Regarding U.S Economy.

[Beckwin]

actually, what would force budget and operations transparency in a "true free-market society"? I kinda think you're just making shit up again, because it's obviously good for business not to have all your books open to the public- and your competition.

[guartz]

actually, what would force budget and operations transparency in a "true free-market society"? I kinda think you're just making shit up again, because it's obviously good for business not to have all your books open to the public- and your competition.

unless of course, there is a demand for transparent products?

[guartz]

new eurika episode is on right now, f.y.i

[aurik]

What don't I understand, exactly? Where the 700billion line of credit is coming from? or are you talking about something else?

You need to stop treating money as if it is a tangible thing. It's not. It's a fiction, a lubricant that keeps an otherwise very clunky barter system operating in a fluid manner. Right now, the system is seizing up because there's not enough liquidity. The only possibility is to watch the system grind to a halt, or alternatively, pump in some more lubricant and institute some new policies to make sure that it doesn't leak out.

This 700 billion is going to magically appear in the banks coffers, but they will be giving up their risky assets to the government. So it's not like they're "adding 700b", but rather they're substituting 700b in liquid value for ~600-800b worth of non-liquid value.

Over the course of several years, they'll be slowly "selling" the non-liquid assets back into the market, whereupon the money "paid" for the assets, will vanish. And thus, the assets will slowly be resubstituted for the liquidity that originally displaced them.

[miokomioko]

http://www.threepanelsoul.com/comics/098.png

[Beckwin]

unless of course, there is a demand for transparent products?

and Joe Homeowner who didn't fully understand his contract, much less speak to a lawyer about it, is gonna be the consumer that demands it? Not to mention it'd be up to the business as to what exactly they disclose; it'd be too easy to sell whatever figures and calculations make them look the best, and then again we're getting into the territory of things being too complex for Joe Schmoe to know what to ask for.

please.

[Tyche]

I've watched a lot of CSPAN with Bernanke, and that is a great picture lol.

[guartz]

You need to stop treating money as if it is a tangible thing. It's not. It's a fiction, a lubricant that keeps an otherwise very clunky barter system operating in a fluid manner. Right now, the system is seizing up because there's not enough liquidity. The only possibility is to watch the system grind to a halt, or alternatively, pump in some more lubricant and institute some new policies to make sure that it doesn't leak out.

This 700 billion is going to magically appear in the banks coffers, but they will be giving up their risky assets to the government. So it's not like they're "adding 700b", but rather they're substituting 700b in liquid value for ~600-800b worth of non-liquid value.

Over the course of several years, they'll be slowly "selling" the non-liquid assets back into the market, whereupon the money "paid" for the assets, will vanish. And thus, the assets will slowly be resubstituted for the liquidity that originally displaced them.

uh no. The government is buying bad mortgages through the 700b line of credit once the congress approves the fed to loan to the government.
this loan is secured through taxes.

This is why people(and foreign investors) still buy u.s government bonds.

oh lookie at this.

http://www.bloomberg.com/apps/news?p...2Rk&refer=home

Introducing this much new currency (which the banks will use into the economy, and potentially multiply it significantly through fractional reserve system) will increase inflation. Which is a form of a tax, if you think about it. Not to mention how it increases the actual deficit, which is already amazingly high.

god damnit, did you sleep through your economics class? it would explain how you thought up this amazing and magical way fiat currency works.

[guartz]

and besides, if there is no market for those mortgages, since nobody wants to buy them, then they are technically worthless.

[Correction]

The real property underneath those mortgages still has value. And you're kind of restating aurik's point about liquidity, are you sure you're disagreeing with him?

[Maguspk]

uh no. The government is buying bad mortgages through the 700b line of credit once the congress approves the fed to loan to the government.
this loan is secured through taxes.

This is why people(and foreign investors) still buy u.s government bonds.

oh lookie at this.

http://www.bloomberg.com/apps/news?p...2Rk&refer=home

Introducing this much new currency (which the banks will use into the economy, and potentially multiply it significantly through fractional reserve system) will increase inflation. Which is a form of a tax, if you think about it. Not to mention how it increases the actual deficit, which is already amazingly high.

god damnit, did you sleep through your economics class? it would explain how you thought up this amazing and magical way fiat currency works.

The non-liquid in aurik's post could be referring to the 'bad mortgages'. It's all the same really.

[Creeps]

Adam Smith is laughing in his grave right now

[Brien]

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. " -Thomas Jefferson

The epitome of Ha ha I told you so

[Correction]

And yet it was the father of American Banking who pulled the United States completely out of the debts incurred during the Revolutionary War. History trumps quote-dropping.

[aurik]

uh no. The government is buying bad mortgages through the 700b line of credit once the congress approves the fed to loan to the government.
this loan is secured through taxes.

This is why people(and foreign investors) still buy u.s government bonds.

oh lookie at this.

http://www.bloomberg.com/apps/news?p...2Rk&refer=home

Introducing this much new currency (which the banks will use into the economy, and potentially multiply it significantly through fractional reserve system) will increase inflation. Which is a form of a tax, if you think about it. Not to mention how it increases the actual deficit, which is already amazingly high.

god damnit, did you sleep through your economics class? it would explain how you thought up this amazing and magical way fiat currency works.

Um, except that's exactly how fiat currency works. Maybe you're the one who should review their economics! The government doesn't dig money out of a hole in the ground, or sieve it from some river in the Yukon. They invent it, and it becomes real because people have faith that it's meaningful. It's a fiction, a very convenient fiction when it comes to the purposes of trading goods and services.

The whole system is having liquidity problems right now. The problem is not that the assets are worthless. Far from it, actually, if the write-downs on the asset values have been honest. The problem is that everyone wants to cash out *right now*, and when you have a highly leveraged system, that's a big fucking problem.

The solution is to have the government "dissolve" some solid assets into liquid assets (cash), so that the system can continue to function normally for the time being. Then, slowly unwind the solid assets and sell them back into the system. In the meantime, these assets essentially belong to nobody, and the net amount of wealth in the system has remained relatively unchanged. This means minimal inflation.

[Quicklet]

Aurik, isn't the whole problem with fiat currency the fact that the government created this problem in the first place?

Also, are you the one I was arguing with about Keynesian economics a while ago?

[aurik]

Aurik, isn't the whole problem with fiat currency the fact that the government created this problem in the first place?

Also, are you the one I was arguing with about Keynesian economics a while ago?

Yes, it was.

To head off a majority of the monetarist points: no shit the government created this problem. They failed in their responsibility as the controllers of the fiat currency. No, this problem wouldn't have--couldn't have!--occurred with an asset-backed system instead of a fiat system, kinda hard to leverage 30:1 when your currency is based on an arbitrary physically existing object.

I still think that the growth-enabling properties of a fiat currency we get when it is responsibly administered makes the system worth it.

It should have been pretty much impossible to insure junk bonds with heavily leveraged assets that happen to be more junk bonds and come away with AAA debt to resell. It's a fucking shame that the oversight abdicated their responsibility to the people paying their campaign bills, and that's exactly why we need the McCain/Gramm ticket to lose.

[Quicklet]

Yeah... I find it extremely odd that nobody (particularly companies whose business it is to avoid losing money like the plague) bothered to question the practice while it was happening. Honestly, it's easy to blame a single entity but I bet most people (especially politicians) can't point to all the key factors that enabled this to happen. I also think the blind accusations against "deregulation" and the "free market" grossly oversimplify the forces at work. I do think there are legitimate reasons to investigate the possibility of fraud, especially when it comes to the repackaging of these debts, but I hope it doesn't become an overzealous crusade that obscures the root causes.

I have no faith that either party will rein in spending until the government faces a financial crisis large enough that they can't ignore the debt anymore. It might take 10 years, maybe 20, but it's pretty obvious it's going to happen at some point. And that is maybe the worst part about fiat. If the administration of it is terrible enough, it can cause far more damage than any temporary growth you might hope for.

[guartz]

You know, there is a contemporary example in history to reinforce my point that when things are bad, instead of fixing it, the looting and corruption increases.

Look at the collapse of the soviet union, for example.

[Tomk]

I have some questions.

What exactly happened to the banks? I find it hard to believe that these banks just threw money at anyone without thinking just because the Government regulations were gone. Did they know they were going to get bailed out? If that's the case, let them fall.

The only thing that I have seen is the interest rate. It has been really low for a long time. I mean super low. This did it's job and sparked the housing market but also greatly increased home values. Far beyond what the value should be. This caused people to get into debt for more than they should on houses that really weren't worth that much.

Also, what is being done to reverse this damage and not just absorb it?