Fed divided over more stimulus as economy weakens
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0
Jeffrey Duelley
Looks like the dollar is going to reach its intrinsic value.
0
TumbleDry
QE3! QE4! QE5! QE(n)!
-4
BreitbartVictorious
Obama, having incurred more debt than all US presidents before him, is now threatening to withhold SS checks if he cannot appropriate even more of private citizens' earnings in order to buy votes.
Who is this usurper?
Who does he serve?
2
Laguna
Breitbart, you must be blissful in your apparent complete lack of economic knowledge - it means you do not need to take responsibility for anything you say. In that, you so resemble House Republicans. Adults, however, have to keep the ship afloat - not juveniles like Bush who start wars, reduce taxes and introduce programs with no intention of every paying for them, but those like Obama who realize that difficult compromise is necessary. Enjoy your fantasy world, though: it's so much easier not having to think.
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BreitbartVictorious
Laguna - The country has been without a budget since April of 2009. That is dereliction of duty. Obama has failed us.
Why should the country - the majority of whom side with Repubs on this issue - allow Congress to increase the ceiling when we do not know what is in the budget?
It is not Repubs who are in denial.And it is partisan Dems who truly are the most faith-based bloc in US politics.
Obama's last attempt at a budget got slapped down in the Senate 97-0.
HIs bluff has been called. Time for this fraud to man up.
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Laguna
Right; you've misrepresented the budget before. Obama's budget was rejected by Democrats because it was cut too into social programs without corresponding increases revenues; by Republicans, because it was Obama's. Paul Ryan's budget was rejected by all Democrats because it would fundamentally change American society as we know it in ways they deem not fair and accepted by all Republicans for exactly the same reason. You might remember that passing a budget is the responsibility of the legislative branch; that the two parties cannot find common ground is in no way due to Obama's lack of efforts.
The whole concept of a debt ceiling is chicanery to begin with. Congress makes the budget; if they are not happy with deficits, balance the budget! A budget ceiling is simply extraneous. And we DO know what is in the current spending plan: it is a continuation of last year's budget, with any changes needing approval. There are no blank checks.
Those who would question why the country should allow Congress to increase the debt ceiling are deluded if not insane. Compromise is required; Obama offered real compromise, which the Republicans have rejected. It is their bluff that is being called, my friend.
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BreitbartVictorious
Laguna -
Why should the country - the majority of whom side with Repubs on this issue - allow Congress to increase the ceiling when we do not know what is in the budget?
The non-partisan CBO declared (June 2011) that the 09 stimulus, rammed through with none of the bipartisanship Obama promised - yet another lie - worsened the economy.
"Before Obama's bogus stimulus became law, federal debt equaled 36 percent of GDP, projected to decline slightly over the next few years. Instead, thanks in large part to the stimulus, debt stood at 62 percent of GDP by 2010."
Obama himself laughed as he admitted those shovel-ready jobs were never there.
Why should anyone trust this fraud?
0
yokomoc
Much of the debt the government's taken on has effectively been a debt transfer to relieve the private and corporate debt that had spun out of control before he took office, as well as the 'stimulus' package (which would be better labelled an anti-depressant - without it the economy would be beyond bad.) The gross external debt i.e. the total debt owed by all parties within the U.S. to other countries has risen from 13.5M before he took office to 14.8M as of June 30. Not good but unavoidable in the circumstances. You're also not accounting for inflation and relative economic growth.
The main thing though is you can't blame Obama for Congress' failings and the stubbornness of Republican senators to oppose everything. I do blame him for pushing Health Care Reform in 2009 at a time when the US needed urgent economic measures. Right idea but terrible timing.
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BreitbartVictorious
Sorry, but the CBO is right. It hurt the economy. It was a fraudulent and deeply cynical abuse of power by Obama to reward his union pals and the districts that supported his party. Read up on where the money went and you quickly get the picture.Millions doled out for some very dubious projects. Daily.
0
Laguna
Breitbart, when the economy slowed in early 2008, Bush and Congress agreed on their own stimulus, a $268 billion plan consisting mostly of tax cuts, which shows that they know about as much economics as you: that Keynesian economics has acquired a bad name is a result of political wishful-thinking, not of reality. Liquidity injected into a market lacking demand will just be socked away, and that is exactly what happened. Demand requires workers with paychecks, and that happens when government steps in to compensate for collapsed private-sector employment.
The majority of Obama's stimulus went to state and local governments and helped to mitigate a very bad situation - for all the talk of "big government" and even with the stimulus, total government employment is down by 500,000 since Obama took office. Even virulently anti-stimulus Republican governors gladly accepted the money from Washington, virtually all of them for every reason. These same Republicans are now attacking the stimulus. They are like Scientologists who profess no faith in medicine and take only a partial course of their required medication, then complain that it didn't work as expected. On some, the Great Depression and its lessons have been totally lost.
0
TheQuestion
That point is arguable. Between market reactions, the unemployment rate, and given how much of that money was wasted on pet projects the stimulus packages had very little real impact, the bailouts were actually counterproductive. They enforced the idea that we must save a company even if it is a failure resulting from unsound production and labor decisions. If GM had dissolved it's product lines were already ready to be purchased by outside and third party companies and while many of it's unprofitable lines would have gone under the majority of it's lines would have found new owners. The same goes for many of the banks and holding companies. Business does not operate in a vacuume, assets and losses need to go somewhere and they always do.
You mean that only a World War can end a serious economic downturn? Because most economists and historians now agree that FDR's plan actually artificially extended the Great Depression by several years. The only thing that saved the U.S economy in the long term was that the SC struck down large parts of the New Deal as unconstitutional. A better lessen would be learned from the depression of 1920 and how business leaders, lacking government support or stimulus, rallied knowing that if the U.S fell so did their businesses.
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kchoze
Hmm, no. Only right-wing dogmatic economists say that. The reasonable economists, including the consensus following WWII, all agreed that the New Deal helped tremendously, and any cursory glance at the evolution of the American economy during the 30s clearly indicate a strong positive effect of the New Deal on the economy. Growth during the New Deal was incredibly high, the overall picture is darkened by 1937, when FDR put the New Deal on ice to fight the deficit, a terrible mistake that plunged the economy back into recession. Some say then that WWII ended the Great Depression, not the New Deal, but WWII, in economic terms, was the New Deal on steroids.
It is part of right-wing revisionism to claim that the New Deal didn't help, but the evidence is overwhelmingly against them. They so mislead and lie about the facts. They use unemployment statistics that count as unemployed the millions of people employed by the WPA for instance, to conclude that unemployment was still very high at the beginning of WWII, when, if you count these people as employed (and truly, they were being paid to do a job), the unemployment rate was maybe around 9%, down from 25% in 1932. It must also be pointed out that Herbert Hoover reacted in a classic way to the Depression, raising taxes and cutting spending, and only reluctantly started some small-scale urgent aid programs when people literally came begging to the White House to keep them from starving. The result? The economy only went worse from 1929 to 1932, and only started recovering in 1933, after FDR and the start of the New Deal. When FDR cut the deficit in 1937, a new recession appears that disappears as soon as spending is resumed. The revisionists want us to believe that it's just a huge coincidence.
As to GM, I'm sorry but your reasoning stinks of magical thinking... that there is always someone with the money to take over anything, we just have to blindly entrust ourself to the "Market". Sorry, not the case. Remember what was happening then, credit was tightened to the point of asphyxiation, no one could have borrowed the money to buy GM and run it until it got back to its feet. FIAT was interested in Chrysler, but it couldn't buy it and run it because credit had dried out. Only government loans, substituting private credit, saved these companies and the economy from the terrible shock their closures would have had. There was no one else.
In fact, had credit not dried out, GM and Chrysler wouldn't even have needed government loans. Ford got through it because they had got as much money from private loans as they could BEFORE the crash, when credit was plentiful.
As to the 1920 recession, comparisons are ridiculous with the Depression. The 1920 recession was a normal shock caused by the return to a peacetime economy, there was no financial crisis, just a readjustment, notably through deflation which may give the impression the economy fell a lot when it didn't fall by much. Not only that, but the Federal Reserve already existed then and it acted in a counter-cyclical manner, it had increased interest rates prior to the recession, which helped bring it about, and reduced the rate to stimulate the economy after it started. You know, like Bernanke did, except he can't bring the rates down any further so he has to use creativity to try to do it.
There was also no shock to aggregate demand, which happened in the Great Depression and which fiscal stimulus is made to fight.
What? What world do you live in? The CBO never said the stimulus package hurt the economy, quite the opposite. The CBO said in August 2010 that the stimulus package probably led to 1,4 and 3,3 million jobs created or preserved and 1,7 to 4,5 percent higher GDP.
I have googled and found no mention of any June 2011 report that reversed the results of the earlier reports. Please tell me your source and what it actually says, not just a questionable interpretation.
0
kchoze
I have to point out too that the stimulus was badly made, mostly tax cuts and transfers to State and local governments. It was investment in infrastructure that would have helped most by putting people to work in construction jobs that had been idled by the collapse of the real estate sector. However, Obama is a mild politician who loves compromise more than fighting for left-wing ideals, he's more of a moderate 60s or 70s Republican than a progressive Democrat (hey, his health care plan was what Gingrich and co proposed to counter Clinton's plan in the 90s). So he didn't put up a fight for this real Keynesian possibility and instead used the path of least resistance, tax cuts and transfers that Republicans like.
The Fed's stimuli are also badly made, they pump financial sectors with money hoping that some trickle down to the real economy, but that is quite inefficient, however they have the chance of not being forced to answer to the Tea Party crazies who are grinding Congress and the Senate to a halt and are preventing any action that would help from being done.
0
Wolfpack
Wow great - more inflation and devaluation of the dollar. Let's double down on that dumb idea and ride that train right over a cliff. At this rate, the US will find itself falling into the abyss well before Greece can get there.
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BreitbartVictorious
So is it "right-wing revisionism" to quote the well-known confession of FDR's own Secretary of the Treasury, Henry Morgenthau Jr.?
Because this is how the guy who engineered the New Deal viewed his efforts, circa 1939:
"We have tried spending money. We are spending more than we have ever spent before and it does not work."
0
kchoze
BV, if you knew anything about history outside of the propaganda of the right-wing echo chamber, you would know that Henry Morgenthau, far from being a keynesian, was an orthodox economist who was actually opposed to many of FDR's initiatives. He was in charge of the treasury because he was a financial expert, but he wasn't "the guy who engineered the New Deal". That someone like him would say such things is not a surprise, he didn't like deficits, didn't like big spending programs.
It may come to a shock to you, but the FDR administration wasn't one of radical socialists or fascists, there were all kinds of people in it. There were conservatives too in there, who had become willing to participate reluctantly to the New Deal because their orthodox and conservative policies had been tried and had failed to lift the economy during nearly 4 years under Hoover.
FDR himself wasn't that much of a radical. Keynes actually sent him letters to tell him that he wasn't spending enough to really compensate the lost potential of the economy. FDR was willing to try new things and to set up programs to help the little guy ('cause he cared) but he was no radical, just look at how fast he turned around in 1937 and cut spending to get a balanced budget, destroying part of what he had achieved in his first 4 years.
Interestingly, history seems to repeat itself here, just as Keynes warned FDR that the New Deal would do good but wasn't big enough, Krugman has publicly written many times that Obama's stimulus package was too small to really get the economy back to potential. Just as FDR quickly turned to austerity too fast in 1937, Obama is now talking of the deficit much more than unemployment. As in 1937, the recovery is faltering and there is a threat of a double dip recession.
@Wolfpack
One of the problems that prevent the economy from recovering is too much consumer debt. Government debt is not that bad presently, the government borrows at ridiculously low rates. The problem is the middle class that has too much debt and that will not start spending or investing until their debt is lowered to more reasonable levels. For this, some high inflation (4-5%) for a few years would do a lot of good, because inflation generally doesn't mean that only prices increase, but wages too. However, debt is generally nominal, its interest rate of debt that is already present rarely increases with inflation, which means that debt is reduced by inflation.
So right now, the economy could do with a bit of inflation. It's better to have 10 000 dollars of a dollar that's worth 0,90 dollar of 2000 than 8 500 dollars of a dollar that's worth 1,00 dollar of 2000.
Runaway inflation can be a problem in its destabilizing effect on the economy, but we are not there, REALLY not there.
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BreitbartVictorious
So now Morgenthau, appointed by FDR (to the immense frustration of conservatives) also joins, by some kind of retro-fit hindsight, a cabal of right-wingers that has locked economists in an "echo chamber" of some sort ?
Whatever.
I'll let the Master, as Keynes' fans on the totalitarian Left like to call him, explain what he really meant:
"...Nevertheless the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire. "
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kchoze
You are able to repeat words, but the meaning of them seems to escape your grasp. Morgenthau was an orthodox economist, he may have shared some of FDR's principles, but he was certainly no keynesian. He was one of the most vocal voices in the Administration in favor of a quick return to balanced budgets and reduced debt. That he may have been skeptical of stimulus spending is not surprising. You wanted to make him into some kind of grey eminence behind the New Deal, that he was certainly not.
Furthermore, you really do not understand Keynes either. He was not a socialist, nor was he totalitarian, he was a capitalist who accepted that the State could be an active and beneficial actor in an economy, to stabilize the economy and soften its cycles. You also quite evidently not understand what totalitarian really means. Totalitarianism is the rule of a man or a small elite over every aspect of society, the left's attempt to allow people to have influence through democratic institutions like the democratic State cannot be totalitarian by definition. It seeks to empower everyone collectively. I would argue however that a free market can create a class of wealthy owners who control the reigns of the economy by owning almost all the means of production and capital, which creates a particular brand of totalitarianism.
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BreitbartVictorious
"I would argue however that a free market can create a class of wealthy owners who control the reigns [sic] of the economy by owning almost all the means of production and capital, which creates a particular brand of totalitarianism."
You argue, but you furnish no examples. Probably because the system you describe would be closer to a modern variety of mercantilism that the truly free markets that terrify authoritarians and collectivists.
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BreitbartVictorious
correct that last sentence : Probably because the system you describe would be closer to a modern variety of mercantilism than the truly free markets that terrify authoritarians and collectivists.
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Laguna
Breitbart, are you suggesting that Keynes was a fascist? The above quote simply states that production in a totalitarian state is easier to model than that of a dynamic capitalist state, which is clearly true; it implies in no way that Keynes supported a totalitarian state. Also, Keynes didn't publish his general theory until 1936; of course Henry Morgenthau was no Keynesian - nobody was at that early date. Keynesian economics has proven to work, as much as any economic theory is able to prove itself, to rectify collapsed demand. You may deny it, but the facts are not on your side.
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BreitbartVictorious
Fascism, in 1936, when Keynes penned those words, was quite popular with the intelligentsia in Europe.
His general theory was less of a new direction than it was backhanded support of the one Mises had thoroughly refuted twenty years before.
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kchoze
Like totalitarian State, the totalitarian results of the free market tend to be unstable, because societies can only exist through the consent of the people, enthusiastic or tacit. As totalitarian systems tend to result in the majority's interest being ignored, the majority tends to demand change. Over time, they get their change.
Which is why the USSR imploded... and which is why in the late 19th century, early 20th century many governments started passing anti-trust policies and broke up the biggest private corporations.
Let us remember the case of the mining towns, where workers were paid in company scrip, limiting their purchases to company stores where their scrip would be refused if they did things against the will of their employers, like try to unionize. And they couldn't move to another town, because nearly all their "wealth" was in company scrip, worthless outside of the company town. Some companies used this power to put up all kinds of limits on how employees could act, some had teams of people randomly entering employee's houses to see if they violated any corporate guideline in their private lives.
I suggest you read about George Pullman to get an idea of a totalitarian result of too much wealth concentration from the free market.
0
TheQuestion
When FDR froze some of the programs it revealed exactly how artificial the growth was under the New Deal. The jobs, growth, and production were done in a vacuum that had no real impact in the economy overall and would never lead to lasting prosperity but rather would snowball into even larger programs needed to maintain the farce similar to what is going on now through the ever increasing debt and stimulus.
Ah yes, glorious life during WWII. If you weren't working long days in factories making tanks, ships, or guns you were off in a foreign land getting killed. The austerity measures were the icing on the cake, who wants butter, salt, meat, and milk with their meals anyway? I'm proud of the way we rallied around the war effort but it should, under no circumstances, be considered an economic planning point.
The only reason the U.S didn't crash and burn after WWII was due to the pent up demand for consumer products that were denied to them during the war that fueled a private sector surge than nobody expected. It was private interests that paved the way for the U.S's rise in the post war years with the only hiccoughs being government regulation of the labor force that stifle job creation to this day.
Typically in times of economic downturn people start asking for less compensation and businesses, in turn start hiring employees at competitive rates. Between the artificial jobs of the New Deal and the welfare nets that market was virtually nonexistent and stifled long term recovery that was only offset by the war.
0
TheQuestion
GM as a whole? Aboslutely not. That would mean having to uphold it's labor contracts and every other poor decision it's made over the years. No, the company known as GM would cease to exist and it's assets, including car lines, would be sold off piece by piece in far more manageable chunks. I recall quite vividly the collapse of a few major banks back in the 1980's that everybody though would drive us into another depression but were torn apart by smaller banks even when credit was arguably tighter than it was during GM's fall.
1
kchoze
Like the totalitarian State, the totalitarian results of the free market tend to be unstable, because societies can only exist through the consent of the people, enthusiastic or tacit. As totalitarian systems tend to result in the majority's interest being ignored, the majority tends to demand change. Over time, they get their change.
Which is why the USSR imploded... and which is why in the late 19th century, early 20th century many governments started passing anti-trust policies and broke up the biggest private corporations.
Let us remember the case of the mining towns, where workers were paid in company scrip, limiting their purchases to company stores where their scrip would be refused if they did things against the will of their employers, like try to unionize. And they couldn't move to another town, because nearly all their "wealth" was in company scrip, worthless outside of the company town. Some companies used this power to put up all kinds of limits on how employees could act, some had teams of people randomly entering employee's houses to see if they violated any corporate guideline in their private lives.
I suggest you read about George Pullman to get an idea of a totalitarian result of too much wealth concentration from the free market.
0
kchoze
I find it funny when people talk about the economy being "artificial"... by definition, the economy is the product of man's labor, so of course it's artificial.
That being said, what the 1937 recession indicates was the very poor state of the private sector, caused not by the New Deal but by the unsustainable Roaring Twenties and the Crash that followed them. It also indicates that stimulus spending should be phased out, not dropped suddenly, to ease the transition and not cause an economic shock, which is rarely good for the economy.
Not only that, but what the WPA and the public spending programs did in the New Deal was build an strong infrastructure on which the latter economic growth occurred. It wasn't lost money, it was money that gave the US an edge in infrastructure, which facilitated trade and other economic activities. Roads, electric networks, electricity generation (the TVA which exists to this day and is so vital to the economy of the region that despite the region being very right-wing, it is not under pressure of privatization), aqueducts, etc...
This is what a good stimulus program does, it invests to compensate for faults in infrastructure, to set the stage for better growth down the road.
WWII economically did what it was supposed to, no one is saying that life was great in a state of war, but it contributed to bolstering industrial capacity, and, especially, to get rid of the overhang of private debt that is one of the biggest drag on private economies. I do believe that the theory of debt deflation explains best of all why and how a lasting recession or depression occurs. Because of the enforced austerity of WWII, people put aside a lot of money, reducing their debt level, which finally freed the economy. This debt was shifted in large part to the government, but the government can deal better with debt than consumers or companies.
Your vision is too small, you look only at the supply side and not the demand side. Businesses will not hire people if there is not enough demand for their products to justify increasing production. That's the problem of the spiral of falling demand. Demand falls, so businesses lay off people, the laid off people can't buy stuff anymore, so demand falls, so businesses lay off even more people. At one point, things will pick up again, of course, but in the meanwhile, you lose a lot of wealth, some of it permanently: factories close, infrastructure falls into disrepair, people lose expertise due to idleness, etc...
Keynesian stimulus' idea is to stop just trusting that in the long-term, things will get better and take care of the short-term too, to help things get started faster. Which is why Keynes said in frustration "In the long run, we're all dead.", not to say that one shouldn't think of the long-run, as many right-wingers claim, but to denounce a mentality that says that the short run doesn't matter, to sit and wait for everything to turn around, no matter how much time it actually takes to do that.
Such piecemeal purchase of GM parts would have still resulted in the laying off of hundreds of thousands of workers and the end of most of GM's activities. The consequences would have been catastrophic, and needlessly catastrophic as you can see now that GM is back to being profitable and consumers have more choices than they would have had otherwise.
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BreitbartVictorious
"Totalitarian" results? This is a meaningless term,or more likely another futile attempt to prove the existence of absolute monopoly achieved by "predatory pricing." Railroads as an example of a market that produced "malefactors of great wealth"? I suggest you read up on James J Hill and how private railroads beat corrupt, government-backed ones, and dealt far more honorably with investors, customers and not least of all the native peoples whose lands they built upon.
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