to realize the Fed has been blowing credit bubbles all the way back to the Roaring Twenties, and nobody ever called them on it until the present.
Amazing!
until the present? No, it was common knowledge in the 60s. A mistake not to be repeated. What was different about 1980 to 2008 was simply the belief that “it’s different this time”.
It’s very much a cult-like belief, but when you consider the power it gives to the people at the top, the tenacity is more easily understood. From the Mises link:
‘For 30 years, our nation’s economists have adopted the view of the business cycle held by the late British economist, John Maynard Keynes, who created the Keynesian, or the “New,” Economics in his book, The General Theory of Employment, Interest, and Money, published in 1936. Beneath their diagrams, mathematics, and inchoate jargon, the attitude of Keynesians toward booms and bust is simplicity, even naïveté, itself. If there is inflation, then the cause is supposed to be “excessive spending” on the part of the public; the alleged cure is for the government, the self-appointed stabilizer and regulator of the nation’s economy, to step in and force people to spend less, “sopping up their excess purchasing power” through increased taxation. If there is a recession, on the other hand, this has been caused by insufficient private spending, and the cure now is for the government to increase its own spending, preferably through deficits, thereby adding to the nation’s aggregate spending stream.’
‘The idea that increased government spending or easy money is “good for business” and that budget cuts or harder money is “bad” permeates even the most conservative newspapers and magazines. These journals will also take for granted that it is the sacred task of the federal government to steer the economic system on the narrow road between the abysses of depression on the one hand and inflation on the other.’
Look at the horror expressed in practically every part of global media about this ‘fiscal cliff’ (coined by Bernanke, BTW) when it isn’t even a real cut in spending. It’s just a small cut in budgeted increases!
‘the government, the self-appointed stabilizer and regulator of the nation’s economy’
I can remember when the public didn’t look to the government for every tic-tock of the economy. “Oh, egg prices are high! What are you going to do Mr President?”
So who benefits from stamping this idea on the public’s mind?
Thanks for the Von Mises link Ben. The local cadre of collectivists are fools as usual when up against the giant.
+1.
The way I understood it was you borrow and lower taxes during bad times, and raise taxes to pay down debt during the good times.
The mess we’re in seems to have arisen from borrowing and lowering taxes during the good times.
“…borrowing and lowering taxes during the good times.”
In which case the Fed has to quantitatively ease in the bad times…
“What now seems unwise could be rationalized then. Although households borrowed more, their wealth expanded so rapidly that their net worth—the difference between what they owned and what they owed—increased.”
Uh, it seemed unwise then to a lot of us HBB’ers. And what exactly was this “wealth?” Paper gains on a house unrealized unless you sold? A bigger HELOC every year? Leased luxury cars?