Comments on: And Now, the Counterargument

By: SmartRemarks » A good source for economic analysis

SmartRemarks » A good source for economic analysis — Thu, 19 Feb 2009 08:51:05 +0000

[...] 70%. This is still manageable, but it should concentrate our minds – we do not agree that the impact of the fiscal stimulus will be adverse, but we agree the US government fiscal position could become more precarious down the road. [...]

By: C Dan

C Dan — Mon, 09 Feb 2009 11:46:36 +0000

The stimulus may be “in the price” but I doubt the announcement of the $4 trillion bank recap program that Simon has been calling for would be.

Might spook our creditors.

By: polit2k

polit2k — Sat, 07 Feb 2009 05:20:46 +0000

In a world economy that is not just de-leveraging but also de-investing what has the US got in the way of products and services that the ROW (or specifically China) wants or needs? The answer is not a lot, and with the dollar being kept artificially high what there is is too expensive.

In effect there would appear to be no normal trade based market forces in sight that will cause the downward spiral in the US economy to correct itself. Meanwhile, to add to the downward spiral the US will suffer enormous budget stresses from a lack of revenues from domestic taxation.

A wider understanding of this scenario may be the trigger for a tipping point if the world is relying on a US economic upturn to lead a general recovery.

However, trillions of private and SWF money will continue to try to find short term advantages in one currency or another.

Taxing these flows is the only opportunity that western governments have to offset hugely declining revenues from normal taxation sources.

There are many reasons for taxing capital flows especially in turbulent times but failure to extract reveune via taxation of capital flows over the next decade or so would be yet another self inflicted wound, and evidence that governments, as is often the case, can’t see the wood for the trees.

By: Old Poor Richard

Old Poor Richard — Sat, 07 Feb 2009 05:04:57 +0000

It looks like a great real estate buying opportunity is coming soon but not here yet. Banks have high inventory because there isn’t enough pressure to force them to unload at fire sale prices. When that happens, then time to stock up on real estate with as much leverage as possible. Buy temporarily undervalued assets with borrowed money that can be paid back with inflated dollars down the road.

By: ben

ben — Sat, 07 Feb 2009 03:37:14 +0000

Heard the story on “planet money” today so thought I’d surf over and ask the bigger question what about the debt in the future? By this I mean what do you expect the economy to do in a few years when the baby boomers start in earnest using US government social programs like social security, medicare and Medicaid? Won’t the federal debt just explode when the baby boomer generation starts taking from the well instead of putting funds in?

The other big question I have that is not so well understood is what about the effect of credit default swaps on the economy? Since these financial instruments were unregulated and the size of the derivative market is up to 60 trillion according to some articles in the financial times, won’t this damocles hanging over the bond markets cause problems down the line?

Basically I’m thinking if the unfunded social mandates which are on the order of 50+ trillion dollars and the credit default swaps which are also valued in the 50+ trillion dollar range, won’t these 100+ trillion dollar unresolved problems cause all kinds of grief in the markets?

I don’t have an economics degree or a background in finance but I do read allot and from where I sit I don’t think the Bush TARP economic stimulus of 700 Billion, or the Obama economic stimulus now in the senate is looking a few years down the road at some really big problems…

By: Carson Gross

Carson Gross — Sat, 07 Feb 2009 03:03:29 +0000

http://finance.yahoo.com/q/bc?s=%5ETNX&t=1y&l=on&z=m&q=l&c=

Looks like the natives are getting restless. (OTOH, I’ve been crying “bond market bloodbath!” for a year now, and look where it’s gotten me.)

Cheers,
Carson

By: edward allen

edward allen — Sat, 07 Feb 2009 01:09:54 +0000

Actually it was the debt rolled up in World War I that brought the British Empire to its knees. Britain was forced to renege on its debts in 1931.
That aside, with all this discussion on the size of the stimulus, we are missing the point, and that is effectiveness. I never thought I would ever see Congress having such a difficult time spending money. They do not want to pull this trigger.
There are two central problems.
1. Congress is passing a stimulus bill that substitutes federal spending for what the states (or counties) were about to do. Take school construction, never before a federal issue, but indeed a central one in this stimulus plan. But these schools were already going to be built, and were just stacked up waiting either for votes on bond issues, or bond issues.
2. The proposals are likely to be ineffective. The Senate attached one provision that provides a $15,000 federal tax credit for first time homebuyers (defined as those who haven’t had a house in the last three years) in order to clear the inventory of unsold new and second-hand homes. It would last only for one year. This looks wonderful, except we had a $7,500 tax credit last year, and we see what happened to the housing market. Sure the existing $7,500 was a loan that had to be repaid, and the $15,000 is a gift, but I do not see this moving the markets much because American consumers have woken to the realization that their credit card spending got us into this mess, and they are not in a spending mood.
What I don’t see, which is alarming, is any clear and workable program to get the banks to take unsold houses off their inventories. Until the house price issue is resolve, this crisis will not be resolved.

By: Per Kurowski

Per Kurowski — Fri, 06 Feb 2009 23:15:45 +0000

Do not overcrowd the safe-harbor.

The Fed should charge the Treasury a “safe-haven” commission on all US public debt issued.

That way the US Treasury, and the Congress, would know better that the benefits derived from safe-havens considerations is really not for them to keep; and also that it costs a bundle to keep ever more crowded safe-harbors safe.

That the markets now trusts the Treasury has more to do with the lack of an alternative ports during a very difficult storm than with any intrinsic trust in the harbor chiefs. The US government and the US Congress need to humbly accept that before they, and we, are left with nothing.

To finance a long term stimulus package with overnight funds anchored close to the exit of the safe-haven seems too dangerous.

Also remember… do no harm! Do not forget that the credibility of the dollar is one of the remaining sources of financial stability in the world markets.

If the US wants to risk it, then at least, after having recently observed the horrible consequences of adjustable mortgages, it should do its borrowings long term and at fixed rates? If it can’t get any acceptable rates, then the more it should know that perhaps it should not try it at all.

By: Nemo

Nemo — Fri, 06 Feb 2009 20:39:58 +0000

The problem, I think, is that if we start to reach that tipping point, things could progress very quickly and be very hard to reverse.

Do Keynesians believe there is any such thing as an inflationary depression?