Financial News

[Y2HH]

Think of how cheap the houses will be though!

 

They won't be cheap.

 

A default would cause hyper inflation to the point in which no job will keep up with it. A house going for 300,000 now will cost 30,000,000, since nobody will want anything to do with USD, the paper will drop precipitously in value, and anything you want to buy with said paper will skyrocket in price.

 

Then again, it will become a lot easier to get $...but I think prices will rise in direct relation to that...but having things that people want will become worth more.

[southsider2k5]

http://www.cnbc.com/id/43598606

 

The Federal Reserve's massive stimulus program had little impact on the U.S. economy besides weakening the dollar and helping U.S. exports, Federal Reserve Governor Alan Greenspan told CNBC Thursday.

 

In a blunt critique of his successor, Fed Chairman Ben Bernanke, Greenspan said the $2 trillion in quantative easing over the past two years had done little to loosen credit and boost the economy.

 

"There is no evidence that huge inflow of money into the system basically worked," Greenspan said in a live interview.

 

"It obviously had some effect on the exchange rate and the exchange rate was a critical issue in export expansion," he said. "Aside from that, I am ill-aware of anything that really worked. Not only QE2 but QE1."

 

Greenspan’s comments came as the Fed ended the second installment of its bond-buying program, known as QE2, after spending $600 billion. There were no hints of any more monetary easing—or QE3—to come.

 

Greenspan said he "would be surprised if there was a QE3" because it would "continue erosion of the dollar."

 

The former Fed chairman himself has been widely criticized for the low-interest rate policy in the early and mid 2000s that many believe led to the 2008 credit crisis.

 

Bernanke, who took over for Greenspan in 2006, began implementing the quantitative easing program in 2009 in an attempt to unfreeze credit and prevent a collapse of the US financial system. The strategy has gotten mixed reviews so far.

 

 

 

On Greece, Greenspan a default is likely and will "affect the whole structure of profitability in the U.S." because of this country's large economic commitments to Europe, which holds Greek debt. Europe is also where "half the foreign [u.S.] affiliate earnings" are generated, he added.

 

"We can’t afford a significant drop in foreign affiliate earnings," Greenspan said.

 

Greenspan was also pessimistic about the U.S. deficit talks, saying he didn’t think Congress would reach an agreement on raising the debt ceiling by the Aug 2 deadline.

 

“We’re going to get up to Aug 2 and I think on that night, we are not going to have the issue solved,” he said.

 

If that happens, he said, the U.S. would have to continue paying debt holders or risk major damage in global financial markets. As a result, “we will default on everything else.”

 

He added: “At that point, I think we’ll all come to our senses.”

[Y2HH]

http://www.cnbc.com/id/43598606

 

The last person I'd ever listen too is Alan Greenspan.

[lostfan]

I don't really know what the point of having a debt ceiling is. It's like an archaic relic that has no practical use as anything other than a political scarecrow.

[Y2HH]

I don't really know what the point of having a debt ceiling is. It's like an archaic relic that has no practical use as anything other than a political scarecrow.

 

There is a valid reason for it, archaic or not, it's another check/balance in the system.

 

Thinking about this more, I think the reason it has to exist is so the government/party in power can't just do whatever they want and say, "Well, that's how the system works!". At least this way, the voters have the ability to see who votes for the debt ceiling and can actually point at who did what/when. Not that it means much, as you know my opinion when it comes to the system itself being broken. In the end, since they always just vote to raise it, you're right...it really doesn't matter...but it should matter.

 

Bleh, the more I think about the state of things the more I want to distance myself from these types of threads/forums, as they add nothing good to my life. :/

Edited July 1, 2011 by Y2HH

[mr_genius]

There is a valid reason for it, archaic or not, it's another check/balance in the system.

 

agreed

[lostfan]

If the government was going to default, it's going to default. The debt ceiling won't have anything to do with it one way or another, and artificially defaulting just for the sake of making a political point is f***ing insanity and nobody actually wants to be responsible for doing that when the chips are on the table.

 

Whenever conservatives quote Obama in '06 talking about a failure of leadership I'm wondering what kind of cognitive dissonance it takes to twist that around. I want to ask "are you saying he was right then, and wrong now?" It doesn't work that way, and even acknowledging that there were votes to raise the debt ceiling back then is like prima facie evidence that Obama didn't just pull the deficit out of his ass with his Stalinesque government programs meant to cripple and enslave us all. If it was a failure of leadership (it was) then it gets put off onto the next president, when the problem's compounded itself and made into another partisan issue with manufactured reality. Lame...

[NorthSideSox72]

http://www.cnbc.com/id/43598606

 

I said this before, the QE waves have been less successful than expected in great part because the banks are hoarding capital. And that won't resolve until certain other things occur: solid clarification of the regulatory environment most important among them. When the banks do start lending more freely again, we are going to see a big snap back, and unfortunately that will mean an inflation spike.

 

If the government was going to default, it's going to default. The debt ceiling won't have anything to do with it one way or another, and artificially defaulting just for the sake of making a political point is f***ing insanity and nobody actually wants to be responsible for doing that when the chips are on the table.

 

Whenever conservatives quote Obama in '06 talking about a failure of leadership I'm wondering what kind of cognitive dissonance it takes to twist that around. I want to ask "are you saying he was right then, and wrong now?" It doesn't work that way, and even acknowledging that there were votes to raise the debt ceiling back then is like prima facie evidence that Obama didn't just pull the deficit out of his ass with his Stalinesque government programs meant to cripple and enslave us all. If it was a failure of leadership (it was) then it gets put off onto the next president, when the problem's compounded itself and made into another partisan issue with manufactured reality. Lame...

 

Its a speed bump. It serves a purpose, just not the purpose you seem to think it was meant for. Its not meant as a backstop, since it can always be raised. Its more of a sanity check.

 

[southsider2k5]

http://www.chicagotribune.com/news/columni...,7694073.column

 

How Obama's stimulus failed

Falling short on every front

 

Steve Chapman

 

June 30, 2011

Mired in excruciating negotiations over the budget and the debt ceiling, President Barack Obama might reflect that things didn't have to turn out this way. The impasse grows mainly out of one major decision he made early on: pushing through a giant stimulus.

 

When he took office in January 2009, this was his first priority. The following month, Obama signed the American Recovery and Reinvestment Act, with a price tag eventually put at $862 billion.

 

It was, he said at the time, "the most sweeping economic recovery package in our history," and would "create or save 31/2 million jobs over the next two years."

 

The president was right about the first claim. As a share of gross domestic output, it was the largest fiscal stimulus program ever tried in this country. But the second claim doesn't stand up so well. Today, total nonfarm employment is down by more than a million jobs.

 

What Obama didn't foresee is that his program would spark a populist backlash and give rise to the tea party. Where would Michele Bachmann be if the stimulus had never been enacted — or if it had been a brilliant success?

 

To say it has not been is to understate the obvious. The administration says the results look meager because the economy was weaker than anyone realized. Maybe so, but fiscal policy is a clumsy and uncertain tool for stimulating growth, which the past two years have not vindicated.

 

The package had three main components: tax cuts, aid to state governments and spending on infrastructure projects. Tax cuts would induce consumers to buy stuff. State aid would prop up spending by keeping government workers employed. Infrastructure outlay would generate hiring to build roads, bridges and other public works.

 

That was the alluring theory, which vaporized on contact with reality. The evidence amassed so far by economists indicates that the stimulus has come up empty in every possible way.

 

Consider the tax cuts. Wage-earners saw their take-home pay rise as the IRS reduced withholding. But as with past rebates and one-time tax cuts, consumers proved reluctant to perform their assigned role.

 

Claudia Sahm, of the Federal Reserve Board. and Joel Slemrod and Matthew Shapiro, of the University of Michigan, found that only 13 percent of households indicated they would spend most of the windfall. The rest said they preferred to put it in the bank or pay off debts — neither of which boosts the sale of goods and services.

 

This puny yield was even worse than that of the 2008 tax rebate devised by President George W. Bush. Neither attempt, the study reported, " was very effective in stimulating spending in the near term."

 

The idea behind channeling money to state governments is that it would reduce the paring of government payrolls, thus preserving the spending power of public employees. But the plan went awry, according to a paper by Dartmouth College economists James Feyrer and Bruce Sacerdote published by the National Bureau of Economic Research.

 

"Transfers to the states to support education and law enforcement appear to have little effect," they concluded. Most likely, they said, states used the money to avoid raising taxes or borrowing money.

 

That's right: The federal government took out loans that it will have to cover with future tax increases ... so states don't have to. It's like paying your Visa bill with your MasterCard.

 

The public works component could have been called public nonworks. It sounds easy for Washington to pay contractors to embark on "shovel-ready projects" that needed only money to get started. The administration somehow forgot that even when the need is urgent, the government moves at the speed of a glacier.

 

John Cogan and John Taylor, affiliated with Stanford University and the Hoover Institution, reported earlier this year that out of that $862 billion, a microscopic $4 billion has been used to finance infrastructure. Even Obama has been chagrined. "There's no such thing as shovel-ready projects," he complained last year.

 

Even if jobs were somehow created or saved by this ambitious effort, they came at a prohibitive price. Feyrer and Sacerdote say the cost may have been as high as $400,000 per job.

 

Based on all this evidence, we don't really know whether the federal government can use fiscal policy to engineer a recovery. We do know it can go broke trying.

[Balta1701]

What Obama didn't foresee was that the people who said this slump was going to be vastly worse and required much more aggressive action were right.

[southsider2k5]

What Obama didn't foresee was that the people who said this slump was going to be vastly worse and required much more aggressive action were right.

 

That's the Dems #1 problem with government... It is never big enough. Ask Greece, you can't totally spend your way out of things. Eventually you have to have some private sector participation and confidence instead of crowding out.

[Balta1701]

That's the Dems #1 problem with government... It is never big enough. Ask Greece, you can't totally spend your way out of things. Eventually you have to have some private sector participation and confidence instead of crowding out.

Where exactly is this crowding out coming from when bond yields are this low? When private financial firms and banks are sitting on cash reserves literally in the trillions of dollars?

 

They don't want to invest because there's no demand for anything. Just as there was in 2009.

 

Your guys' problem is that you just assume the private sector will always bail you out, when the logical financial decision for just about the entire private sector right now is to sit there, hoard cash, and do nothing.

[southsider2k5]

Where exactly is this crowding out coming from when bond yields are this low? When private financial firms and banks are sitting on cash reserves literally in the trillions of dollars?

 

They don't want to invest because there's no demand for anything. Just as there was in 2009.

 

Your guys' problem is that you just assume the private sector will always bail you out, when the logical financial decision for just about the entire private sector right now is to sit there, hoard cash, and do nothing.

 

Thank your Obama government for that.

[Balta1701]

Thank your Obama government for that.

Obama caused the 2008 crisis of confidence? Wierd. I'm always amazed at his time travel abilities.

 

The market has never satiated the demand for safe assets that exploded in 2008. You can see that in the below-target inflation, you can see that in the bond markets, you can see that in investment numbers, you can see that every time there's any sort of international shakeup.

[southsider2k5]

Obama caused the 2008 crisis of confidence? Wierd. I'm always amazed at his time travel abilities.

 

The market has never satiated the demand for safe assets that exploded in 2008. You can see that in the below-target inflation, you can see that in the bond markets, you can see that in investment numbers, you can see that every time there's any sort of international shakeup.

 

Increasing regulations and mumbles about capital requirements while closing record numbers of banks = banks sitting on cash.

 

You can't say one thing and then do another.

[Balta1701]

Increasing regulations and mumbles about capital requirements while closing record numbers of banks = banks sitting on cash.

 

You can't say one thing and then do another.

 

Yeah, it's Obama's fault that record numbers of banks are closing. Not the fact that they invested in assets that left them insolvent. It's Obama.

 

That one ranks up there with thinking FNMA and FDMC caused the housing crisis when 6% of their mortgages went bad while 18% of private bank mortgages went bad.

[southsider2k5]

 

Yeah, it's Obama's fault that record numbers of banks are closing. Not the fact that they invested in assets that left them insolvent. It's Obama.

 

That one ranks up there with thinking FNMA and FDMC caused the housing crisis when 6% of their mortgages went bad while 18% of private bank mortgages went bad.

 

Who is responsible for the requirements?

[Balta1701]

Who is responsible for the requirements?

Considering how weak Dodd-Frank was in the first place, and the fact that they've only really changed capitol requirements for systemically important institutions...I'd say maybe the New Deal, since it created the FDIC which would shutter banks instead of letting the runs happen?

 

Considering that the large banks leveraged what, 50-1 and then imploded? I'd say that they are.

[southsider2k5]

Considering how weak Dodd-Frank was in the first place, and the fact that they've only really changed capitol requirements for systemically important institutions...I'd say maybe the New Deal, since it created the FDIC which would shutter banks instead of letting the runs happen?

 

Considering that the large banks leveraged what, 50-1 and then imploded? I'd say that they are.

 

Then don't expect banks to loan

[Balta1701]

Then don't expect banks to loan

Exactly the point! They imploded themselves. The logical response is to grab every safe asset possible and avoid risky investments. There's no reason to expect them to loan on anything risky when they can be holding T-Bills.

 

The way around this is to satiate the demand for safe investments by making their value go down and to make those previously risky investments less risky by making their safety go up. In other words, stimulate demand by making sure people have jobs and for God's sake don't undershoot your inflation target.

[southsider2k5]

Exactly the point! They imploded themselves. The logical response is to grab every safe asset possible and avoid risky investments. There's no reason to expect them to loan on anything risky when they can be holding T-Bills.

 

The way around this is to satiate the demand for safe investments by making their value go down and to make those previously risky investments less risky by making their safety go up. In other words, stimulate demand by making sure people have jobs and for God's sake don't undershoot your inflation target.

 

my turn

[Balta1701]

my turn

Laugh all you want...that's the exact story of Japan's lost decade. Little to no inflation pressure, banks imploded due to risky assets that they never moved off the books, banks sucked up every safe asset they could find but had little reason to invest in anything new. Undershot inflation target...actually wound up in deflation.

[NorthSideSox72]

Obama could show some real leadership here and dig into the regulation fuzziness. Agencies and Congress are fiddling, and its a major reason why the recovery has fallen into neutral. Obama could do a lot to get his agencies working on finalizing their end, and he could go to Congress with some allowances for what they want, in exchange for passing more complete, and more solid regulations. Make it a goal for the end of the year to be able to go to the financial sector and say, "OK, you guys are being watched, but you now know exactly what to watch for yourselves. Go to work." He can and should then follow up with consolidation of agencies and responsibilities to make the whole thing more efficient. Completeness and clarity first, efficiency next. He has to take leadership to make the first two things happen.

 

[southsider2k5]

Laugh all you want...that's the exact story of Japan's lost decade. Little to no inflation pressure, banks imploded due to risky assets that they never moved off the books, banks sucked up every safe asset they could find but had little reason to invest in anything new. Undershot inflation target...actually wound up in deflation.

 

Is that the new explanation?

 

Japan is sunk because they never moved their debts off of the books. Which coincidentally is what the Obama administration is trying really hard to do by stalling foreclosures, plus all of the ridiculous programs to go with it that haven't worked, but sure cost us a lot, and still keep debt and toxic assets on the banks books.

 

Remember your mantra about what happens when you stop spending in a recession? The Obama administrations response has done the exact same thing in banking. Blaming banks for sitting on cash, while forcing banks to sit on cash out of fear of being closed, is what is the problem here. If you want money to flow, you don't tighten regulations and oversight. It doesn't work that way.

[southsider2k5]

Obama could show some real leadership here and dig into the regulation fuzziness. Agencies and Congress are fiddling, and its a major reason why the recovery has fallen into neutral. Obama could do a lot to get his agencies working on finalizing their end, and he could go to Congress with some allowances for what they want, in exchange for passing more complete, and more solid regulations. Make it a goal for the end of the year to be able to go to the financial sector and say, "OK, you guys are being watched, but you now know exactly what to watch for yourselves. Go to work." He can and should then follow up with consolidation of agencies and responsibilities to make the whole thing more efficient. Completeness and clarity first, efficiency next. He has to take leadership to make the first two things happen.

 

This needs to happen soooooooooooo badly, but it won't, because the government will never shrink itself.