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Bill Clinton Campaigning in Florida




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...and more potential to nominate up to 3 supreme court justices who will keep the bench balanced.

And when a credit crunch keeps business from restocking for the holidays, keeps companies from making payroll and suddenly housing prices prop profoundly because Mortgages become impossible to get...

Zaph, you will be happy to see the free market working unsullied by your tax dollars?

RedSeven:

Take a look at the DOW last week.

Yes, the 770+ point drop was scary.

The next day- the day the house rejected the bailout, it bounced back 500 points.

Today, as the bailout passes the Senate, the DOW is down 335 points as I write this.

I put my money firmly where my mouth is when I say the market will bounce back again by week's end, worst-case, early next week.

I am the first to admit that our entire economic system is very close to collapse. However, let us dig into that comment a bit deeper. Specifically: other than a long-overdue correction, how do we FIX this problem, and not just postpone disaster?

Answer: we can't. We can either take our medicine now, or take more medicine later. It tastes lousy either way.

Also, I find the "doom and gloom" being used to sell this bailout very similar to the tactics used pre-Patriot Act, and pre-Iraq War.

You wrote:

"And when a credit crunch keeps business from restocking for the holidays, keeps companies from making payroll and suddenly housing prices prop profoundly because Mortgages become impossible to get"

Let me respond point by point-

  1. The big threat this holiday season is a drop in consumer spending, which I blame on inflation (which, by the way, is only INCREASED by the bailout). When people have to spend more to heat their homes, they have less for toys. Large retailers, like Walmart for example, already own stakes in their manufacturers, and so credit will not be a major concern- the retail numbers are the big focus.

  2. Any business financing payroll via credit is an incredibly unstable place to work. Bridge loans not withstanding, salary should be coming directly from operation expenses. Anyone with a credit-dependent paycheck needs to find new work a.s.a.p., bailout or no bailout.

  3. The mortgage collapse has already hit us. Most property has lost ~10%, extreme cases, like me in Florida, lost > 30%. As best I can tell, the only way out at this point is for things to get cheap enough that foreign investors begin jumping back in (see also 1987-1991).

Current mortgage terms are actually quite sane compared to where they were 2 years ago. However, due to overbuilding and foreclosure, we have a growing excess inventory. The glut in supply is repressing home prices. The only solution is to either knock them down, or wait for someone to buy them.

I also want to make it clear that I am not enjoying the crisis, nor am I happy to see America in such tough times. However, I am focused on the silver lining.

If we allow the market to self-correct, it will SUCK for 10 years, maybe longer. But, it will also make investments (stocks) and property cheap enough to be accessible to the working and middle classes in time for the next boom cycle.

In other words, choice a: bailout, keep prices artificially high, keep the struggling classes over-taxed (someone has to pay for the bailout), and unable to buy-in.

Choice b: let the correction occur now, rather than vainly trying to postpone it. Those who are holding investments that are over-valued WILL suffer- but they are suffering already. If we can get to a post-correction America, the "working man" will have a chance to buy-in again, which will help keep remaining investment by the now-retired boomers liquid and stable (and most importantly- growing).

Mark my words- if the attitude behind this bailout is allowed to prevail, the retired boomers will be CRUSHED by inflation. Sure, they will still have a few hundred thousand in the 401k- but what good is that if a week of groceries costs them $1000?

On the other hand, they can grin and choke as they lose 10-25% of their nest egg. However- if this is allowed to go down NOW, most boomers are still healthy enough that working for a few more years is still an option. Holding out for the recovery is feasible.

If the bubble remains artificially inflated until they are 80- they are fucked. 80 is too old to go back to work; 80 is when inflation starts to matter.

Disagree all you want, but please know I come to the table with a pro-working/middle class, pro-elderly, pro-surviving the retirement of the boomers mentality.

Even those in favor of regulation agree- the purpose of regulation is to PREVENT shit like this- not to respond to it. In the big picture, the bailout is already too little, too late. I say we can compromise: if you will allow the market to self correct, I will allow you to regulate the following boom cycle as necessary as to prevent another collapse.

Zaphod,

I'm not arguing against your assesment, I actually agree with much of it, but I'm not sure this will really create an inflationary environment. Could you explain how it will?

Syngas:

I am coming from the Mises (Paulian) school of thought. Short version: value of money is determined by supply & demand; if supply of money increases without equal increase in productivity (real value) and/or demand, it devalues existing currency.

The $700B bailout does not propose to give away existing money, but rather, to loan new money via the Federal Reserve system. In other words, the Fed is creating $700B in new money, through the mechanism of national debt, even though there has been no increase in value (rather, a drop in value).

You now have $700B + all previously existing currency chasing the same amount of good/services (as no new value has been created). This results in inflation.

I'm a math geek, so here is an example using round numbers.

Start with a base of $1,000,000 total dollars chasing $1,000,000 of real value. $1 = $1

Add $100,000 of new money, no additional value

$1,000,000 = $1,100,000

$1 = $1.10

Result: a double cheeseburger jumps in price from $1 to $1.10. Why? Because 1 burger = 1 burger, no new value is there, only a shift in the relative value of currency.

More info(ganda):

http://mises.org/story/3132

Also, compared to government waste & the pending derivatives disaster, this current situation is small potatoes:

http://www.youtube.com/watch?v=zM79QpaxvOs

Any business financing payroll via credit is an incredibly unstable place to work

You might be surprised to know just how many businesses rely on leverage. And these are solid orgainzations who use their Accounts Receivable as a reliable source of leverage. Relying on leverage is common and yet, yes, risky. There is high potential for economic gain using leverage, however there is also a high risk for loss. Normally, there is a balance between those who are gaining and those who are losing. Those losing now far outweigh those who are winning and this has placed the brakes on the flow of money. So even strong businesses are being hurt by this crisis of liquidity.

However- if this is allowed to go down NOW, most boomers are still healthy enough that working for a few more years is still an option. Holding out for the recovery is feasible.

This is a way of looking at this crisis only in terms of the stock market. It is liquidity which is the major problem, not the stock market.

  1. The big threat this holiday season is a drop in consumer spending

Yes, most retailers don't own their suppliers. Regional stores do not. And some are already being hit by the credit crunch(One of my relatives just got laid off by one). And many bigger stores will start to face the problem soon. Less merchandise combined with lower consumer spending may mean less christmas hires which means lower employment and even lower spending

  1. Any business financing payroll via credit is an incredibly unstable place to work.

Tend to agree, but people do work there.

  1. The mortgage collapse has already hit us. Most property has lost ~10%, extreme cases, like me in Florida, lost > 30%.

The fat lady won't sing until next year. If folks lose jobs, more houses will be on the market and if rates go up the value of houses will go down.

Today, as the bailout passes the Senate, the DOW is down 335 points as I write this.

Right now, the Dow is just reacting to the perceived threat on the horizon. It's daily fluctuations are only a sign of how frightened they are on wallstreet.

Mark my words- if the attitude behind this bailout is allowed to prevail, the retired boomers will be CRUSHED by inflation. Sure, they will still have a few hundred thousand in the 401k- but what good is that if a week of groceries costs them $1000

On the upside I will be able to pay off my car loan with a weeks pay.

Sure, they will still have a few hundred thousand in the 401k- but what good is that if a week of groceries costs them $1000

Zaphod, Do you have any details on inflation vs 401k valuations given the different scenarios? Also, once again, this is not just a matter of the value of stock. This has to do with liquidity and how this will affect not only employers, but as RedSeven said, employees.

The valus of stock is based upon the strengh of the enterprises, and said enterprises hire people. Therefore the value of "Wallstreet" is tied to the value of "Mainstreet". Because of the use of leverage, buying long or short, and hedge funds, what happens on Wallstreet does not have an immediate effect on "Mainstreet". However, there is a delayed effect, that is, there is a connection.

Absolutely there is a connection.

For example, if the present system is artificially maintained, you will also be maintaining the fundamental reality of main street- it is a house of cards.

Being that I seek to change the fundamentals of main street, I see the wall st. meltdown as an opportunity.

Like I said: age has a lot to do with my opinion. I'm 28. If I were 58, I'd be screaming for them to do whatever they had to do to keep the system rolling a few more years (you know- until I escape the Earth)

But what about those of us who are stuck here for awhile yet?

Great comments- this is why I love OGM.

JoAnn wrote:

"You might be surprised to know just how many businesses rely on leverage. And these are solid orgainzations who use their Accounts Receivable as a reliable source of leverage."

I would guess: far too many. And which is the more effective deterrent against these reckless practices? Threat of regulation- or bending bankruptcy?

"It is liquidity which is the major problem"

Agreed 100%. This is a fancy way of saying: "no one will buy this junk". And why should they? After all, it IS junk. Swooping in and buying it ourselves (we the people) only serves to disguise this fact- not to change it.

Red Seven wrote:

"The fat lady won't sing until next year. If folks lose jobs, more houses will be on the market and if rates go up the value of houses will go down."

The problem: securing a supply of inventory to meet consumer demand

Possible solution: loosen credit standards so that financing can be secured easily

Possible solution: reevaluate domestic manufacturing terms (consignment, strategic partnership)

Possible solution: reevaluate inventory planning, for example: take a closer look at the JIT models used by Toyota to reduce holding costs and reduce the length and scope of financing (which is ultimately a business EXPENSE- funny how many of us forget that)

I am no expert. I can't pretend I have THE answer, much less THE solution. But my overall theory is that this correction is:

a. inevitable

b. good for us in the long-term because it will force us to reevaluate our method of business, from CEO ethics all the way down to inventory management and energy use

If necessity is the mother of invention, and depression necessitates change, we've really got a shot at this, long-term. I am optimistic.

But if I, like my dad, was within 5 years of retirement, I'd be scared shitless, and begging for the bailout too. My greatest source of comfort is the fact that I know I'll be working for next 30 years, or dead. I have no delusions about social security, or job security, or any other form of so-called security.

As best I can tell, this ideology is the fundamental difference between gen X & Y and the boomers. And if my theory is correct, these are but the opening shots of a new "culture war".

If necessity is the mother of invention, and depression necessitates change, we've really got a shot at this, long-term. I am optimistic.

Yes, the question is depression or recession.

What is at the heart of all this trouble is the rising cost of energy. We moved all our manufacturing overseas based on a model where the labor costs outweighed shipping. If that comes to an end we will need to produce more locally and more environmentally.

That means an enormous investment in infrastructure and R& D which will mean lower profits for the next 20 or 30 years. We will be fine, but Wallstreet will shit a ton of bricks.

RedSeven:

So perhaps a return to the good ole fashioned pension model is in order? I'm not sure employee ownership ever got a fair shake either. In either case, bricks will be shit by Wall St.

The days of exponential ROI may be drawing to a close, and I for one sincerely hope so. Exponential market growth is not sustainable, neither environmentally, nor economically. And the larger the boom (90's), the larger the gloom (now), despite all the Fed meddling (2001).

Once the cost of energy eclipses the cost of labor, this could spark a new American Renaissance. Couple this with infrastructure and technology investments, and we could be back to exporting the world's energy (a la 1950's). I'd like to see the Chinese buying an American-made geothermal venting system. I'd like to see the Iranians buying solar panels made in the USA. I'd like the workers of those companIES to earn piles of disposable income, enjoy a great standard of living, and rely on genuine growth- not Wall st black magic- to reach a SECURE retirement.

But before we can get there, we must first accept Newton was right: that which goes up, comes down, if there is nothing in between but air. The DOW is no exception. I say, deflate the bastard, and then fill the void with American manufacturing.

And while I'm babbling- what gives, folks? Y'all love Dawkins around here. Well- this is evolution, and its not a pretty sight. But if Americans learn to grow some claws, we might just walk upright one day.

Also, a preemptive comment for Feb 2009:

Hannity: "President Obama has already completely destroyed the economy..."

Me: "STFU Hannity"

You read it here first!

Zap,

I think you may be looking at the inflation scenario through a very narrow lens. There are many other things that effect inflation, many of which will push it lower in my opinion.

When credit markets slow down, the money supply goes down because banks increase their reserve ratios (reverse money multiplier).

When economies slow down, people bargain hunt more, and buy less. This is anti-inflationary.

When economies slow down, industry uses less energy, thereby lowering demand for fuel. Considering this is looking like a world-wide slow down, fuel is likely to keep falling. Not inflationary.

Syngas:

"When credit markets slow down, the money supply goes down because banks increase their reserve ratios (reverse money multiplier)."

Normally true, however, many have argued that U.S. banks are not even sticking to their current reserve rates, much less increasing them:

http://www.newyorkfed.org/research/epr/02v08n1/0205benn/0205benn.html

As you mentioned, this has a multiplying effect- in the other direction (loaning exponentially more on less reserve)

"When economies slow down, people bargain hunt more, and buy less. This is anti-inflationary."

Very true. Case in point: housing is about as anti-inflationary as I've ever seen it (down by double digits) because people are bargain hunting and grabbing great deals on short-sells.

"When economies slow down, industry uses less energy, thereby lowering demand for fuel. Considering this is looking like a world-wide slow down, fuel is likely to keep falling. Not inflationary."

Also very true. Case in point: oil is down to $93 USD/ barrel. But how long will this last before Chinese and Russian demand pushes it back over $100? Never mind the influences on oil price arising from our own foreign policy.

I certainly agree that there are many factors at play in inflation, but maintain that money supply is one of the largest.

Case in point, the Fed ALREADY increased the money supply by $348B this week, even though the bailout was rejected-

http://www.bloomberg.com/apps/news?pid=20601087&sid=aEk87flaQp_Y&refer=home

This is why I get so militant about the Fed, by the way. Conspiracy theory aside, this is a ridiculous amount of power by an agency so blatantly unconcerned about the will of the people. I understand the economy can't be run by opinion polls, but churning out nearly $350B the same week our ELECTED officials say "hell no" to $700B is just flaunting it, IMO.

And those $350,000,000,000 new dollars are competing with your existing dollars as of YESTERDAY. Long before you have a chance to bargain hunt, attempt to reduce energy costs, or ask for a cost of living pay raise.

So yes, I agree there are many factors. I argue that they pale in comparison to an agency (the Fed) pulling billions of dollars out of thin air as if it were nothing.

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