This seems to have been lost among all the post election rabble, but the Fed made a big (but expected) announcement:

Quote :

"NEW YORK (CNNMoney.com) -- In its latest move to jump start the sluggish recovery, the Federal Reserve announced it will pump billions into the economy. The central bank will buy $600 billion in long-term Treasuries over the next eight months, the Fed said Wednesday. The Fed also announced it will reinvest an additional $250 billion to $300 billion in Treasuries with the proceeds of its earlier investments. The bond purchases aimed at stimulating the economy -- a policy known as quantitative easing -- will total up to $900 billion and be completed by the end of the third quarter of 2011. Ever since the Fed first signaled back in August that it was considering a second round of monetary stimulus, dubbed QE2, investors have been preoccupied with speculating on how much the Fed would buy."

The market responded as you would expect, with stocks hitting a 2 year high: http://www.nytimes.com/2010/11/05/business/05market.html?src=mv

Sweet, stocks are up! Crisis averted, thanks Fed! Oh, but wait...the rest of the world isn't so enthusiastic...

Brazil/Thailand: http://www.nytimes.com/2010/11/05/business/global/05global.html?partner=rss&emc=rss
Germany: http://online.wsj.com/article/BT-CO-20101104-716119.html
China: http://abcnews.go.com/m/screen?id=12056462

...and more to come, I'm sure. Not just emerging markets either.

Time to wake up guys. A secretive central bank, accountable to no one, is actively destroying our future. This is not the normal partisan dog and pony show that tends to be the focus here. Either we demand that Congress and the administration does what it needs to do, or we will witness first hand the death of a currency. This amounts to nothing more than economic unilateralism, and we're already seeing decoupling take place.

11/4/2010 5:29:55 PM

I really wish the media would point out that it is "money printing" every time they mention QE.

Not that your average Joe will necessarily know what the effects of money printing are, but I think he could grasp that something isn't kosher with the idea of it where-as if you ask him what the effects of QE are, he is going to think you're talking physics.

11/4/2010 5:38:37 PM

Brazil and Thailand are pissed because they already devalued their currencies and our actions are simply undermining their attempt to gain an export advantage. Same with the Chinese who will now have to pump out even more $$$ to maintain the peg against the dollar. One could say that this action helps level the playing field against nations who have intentionally manipulated their currencies to gain an advantage.

Germans are pissed because this will probably hurt their exports.

Honestly, I don't have too many complaints about this move. One commentator made the point that if anything, we are more at a threat of deflationary pressures that would be a death spiral during a recession, and thus it's reasonable to risk minor inflation in an attempt to help jump start our economy.

11/4/2010 5:40:31 PM

You've got to be shitting me?

11/4/2010 5:56:57 PM

Quote :

"and thus it's reasonable to risk minor inflation in an attempt to help jump start our economy."

I'm not sure how we plan to jump start an economy by increasing the price of everyday commodities.

Sure the stock market went up today - but so did the price of a bunch of items we use everyday.
Looks like we walked into the same old tired politics about wall street and main street. I can see the rabble coming now

11/4/2010 6:07:12 PM

Quote :

"You've got to be shitting me?"

Smashing response chap. I would have expected no less from you...actually I would expect less, you failed to call him a troll, step your game up, you're beginning to disappoint me.

also, ITT Germany is an emerging market.

Quote :

"I'm not sure how we plan to jump start an economy by increasing the price of everyday commodities."

By increasing the availability of credit.

11/4/2010 7:24:22 PM

what creditor in his right mind would want to lend when the threat of massive inflation looms ready to destroy the value of the money he might lend out?

also, wouldn't it also increase the availability of credit if the gov't stopped borrowing so much money to pay for ever more government programs?

11/4/2010 7:38:40 PM

Quote :

"what creditor in his right mind would want to lend when the threat of massive inflation"

I have to imagine you aren't that stupid. Think about it. If he borrows money, invests it somewhere where inflation won't hurt it, inflation only shrinks the money he owes.

Quote :

"also, wouldn't it also increase the availability of credit if the gov't stopped borrowing so much money to pay for ever more government programs?"

No, it wouldn't. What it would do is reduce employment.

11/4/2010 7:45:36 PM

Banks have a trillion in cash to lend and the smaller community banks are in fact lending. There is no credit problem at the moment.

Ben is doing what Ben does, fearing a deflationary trap he is printing money hoping to buy time so that we can somehow earn enough to cover the debt and avoid the trap.

It likely won't work.

11/4/2010 7:46:05 PM

Quote :

"Think about it. If he borrows money, invests it somewhere where inflation won't hurt it, inflation only shrinks the money he owes."

methinks you are the stupid one. a creditor is the one who has the money to lend. durrr.

Quote :

"No, it wouldn't. What it would do is reduce employment."

so, the government borrowing money (on, credit, wouldn't you say?) has no effect on the availability of credit? So, me buying a bunch of bags of rice has no effect on the availability of rice? Really? really... Really?

11/4/2010 7:49:31 PM

Quote :

"Brazil and Thailand are pissed because they already devalued their currencies and our actions are simply undermining their attempt to gain an export advantage. Same with the Chinese who will now have to pump out even more $$$ to maintain the peg against the dollar. One could say that this action helps level the playing field against nations who have intentionally manipulated their currencies to gain an advantage."

But we (I'm sorry, not we...the people running the country) have intentionally manipulated our currency. What do you think quantitative easing is? When the Federal Reserve purchases U.S. bonds or MBS in exchange for exactly nothing, where does the money come from? We increase the monetary base by doing that; it's money creation.

China, and most countries in general, have very poor economists. China, for instance, pegs their currency to ours. If they wanted to improve their economy in real terms, rather than just on paper (with absurdly high GDP postings), they'd allow their currency to gain value. That would allow the standard of living in China to go up. Their purchasing power would be a lot higher. Regular people, even in the rural parts of China, could eventually live like we live. Sure, the peg increases their exports and provides jobs, but that doesn't mean shit for the working man. Deflation isn't a bad thing.

Quote :

"Honestly, I don't have too many complaints about this move. One commentator made the point that if anything, we are more at a threat of deflationary pressures that would be a death spiral during a recession, and thus it's reasonable to risk minor inflation in an attempt to help jump start our economy."

Minor inflation? Let's think about this. How much money did the Fed create in the 1990s? How much did the Fed create this decade? It has happened a lot more in this decade, because we've had multiple recessions. In the 1990s, not so much. Yet prices, as measured by BLS, have remained relatively stable. How does that make any sense? How could we have created all this money but kept the same purchasing power?

There's a complex answer to that. The peg that we already discussed certainly helps. Where are most things we use today? Look at your T.V. Look at your cell phone. That shit wasn't made here. We bought it from China, and we got a bargain, because our central bank is pumping up the monetary base and China is still trading their currency for dollars at the same rate. The second part of that is that government statistics are truly a crock of shit. Have you been to the grocery store lately? Food is getting substantially more expensive, oil is going way up, and we won't really feel the effects of the commodity boom until late this year or early next year. Finally, the dollar has plunged this decade, and the only reason it hasn't gone down more is because other governments are dumb enough to play along.

Quote :

"also, ITT Germany is an emerging market."

Didn't say it was. In fact, I specifically said not just emerging markets at the end. The inspiration for the thread was the Brazil/Thailand article.

Quote :

"I have to imagine you aren't that stupid. Think about it. If he borrows money, invests it somewhere where inflation won't hurt it, inflation only shrinks the money he owes."

I'm going ask you to honestly take a step back here, and think about how an economy manifests. Before you can ever have credit, savings has to take place. No one can borrow money unless someone else has consumed less than they brought in. When a person saves, they then have money that they can invest in productive ventures. What do we have now, though? Who is saving? Interest rates are at 0. The dollar is declining. It makes no sense to save money - you're better off buying stuff. And that's the mantra of modern economics - keep the debt ball rolling. As long as everyone is spending, even if it's on borrowed money, the economy is in great shape, thus your desire to "increase the availability of credit."

Unfortunately, that's not a sustainable economic model, and it has collapsed every time it has been tried. We have to have strong fundamentals. Saving, living within your means or below your means, making cautious and informed decisions about investment. All of that is discouraged right now. You're better off speculating than saving.

[Edited on November 4, 2010 at 8:01 PM. Reason : ]

11/4/2010 7:50:10 PM

I think the theory is that if investors make money, they invests in businesses, who then hopefully will find things to hire people for.

It’s up to businesses to retool away from an economy based on consumer spending. They’re not going to though, because they’re still the short-sighted greedy assholes they were before the collapse.

When people are flipping out because of unemployment, you should expect the gov. to do things that can help. The solution that you have to let things break before you can fix it doesn’t sit well with the public, i’m sorry to say.

And it’s funny that you’re lamenting minor inflation in this thread when your hero Peter Schiff was waling about spiraling inflation until recently, because of all this money-printing. Not to mention the well established principle that inflation helps keep the labor markets flowing. At this point in time, that is a bigger concern than slightly higher goods.

[Edited on November 4, 2010 at 7:58 PM. Reason : ]

11/4/2010 7:56:28 PM

Quote :

"Not that your average Joe will necessarily know what the effects of money printing are"

Neither do economists

11/4/2010 8:13:10 PM

Quote :

"I think the theory is that if investors make money, they invests in businesses, who then hopefully will find things to hire people for."

That's a pretty awful theory, don't you think? Goldman Sachs isn't hiring that many people right now, surely not the average man. They certainly aren't investing the money they're making hand over fist back into the general population. No, they're hedging their bets and fleecing all of us.

Quote :

"It’s up to businesses to retool away from an economy based on consumer spending. They’re not going to though, because they’re still the short-sighted greedy assholes they were before the collapse."

How can they retool? This is not a good place to run a business. We can't produce anything here. Manufacturing is dying in this country. The only option is service sector jobs for us. You have a disturbing view on what drives business owners, but I've got to tell you - businesses are struggling right now. This isn't just one big conspiracy to be greedy and make more money. Well, it is with the banks, but you can't be surprised at their greed when the government removed all the risk.

Quote :

"When people are flipping out because of unemployment, you should expect the gov. to do things that can help. The solution that you have to let things break before you can fix it doesn’t sit well with the public, i’m sorry to say."

The economy is much more complex than you seem to imagine. Unemployment is not something that can just be legislated away. There has to be authentic demand for labor. Wages have to be allowed to adjust when necessary. This is why understanding (and having leaders that understand) free market economics is crucial.

Quote :

"And it’s funny that you’re lamenting minor inflation in this thread when your hero Peter Schiff was waling about spiraling inflation until recently, because of all this money-printing. Not to mention the well established principle that inflation helps keep the labor markets flowing. At this point in time, that is a bigger concern than slightly higher goods."

Obviously you haven't listened to Schiff recently. He's still saying that we could have spiraling inflation, as you call it. You should recognize, though, that there is a difference between inflation and hyperinflation. Inflation is just the expansion of the money supply, though you may think of it as higher prices. You could see 20-30% price inflation in certain commodity classes and it wouldn't cause too many problems. Hyperinflation is "flight inflation," though. It comes about when, due to some trigger, people start dumping the currency. When it happens, it happens fast. It's a loss of faith in a currency.

[Edited on November 4, 2010 at 8:17 PM. Reason : ]

11/4/2010 8:15:28 PM

Quote :

"That's a pretty awful theory, don't you think? Goldman Sachs isn't hiring that many people right now, surely not the average man. They certainly aren't investing the money they're making hand over fist back into the general population. No, they're hedging their bets and fleecing all of us. "

It is an awful theory, but it’s how capitalism works. We have to expect that creative people have their ideas funded, and having access to capital facilities this. This is still better than any system that can exist without Artificial Intelligence.

Quote :

"How can they retool? This is not a good place to run a business. We can't produce anything here. Manufacturing is dying in this country. The only option is service sector jobs for us. You have a disturbing view on what drives business owners, but I've got to tell you - businesses are struggling right now. This isn't just one big conspiracy to be greedy and make more money. Well, it is with the banks, but you can't be surprised at their greed when the government removed all the risk. "

Ha, this is a great place to run a business. We have some of the most creative people in the world, and we have an excellent higher education system compared to the rest of the world, as well as good highways and access to research and technology. Manufacturing is dying, because this is what happens with modernization. We don’t want manufacturing, and we should all be glad its dying. It’s better for robots and 3rd worlders to do menial things, when we could be doing the research/development/exploration on bigger better things. We will never regain jobs through manufacturing, and it would be 2 steps backwards if we did.

We do however need to invest in scientific and technological research. Plasma technology was invented here, the Internet was invented here, and researchers just demonstrated a new holographic display technology. The future is going to be in consumer robotics (self driving cars, “smart” internet services, etc.). Apple, Google, and Microsoft, the forerunners in the next generation of portable devices, are all based here and thrive here.

No one should shed tears for losing manufacturing.

Quote :

"There has to be authentic demand for labor. Wages have to be allowed to adjust when necessary. This is why understanding (and having leaders that understand) free market economics is crucial."

Inflation is one of the mechanisms that helps wages adjust. That’s partially why they are doing this. Look into it…

Quote :

"It comes about when, due to some trigger, people start dumping the currency. When it happens, it happens fast. It's a loss of faith in a currency. "

But it’s foolish to think that people are going to lose faith in our currency on a hair trigger. The US is still the world leader in many fields, we are a FAR ways away from being out of the race.

Regressing on investments into the future, like the conservatives want to do, is the wrong action. I wrote a letter to Richard Burr actually and he wrote me back more or less saying they were content to “wait and see” when it comes to investing in the future. This is definitely the absolute wrong thing to do.

China isn’t waiting, they are dumping lost of money into solar and computers (they just claimed to have the worlds fastest super computer).

We need to do like Australia (and these other countries who are trying desperately to surpass us) and facilitate next-gen infrastructures. They’re building out fiber to remote areas, while we let Time Warner Cable file injunctions against municipalities trying to fill-in gaps that entrenched monopolies willfully ignore.

Obama i think is on the wrong track focusing on road/bridge investment. This is foolish. He needs to focus on white space broadband, fiber, upgrading city and state level computers to make city management more automated, and things that demand and facilitate high-tech jobs.

11/4/2010 8:33:58 PM

Quote :

"No one should shed tears for losing manufacturing"

other than the people in America who previously held those jobs

11/4/2010 10:41:09 PM

You have to break some eggs to make an omelet...

That's why we need to bolster vocational and college education. Those people are valuable with just a tad bit more training.

There's enough money floating around that high school students who do well can have their college paid for. Georgia does this, and it works well for them.

[Edited on November 4, 2010 at 10:48 PM. Reason : ]

11/4/2010 10:48:14 PM

Quote :

"a creditor is the one who has the money to lend"

What are you talking about?

Quote :

"so, the government borrowing money (on, credit, wouldn't you say?)"

You don't know what QE is. It isn't the government borrowing money, it's creating it. Most people who post here seem to learn things, you seem to have only gotten stupider.

Quote :

"Didn't say it was"

Thread title says otherwise.

Quote :

"Who is saving?"

Purchasers of our bonds.

Quote :

"Manufacturing is dying in this country."

Good riddance. Manufacturing is unskilled, it is for countries with an unskilled population, they have a comparative advantage in it.

11/4/2010 11:17:52 PM

Well, this is what the fed is for, printing money. Unless it loses the money, every dollar it creates will get sucked back up eventually, so I have no complaints here. I just hope Congress does not fall victim to the Greek disease of thinking borrowing is no problem just because treasury rates are low.

Quote :

"Manufacturing is dying in this country."

Wrong. "despite the current recession, American manufacturing output today is still 40% higher than it was in 1990."

11/5/2010 2:03:30 AM

Quote :

"Thread title says otherwise."

Weird. You'll spend 10 posts crying about what you said versus what everyone knows you meant but then have no problem telling someone else what they meant even though it isn't what they said.

Quote :

"That's why we need to bolster vocational and college education. Those people are valuable with just a tad bit more training"

I don't think you're going to be able to take your average assembly line working and magically make them into an engineer.

I've been meaning to ask this question to the pure free marketers, but if governments around the world didn't meddle in their economies, what would ideally happen to everyone that has had their job shipped out of the country? Do we not export a standard of living and basically fuck the poor saps that simply aren't and never will be smart enough to do anything more than what they were doing?

11/5/2010 6:43:10 AM

He was doing so well up until about 9 minutes

http://www.youtube.com/watch?v=s2t5YSl44dU&feature=player_embedded#!

11/5/2010 7:03:52 AM

Quote :

"I really wish the media would point out that it is "money printing" every time they mention QE."

I know NPR does this; every single time Quantitative Easing is mentioned, the phrase "basically printing money" is used.

11/5/2010 9:00:43 AM

d357r0y3r: where's the hyperinflation you've been promising us for months. And months. And months.

Most of the stimulus has been spent, the discount rate is at 0%, and we're still stuck below 2% inflation.

11/5/2010 9:28:09 AM

In before, "you'll see" or "you'll be sorry".

11/5/2010 9:47:12 AM

^^ I suspect all the quantitative easing was eaten up by the stimulus. The money multiplier of additional government spending so far seems to have been very negative.

11/5/2010 10:41:49 AM

Quote :

"d357r0y3r: where's the hyperinflation you've been promising us for months. And months. And months. Most of the stimulus has been spent, the discount rate is at 0%, and we're still stuck below 2% inflation."

I would argue that inflation is not below 2%. Sure, maybe according to government statistics that leave out key commodities. In any case, you need to read the thread. I explained that there's a substantial difference been hyperinflation and inflation. Hyperinflation is not simply very high inflation - it's a loss of faith in the currency. I have never said that hyperinflation is inevitable, just that it will happen if we continue down our current path of borrowing and creating an ever increasing amount of money.

Quote :

"It is an awful theory, but it’s how capitalism works. We have to expect that creative people have their ideas funded, and having access to capital facilities this. This is still better than any system that can exist without Artificial Intelligence."

No, that's not how capitalism works. For a much better theory on how investment works, read what I wrote. Underconsumption leads to savings, savings leads to investment, and investment leads to production. You don't want to take a top down approach where you start handing out free money to huge corporations and expect it to make it's way back into the economy.

Quote :

"Ha, this is a great place to run a business. We have some of the most creative people in the world, and we have an excellent higher education system compared to the rest of the world, as well as good highways and access to research and technology. Manufacturing is dying, because this is what happens with modernization. We don’t want manufacturing, and we should all be glad its dying. It’s better for robots and 3rd worlders to do menial things, when we could be doing the research/development/exploration on bigger better things. We will never regain jobs through manufacturing, and it would be 2 steps backwards if we did."

You sound like a nationalist. We want jobs that produce value. We want to make things that other people can buy. Otherwise, we can only have a service-based economy, which you cite as a bad thing.

Quote :

"Inflation is one of the mechanisms that helps wages adjust. That’s partially why they are doing this. Look into it…"

How about allow businesses and laborers determine what a mutually acceptable wage is? Your position on this is profoundly anti-liberty.

Quote :

"But it’s foolish to think that people are going to lose faith in our currency on a hair trigger. The US is still the world leader in many fields, we are a FAR ways away from being out of the race."

You need to learn more about the bond market and what has been going on in banking. If foreign investors stop purchasing bonds, the Fed is the only buyer. That isn't good.

Quote :

"That's why we need to bolster vocational and college education. Those people are valuable with just a tad bit more training."

Ah, yes. We need to pump out more useless college degrees, characteristic of our government-backed student loan system that prioritizes volume over quality.

11/5/2010 11:33:39 AM

we're fucked.

11/5/2010 11:43:46 AM

Quote :

"Hyperinflation is not simply very high inflation"

- d357r0y3r

Quote :

"hyperinflation is inflation that is very high"

- http://en.wikipedia.org/wiki/Hyperinflation

[Edited on November 5, 2010 at 6:05 PM. Reason : ]

11/5/2010 6:05:07 PM

So basically you've become the argument Nazi and you can't read an entire argument and get the point, you must deconstruct every little statement of it?

Anyone with a brain can see what he meant to say was hyperinflation gets triggered by a loss of faith, not that the inflation is high and someone suddenly decides, hey, we are now having hyperinflation, not just very high inflation.

11/5/2010 6:24:43 PM

Quote :

"Underconsumption leads to savings, savings leads to investment, and investment leads to production."

But if people are underconsuming to save money for investments into production, why would you invest into production if you have nobody to produce for if people aren't consuming? In order for it to make financial sense to invest into production, you need consuming. If people aren't consuming, but rather saving, then it seems to me that it will lead to stagnation. You can't just produce to produce. You can't just invest to invest.

I will agree with you in that we don't want a top down approach. But I still think moron is right when he says that creative people need to have their ideas funded. Demand for a product doesn't just magically appear. Rather consumers are told what they're want. Somebody needs to create it first before people can even realize they want it. I don't want the government to constantly fund projects, but somebody needs to get the ball rolling. If companies and investors aren't, then who will?

11/5/2010 8:57:52 PM

Quote :

"But if people are underconsuming to save money for investments into production, why would you invest into production if you have nobody to produce for if people aren't consuming? In order for it to make financial sense to invest into production, you need consuming. If people aren't consuming, but rather saving, then it seems to me that it will lead to stagnation. You can't just produce to produce. You can't just invest to invest."

People don't necessarily underconsume in order to invest. Underconsumption is just a prerequisite for investment. There are other reasons to consume less than the maximum possible, though. For instance, you might want to purchase something; a good or service from another individual. If you make 5 dollars a week, and you want a guitar that costs 10 dollars, you can't just not eat or pay bills for two weeks. You have to cut where you can, and maybe put away 1 dollar a week for 10 weeks.

People are always going to consume - it's necessary for survival. There will always be demand for things of value. There's nothing magic about it. You want to buy stuff. That's demand. Prices have to be allowed to rise and fall to reflect demand. You're absolutely right that something has to be created before people can know that it exists and want to own it. The human mind is capable of invention, and the body is capable of putting things together. We depend on creative and innovative people to make the things we use. The average Joe just isn't motivated (or inspired) enough to do it. That's why you want to design a government that maximizes freedom and human potential, while minimizing the burdens that discourage innovation and investment.

11/5/2010 9:35:22 PM

Quote :

"You sound like a nationalist. We want jobs that produce value. We want to make things that other people can buy. Otherwise, we can only have a service-based economy, which you cite as a bad thing. "

Unless you're using a narrow definition of service-based economy, i think i'm arguing for a stronger influence of services. Manufacturing isn't where the value is anymore, it's design. And design is a service.

But services like food service type things aren't sustainable, they're going to persist, but they aren't going to be influential.

Quote :

"How about allow businesses and laborers determine what a mutually acceptable wage is? Your position on this is profoundly anti-liberty. "

LOL

I know you know what i'm saying... you should just ignore me instead of posting responses like this.

But inflation exists in any system, fiat or otherwise (and MUST exist with a growing population...). But the alternative in an economy with zero inflation is that people get their pays cut, or they get fired. WITH inflation, people functionally get a pay cut, if they don't get a COLA raise, giving employers flexibility to keep labor costs down (one of the higher expenditures for most businesses), which also keeps people motivated to seek better job opportunities. This is not a good system at all, but it's the best we have at this point in time. But it won't necessarily always be the best system...

Quote :

"You need to learn more about the bond market and what has been going on in banking. If foreign investors stop purchasing bonds, the Fed is the only buyer. That isn't good."

As long as our government is functioning, there won't be snap spiraling (or whatever) inflation. This is chicken-little type thinking. It's one thing to be cautious, but i'm not going to be duct taping plastic to my windows over it.

Quote :

"Ah, yes. We need to pump out more useless college degrees, characteristic of our government-backed student loan system that prioritizes volume over quality. "

This is a valid statement for the short term (<10 years), but you have to think farther out. There are nearly 2 billion people in China, 1.5 or so Billion people in India, and these countries are modernizing quickly. We can't afford, in a very literal sense, to let our infrastructure lag (being chained to fossil fuels for example) or our education, otherwise in 100 years, they WILL be the superpowers, and we'll be working for them. Maybe we'll have the manufacturing wonderland that you are advocating for then?

The fact of the matter is that stuff like PHP web programming is going to become to tool of the masses (just like how every idiot can use Excel these days, which woulda been a high-end job 20 years ago), and the real engineers and scientists are the people working on AI, holograms, quantum storage, and things that we don't now know are even possible. The goal posts shift with education. We'd be cranking people out, but so what? This will never stop the smart people from doing smart things. Creative people are born creative, and almost nothing can stop this.

It's almost defeatist of you to lament that we don't have enough menial jobs for our untrainable dumb population to work, while other countries are charging ahead with modernizing their infrastructures and education systems. Government often moves very slow, but the free market doesn't necessarily move any faster. Free-markets are good at creating stable systems, but they aren't visionary or purposeful, and this is what we need to keep the US growing, and to keep the world progressing.

11/6/2010 1:26:14 AM

Quote :

"But if people are underconsuming to save money for investments into production, why would you invest into production if you have nobody to produce for if people aren't consuming?"

You just asked an age old question. Does demand produce its own supply, or does supply produce its own demand? Or is it some mix of the two? If economists have not answered this question to their satisfaction after centuries of trying, it isn't going to be settled here on this message board. The best guess we have is that it varies. If consumers suddenly double their demand, producers will find some way to fill it. If producers suddenly double their production, consumers will find some way to consume it. That said, economists tend to agree that this process breaks down during recessions (be they regional or otherwise), although no one can definitively say why. Then again, it might be that recessions are caused by this process breaking down, why ever it breaks down, so cause/effect are also unclear.

Quote :

"Do we not export a standard of living and basically fuck the poor saps that simply aren't and never will be smart enough to do anything more than what they were doing?"

If the demand for something in a free market goes to zero, then the price of that thing drops to zero. Well, in your impossible scenario where a priced item cannot be used for anything but what it was being used for, then the price of that item will fall until it is doing that job. As such, even in a brutal dystopian world without charity and without prosperity (say, medieval China or medieval Europe when population growth outstripped productivity growth) as long as labor markets were allowed to adjust freely, every laborer would find work. It just may be at below subsistence wages. See my response above: If suppliers (mothers) increase supply (of child laborers) consumers (mill owners) will find a way to consume it. Barring a recession, of course.

[Edited on November 6, 2010 at 2:05 AM. Reason : .,.]

11/6/2010 1:46:15 AM

Quote :

"Manufacturing isn't where the value is anymore, it's design. And design is a service."

I can't remember the thread, but I asked how can you convert all of these mfg line workers into designers? You can't. I'm still wondering what these people are supposed to do for jobs if we keep shipping all the jobs that they could potentially do overseas. Since the economy is now global, are they going to have to take their wealth and go live in a foreign country where their dollar will go farther but their standard of living has to decrease commensurate with their intelligence?

Quote :

"But the alternative in an economy with zero inflation is that people get their pays cut, or they get fired. "

If their pay gets cut it's no big deal because the cost of everything they need to purchase has gone down in kind.

Quote :

" Well, in your impossible scenario where a priced item cannot be used for anything but what it was being used for, then the price of that item will fall until it is doing that job."

Oh cool, another intellectual making reference to my argument with his own counterpoint that makes great sense in his head but leaves the rest of us wtf-ing. I assume you are talking about labor?

Quote :

"as long as labor markets were allowed to adjust freely, every laborer would find work. It just may be at below subsistence wages."

I'd just like one politician that voted to allow a sea change in our economy of shipping jobs overseas with promises of prosperity for all to admit that this is an inevitable outcome of their policies. That is, capitalism always will be Darwinism and those that aren't gifted enough to survive will be culled. And note, because I know one of you will label that statement socialist, I rather enjoy the benefits of cheap TVs, I just think it's pretty shitty we actively encouraged big corporations to do this, to give the big fuck you to those factory line workers who were basically maxed out in their ability to to give to the country and we haven't left them with a good alternative.

11/6/2010 9:00:36 AM

Quote :

"I can't remember the thread, but I asked how can you convert all of these mfg line workers into designers? You can't. I'm still wondering what these people are supposed to do for jobs if we keep shipping all the jobs that they could potentially do overseas. Since the economy is now global, are they going to have to take their wealth and go live in a foreign country where their dollar will go farther but their standard of living has to decrease commensurate with their intelligence?"

I don't think you asked that... but the answer is that you let "the market" take care of it. Whoever doesn't learn a new skill is going to end up suckling from social security or their pension, or going homeless. This inevitably of capitalism is why we have social programs.

Quote :

"If their pay gets cut it's no big deal because the cost of everything they need to purchase has gone down in kind. "

haha i doubt most people would think "oh, my pay is being cut, no big deal!" even if there were 0 inflation. Inflation has been nearly flat the past few years, but no one is taking on the mentality that their stagnant pay or pay cuts are "no big deal." I guess economics would be more reliable if humans were actually rational, but unfortunately we have emotions and stuff.

Quote :

" as long as labor markets were allowed to adjust freely, every laborer would find work. It just may be at below subsistence wages."

... and in an organized society no one really views "below subsistence" wages as acceptable. That's why people organize in to societies to begin with, so they don't have to worry about being "below subsistence."

11/6/2010 11:11:14 AM

Sorry, when you said no inflation I automatically thought deflation. If there is no inflation, remind me again why their pay would be cut?

Quote :

"This inevitably of capitalism is why we have social programs"

If it is in fact an inevitability that we are going to put people out of work only to put them on the dole, then when not just prevent them from being put out of work to begin with?

Scenario A, I get a cheaper TV because it was made overseas but I can't afford it because I'm being taxed to pay for the people we displaced versus I can't afford it because it's being made here and it is more expensive.

In both instances we get government intervention of some sort, which isn't desirable.

Quote :

"Inflation has been nearly flat the past few years, but no one is taking on the mentality that their stagnant pay or pay cuts are "no big deal.""

I took a 30% pay cut and it hasn't been a big deal. Sure, I'd rather be stuffing more away so I can retired a 5 millionaire instead of just a 2 millionaire, but I wasn't up to my eyeballs in debt either.

[Edited on November 6, 2010 at 11:39 AM. Reason : .]

11/6/2010 11:37:54 AM

Quote :

"I'd just like one politician that voted to allow a sea change in our economy of shipping jobs overseas with promises of prosperity for all to admit that this is an inevitable outcome of their policies. That is, capitalism always will be Darwinism and those that aren't gifted enough to survive will be culled."

I made it clear I was referring to an "impossible scenario" drawn by merbig. As for my medieval references, "when population growth outstripped productivity growth", this is not the case today. It has not been the case for hundreds of years. Our current minimum wage is a something outrageous like a hundred times that needed for subsistence.

As for overseas trade, the end result of open trade between China and America is high wages for the Chinese, not low wages for Americans. Wages are dictated by productivity, nothing else, and China is quickly improving its productivity to be closer to us, we are not reducing our productivity to match them.

Quote :

"and in an organized society no one really views "below subsistence" wages as acceptable. That's why people organize in to societies to begin with, so they don't have to worry about being "below subsistence.""

The Dark Ages lasted a long time. In a society where population growth outstrips productivity growth, there is nothing "society" can do. People are going to, and did, get less to eat than they needed. The question is not whether some of us die from malnutrition, but who. Thankfully, we have not known that world for centuries. The only question today is who goes without early retirement.

Quote :

"Scenario A, I get a cheaper TV because it was made overseas but I can't afford it because I'm being taxed to pay for the people we displaced versus I can't afford it because it's being made here and it is more expensive."

Like I said, for a factory to close and move overseas, the workers in that factory MUST FIRST have bid up their wages to unsustainable levels. If workers in a factory town, let us say, did not have better paying alternatives to working in that factory, then their wages would never have been raised to their current levels. That the workers in that town are being paid enough to drive the factory overseas is proof that either #1, enough of them had alternatives that their history includes threatening to quit without better pay, or #2, that the workers unionized and artificially drove up their wages. If the situation is #1, then no problem exists, the workers will accept their second best alternative and society wins. If the situation is #2, then society will lose big, but the solution is easy, just scrap the union and allow wages to fall back to market rates.

[Edited on November 6, 2010 at 12:31 PM. Reason : .,.]

11/6/2010 12:22:30 PM

Quote :

"People don't necessarily underconsume in order to invest. Underconsumption is just a prerequisite for investment. There are other reasons to consume less than the maximum possible, though. For instance, you might want to purchase something; a good or service from another individual. If you make 5 dollars a week, and you want a guitar that costs 10 dollars, you can't just not eat or pay bills for two weeks. You have to cut where you can, and maybe put away 1 dollar a week for 10 weeks."

I understand what you're saying. I'm saying that if people are cutting back expenses to purchase something they may want, then that means they're cutting spending elsewhere, and another company isn't getting their money.

Like instead of buying a new TV so I can put a downpayment on a car, the TV manufacturer isn't getting my money.

If you're in an industry that you make things that people need, yeah, you'll always have demand. But if you're in an industry that makes things that people want, then, according to you, people need to cut spending elsewhere to save up money to buy what they want.

This is why I say it sounds like we'll end up with a stagnate economy.

Don't get me wrong, I save my money for things I want and need. But you have to realize, or at least admit, that if everyone starts cutting back to buy things that they want, ultimately demand will decrease, mainly in areas where we're producing things people want instead of need.

If you tell someone to save their money for a new TV instead of buying it off of credit, that means they will have to cut back on something. They will have to cut back on how often they eat out, how often they go to bars, how often they consume beer or things they may not need, how often they drive or go to the movies. This not only affects the service industry, but the manufacturing industry, as the restaurants are having to purchase less to maintain the same level of inventory.

Quote :

"You want to buy stuff. That's demand."

No. Wanting to buy stuff doesn't create demand. The ability to buy stuff is demand. Those are not the same thing. I want a Bugatti Veyron, but I can't afford it, and likely I never will be able to. Does that mean Bugatti should start pumping out Veyrons to meet the demand? No. Because they know not many people can actually afford a Veyron.

I want a new 50" LCD TV. I can't afford one and won't be able to for quite a while. Should Panasonic pump one out for me now or wait until I can actually purchase? If people can't buy your product, then there is no demand for it. If you tell people to save their money, then you're telling them to stop buying other goods and services.

11/6/2010 12:39:02 PM

Quote :

"the workers in that factory MUST FIRST have bid up their wages to unsustainable levels."

Is this true, or did the shareholders get enriched? Can we not assume it was regulation preventing jobs from going over seas (or to Mexico) in the first place not unsustainable high wages? Jobs started moving to China almost immediately. Why were companies able to stay around for so long paying US wages?

You set up a false dichotomy with your 2 scenarios. The point liberals have been making for awhile is that the favorable regulation simply helped disproportionately send wealth up which means that they in fact could have paid their workers the wages they sought but simply chose not to so they could keep the wealth for themselves. And inevitably what happens is the burden of those now displaced workers get pushed onto the state where their support gets socialized on the rest of the population.

11/6/2010 12:48:22 PM

Chance, you and I have a radically different view of economic activity. First mistake: employers do not give employees raises just because the employees ask for them, or want them. Employers hiring employees are just like shoppers in a store, they pay what they must to get what they want. As such, wages absent regulation only go up when workers find work elsewhere and start quitting, leaving job openings to go unfilled. This is so regardless of profitability. Unprofitable companies must offer competitive wages just as much as profitable companies do. Only when labor unions are involved does "ability to pay" matter to the equation.

Quote :

"The point liberals have been making for awhile is that the favorable regulation simply helped disproportionately send wealth up which means that they in fact could have paid their workers the wages they sought but simply chose not to so they could keep the wealth for themselves."

Factoring out the recession, company profits are about 12% of GDP (that includes everything, from mom&pop stores to GE), not far from the historical average of 10%. While I personally believe less regulation would drive this factor down, I don't believe international trade had much of an impact.

Quote :

"And inevitably what happens is the burden of those now displaced workers get pushed onto the state where their support gets socialized on the rest of the population."

Like I said, anything will sell at some price. If these workers could only ever do their old job, then if the state allows their wages to fall low enough, they will continue to do that job. At some point it becomes unprofitable to move the factory. That said, the vast majority of layoffs have had nothing to do with international trade, as the vast majority are explained by moving factories to right to work states within the United States and manned factories being shut down by automated factories, also within the United States. To quote again, "despite the current recession, American manufacturing output today is still 40% higher than it was in 1990." American workers are losing ground to American robots, not the Chinese. But even here the same rule applies. As workers compete with robots, their wages will fall until it is no longer profitable to employ robots, no permanent unemployment results unless something interferes with wage corrections (unions, regulations, etc).

[Edited on November 6, 2010 at 2:52 PM. Reason : .,.]

11/6/2010 2:48:52 PM

Quote :

" As such, wages absent regulation only go up when workers find work elsewhere and start quitting, leaving job openings to go unfilled."

I'm honestly not sure what this is in response to. I'm not going to disagree with you if you want to give me the supply/demand identity for labor.

Quote :

"are about 12% of GD"

So, an extra 300 billion a year that either could go to social programs for workers we just booted out of a job or directly to the workers themselves in the form of a job. The great thing is both parties aren't prudent with the tax lever so shareholders and execs get to keep the 300 billion in enrichment and we just borrow it and put the burden back on to those we laid off (as well as other proles like ourselves).

Go ahead, give me your Cato or Heritage link that shows the bulk of our job loss has been to robots and not overseas.

11/6/2010 4:25:31 PM

I guess it was in response to this statement:

Quote :

"they in fact could have paid their workers the wages they sought but simply chose not to so they could keep the wealth for themselves"

Wages have nothing to do with what workers want. Workers want to be millionaires. Yes, employers keep every penny they can, just as consumers keep every penny they can, and workers get paid every penny they can. Everyone in the system is looking out for themselves, that is how everyone gets looked after.

Quote :

"So, an extra 300 billion a year that either could go to social programs for workers we just booted out of a job or directly to the workers themselves in the form of a job. "

I apparently don't know what we are talking about. Are we talking about capitalism in general, or the current recession in particular? If the latter, then no, the current unemployed did not lose their jobs to robots (although some did), or the Chinese (again, some did), the vast majority lost their jobs to the recession. And no amount of taxation is going to end a recession, whoever has their hand on the "tax lever".

11/6/2010 7:28:04 PM

Quote :

"No. Wanting to buy stuff doesn't create demand. The ability to buy stuff is demand. Those are not the same thing. I want a Bugatti Veyron, but I can't afford it, and likely I never will be able to. Does that mean Bugatti should start pumping out Veyrons to meet the demand? No. Because they know not many people can actually afford a Veyron. I want a new 50" LCD TV. I can't afford one and won't be able to for quite a while. Should Panasonic pump one out for me now or wait until I can actually purchase? If people can't buy your product, then there is no demand for it. If you tell people to save their money, then you're telling them to stop buying other goods and services."

Wanting to buy stuff helps create demand. The value has to be there. You're right that you need to have the ability to buy as well, though.

You seem to be operating on an unrealistic view of markets, though. There's never been a time when everyone saves and no one spends. It just isn't rational. How many people in today's society, or any society ever, were completely self-sufficient? An individual is incapable of producing everything that they themselves want, so there will always be an incentive to trade your own labor or property for things that you want. I never suggested that someone should save 100% of their money not used for consumption and never spend.

11/8/2010 11:11:06 AM

Quote :

"No. Wanting to buy stuff doesn't create demand. The ability to buy stuff is demand. Those are not the same thing. I want a Bugatti Veyron, but I can't afford it, and likely I never will be able to. Does that mean Bugatti should start pumping out Veyrons to meet the demand? No. Because they know not many people can actually afford a Veyron. I want a new 50" LCD TV. I can't afford one and won't be able to for quite a while. Should Panasonic pump one out for me now or wait until I can actually purchase? If people can't buy your product, then there is no demand for it. If you tell people to save their money, then you're telling them to stop buying other goods and services."

Wanting to buy stuff helps create demand. The value has to be there. You're right that you need to have the ability to buy as well, though.

You seem to be operating on an unrealistic view of markets, though. There's never been a time when everyone saves and no one spends. It just isn't rational. How many people in today's society, or any society ever, were completely self-sufficient? An individual is incapable of producing everything that they themselves want, so there will always be an incentive to trade your own labor or property for things that you want. I never suggested that someone should save 100% of their money not used for consumption and never spend.

Back to the real topic at hand, though.

GLOBAL ECONOMY-Obama returns fire after China slams Fed's move

Quote :

"* Obama says U.S. low growth or no growth danger to world * China says U.S being irresponsible over QE * Russia says G20 should have been consulted by Fed * Trichet: c.bankers insist no currency weakening sought"

Quote :

"The summit has been overshadowed by disagreements over the U.S. Federal Reserve's quantitative easing (QE) policy under which it will print money to buy $600 billion of government bonds, a move that could depress the dollar and cause a potentially destabilising flow of money into emerging economies."

Quote :

""I will say that the Fed's mandate, my mandate, is to grow our economy. And that's not just good for the United States, that's good for the world as a whole," Obama said during a trip to India. "And the worst thing that could happen to the world economy, not just ours, is if we end up being stuck with no growth or very limited growth," he said."

Quote :

"Washington has frequently criticised China, saying it deliberately undervalues its currency to boost exports. China says the United States, via the Fed, is engaged in the same thing that it stands accused of, and some emerging nations have already acted to curb their currencies' rise."

http://www.reuters.com/article/idUSTOE6A706720101108?pageNumber=2

Obama predictably comes out to defend his banking overlords. What a fool. Anyone want to come out and say the Federal Reserve is still independent?

11/8/2010 11:16:22 AM

Quote :

"There's never been a time when everyone saves and no one spends."

Generally they're called depressions, but it's nice to see you so eagerly craving one.

Quote :

"There will always be demand for things of value."

"Supply creates its own demand in the sense that the aggregate demand price is equal to the aggregate supply price for all levels of output and employment."
—The General Theory of Employment, Interest and Money, John Maynard Keynes

11/8/2010 6:27:55 PM

Weird, with all the supply of money Ben has been pumping, you'd think it would have created it's own demand by now. The only thing that is being demanded is commodities as emerging markets are exchanging their dollars as quick as they can.

[Edited on November 8, 2010 at 7:28 PM. Reason : a]

11/8/2010 7:18:29 PM

I don't feel like posting the link from my phone, but it's all over the news. It's official: of the 3.3 trillion Fed bailout, quite a bit went to private companies and foreign banks. Really, it should come as no surprise. These are interesting times we live in, where the line between banking, government, and business is wiped away completely. Meanwhile, the population at large continues on, buying more on credit, oblivious to the corruption that is rampant and totally unchecked.

12/2/2010 1:19:08 PM

as long as crude doesn't shoot up to $150/barrel in a short amount of time, the devaluation of our currency will mean increased jobs in domestically. the lower GBP and Euro this year have already bolstered UK & German manufacturing and exports. as a matter of fact, China has already started buying USD so that it doesn't drop too fast.

there are two main threats to crude spiking. 1- the next OPEC president is said to be Iranian, and 2- that of potential instability in the world oil transit chokepoints such as the Straits of Hormuz:

http://www.eia.doe.gov/cabs/world_oil_transit_chokepoints/images/Hormuz%20Small.gif

12/2/2010 2:44:28 PM

12/2/2010 2:50:39 PM

Quote :

"I don't feel like posting the link from my phone, but it's all over the news. It's official: of the 3.3 trillion Fed bailout, quite a bit went to private companies and foreign banks."

Was it this one?

Wall Street Bailout Returns 8.2% Profit Beating Treasury Bonds
http://www.bloomberg.com/news/2010-10-20/bailout-of-wall-street-returns-8-2-profit-to-taxpayers-beating-treasuries.html

12/2/2010 5:28:11 PM