Since consumers have over borrowed then monetary policy will not increase consumption. The direct transfer payments to consumers are required to have an effect.

The consumption Ponzi scheme has moved from consumer borrowing to US borrowing.

I am not against the stimuli, but I am concerned that the US is in a death spiral. The number of full time employed in the US is now below year 2000 levels.

Example: If you do not have a reliable electric grid why bother purchasing electrical appliances that might “make your life easier”. If a reliable grid is brought to the rural area and put in by the local people who intern get reasonable wages for their work letting them then pay for their new electrical appliances GDP will increase quickly. Add exports and the country will get to normal very quickly. Overall increases in the standard of living can feed on itself for a few years. The personal computer and all that goes with it is an example.

Why does it not work here? Not to sound flippant, but when you have it all what more do you need? We need a technology that will replace not only a major work force like the personal computer which reduced costs at work i.e. the secretary/typist and is needed not only in the work place, but in the home once it gets past the status symbol and into a real working home tool like in the last 10 years. We do not have that type of technology out there and if you say that going “Green” will do that … It won’t. There is no new technology/tool — only modifications of current tools already in use.

Our stimulus needs to be in the form of small business development. Due to lack of corporate overhead here in the States, small businesses most likely will provide goods and services cheaper then other areas once transportation is added (Fuel will go back up based on increase demand in other countries, commodity investors, dollar, etc. before we see major increases in our GDP and/or any new technology additions. Any arguments against petrol going up I will be happy to hear as this is a fear of mine since early Dec. 08.).

I would suggest to anyone reading this from Congress that you set up a small business loan program much like the FSA (USDA – Farm Services) where risk is assessed not by “to big to fail banks” or even smaller banks who do not have the money available right now, but by those who have a better understanding of community needs and business supply chain needs. Then set it up like FSA farm loans — since it is taxpayer money, if the small business fails, they are taken apart and everything is sold. Any money that is not recovered by the sale of property if it fails, is then the responsibility of the people who applied for the loan and must be paid keeping taxpayer risk low while providing jobs to the economy that may or may not need additional education.

Secondly, our tax structure has been rigged to favor Wall Street and not the manufacturers. I am involved with a small wind energy manufacturing company. The tax investment incentives all favor Wall Street and C corporations, not the small individual investors. We have to go through multiple elaborate hoops to structure deals for the individual investor.

I work with many engineers of foreign birth ( actually 80-90% of the engineers I deal with are foreign born.) They were all educated here. Many foreign engineers and scientists were educated here and returned home to work. Our educational system, besides being way too expensive, is only a problem to the extent that it pushes students into liberal majors like Psych, Poli Sci, Anthropology, History, Engilsh and then Law or MBA in grad school. For our plant, we are having a tough time hiring a novice straight our of school ME for less than $100k. I guess I should have been an engineer.

Real Estate Lending is only flowing freely through the FHA, ( yes reflating the our just burst bubble on easy money to people who have little wherewithall to repay), but the rest of the real estate lending market is in the toilet.

Denninger and others say there is little demand for credit. I don’t think it is all that black and white. Many businesses needing credit can’t get it, so they are forced to retrench. The lack of available credit after a while becomes a self fulfilling prophecy of little demand for credit because business conditions have been so destroyed already by that same lack of credit. I am personally aware of many, many realistic deals that have gone kaput because of ridiculous bank lending requirements.

*Quantity* above is a numeric issue while *quality* is a formal language of grammatical expressions.

Numbers used to measure value as work is the bean counting. Numbers used to identify the quality of economic decisions, such as what and when to buy, and what and when to sell, and etc, are issues that the book-keeper *identifies* into a carefully composed economic history of *the beans traded in the marketplace.*

It is the design and implementation of this history that insures its reusability. That reusability is the only way to track qualitative changes in value. And that reusability depends upon historical numbers that are in essence words that state facts. And so both the numbers and the words in the liability side of a ledger are categorically different from the numbers and words on the asset side of the ledger.

To get a visual picture of a proper book-keeping ledger, one that follows the pattern used in industry 50 years ago, and that is even more precise in a properly coded computer program, draw a square on a blank piece of paper. Draw two lines that break the square into four squares. Over the left hemisphere of two squares write the word “Assets.” Over the right hemisphere write the word “Liability.” To the right of the southern hemisphere pair write the word “Cash.” To the right of the northern hemisphere write the word “Capital.”

In a proper book-keeping the numbers and words, as bean counts versus history, are assets set equivalent to liability. In the orthogonal hemispheres, it is cash set equivalent to capital. “Cash” is defined as the “value” in trade (the bean count) “Capital” is defined as the potential in future trades.

A proper book-keeping posts transactions as pairs where each of the paired transactions has a debtor|creditor balancing entry. Each pair of transactions must leave both the Asset|liability hemispheres and the Cash|capital hemispheres in the state of equivalent balances.

In order to maintain this balanced state, contracts cannot be comingled. A Betting transaction, for example, must be treated as an entity within an entity: a joint venture. There is no sign of the joint venture being used in the bond scheme.

NoteaBanker: “I think I am beginning to get the idea. Now re your comment concerning a mortgage bond which clearly is a devil of a problem. What does your system do by correctly using the journal/ledger to ensure mortgage value repayment revenue and market value decay or appreciation is known and accounted and follow any on-selling of the mortgage (individually or bundled)? ”

Clearly, when a mortgage broker buys a mortgage from the mortgagee, then sells the mortgage to a brokerage-house to be ground into sausages as bonds the history of the contract between the mortgagee and the mortgage-broker is catching hell. Among other sins that history is seriously affecting both the value of the mortgage and the rights of the mortgagee in terms of the mortgagee proving the fraud that was taking place. It is for such reasons that a proper double entry must take into account the history of contracts that it is recording. Clearly, opportunists have used computer software’s abstract controls to abuse the traditional systems.

NotaBanker: “It seems that any on-selling of a loan renders risk management virtually impossible for the new beneficial owner, always assuming that there is a first lender earning servicing fees? Does such service include periodic asset valuations? What a dog’s breakfast! I would be very interested to become aware of your solution for this problem.”

It would be nice to have a lawyer’s comment on this if there is one in the discussion. But clearly the Entity that is servicing the loan would seem to have the greatest liability of injustices caused by this dog fight. It seems to me that the selling of the mortgage itself is improper, once it is comingled with other mortgages. The brokerage buying is in fact buying only the interest proceeds that may or may not be generated by the mortgage that the original broker is servicing.

The situation clearly, I hope, shows the need for a proper double-entry book-keeping.

I note your closing comment: ‘Double-entry book-keeping software can do the job. I know this because I created a prototype of the solution to the simultaneous balancing both quantity and quality’

I think I am beginning to get the idea. Now re your comment concerning a mortgage bond which clearly is a devil of a problem. What does your system do by correctly using the journal/ledger to ensure mortgage value repayment revenue and market value decay or appreciation is known and accounted and follow any on-selling of the mortgage (individually or bundled)?

It seems that any on-selling of a loan renders risk management virtually impossible for the new benficial owner, always assuming that there is a first lender earning servicing fees? Does such service include periodic asset valuations? What a dog’s breakfast! I would be very interested to become aware of your solution for this problem.
thx again.

And oh, if memory serves didn’t the Democrats block any investigation of the Fannie/ Freddie mess for the eight years of W.

Now, W should take the blame for:

• Not pushing much harder against the Democrats for the reform of Fannie and Freddie.

• Allowing the reserve requirement rules to be dumped for investment banks.

• Not riding herd on the SEC.

• Appointing people like Bernacke, Paulsen, O’Neill and Snow. All his Treasury Secretaries were RINO or Democrat Wall Street insiders who looked after Wall Street first, foremost and always, and Main Street almost never. But these were the “right” establishment choices approved and pushed by the media.

• Allowing the mortgage backed securities mess to get out of hand. When the French banks started to fail in July ’07, and the subprime mess came to light, alarm bells should have been ringing loud and clear for Bush, Bernacke and Paulsen. Bush just delegated the crisis to his insider experts Bernacke and Paulsen and they exploited the looming crisis to prop up their friends and the banks to the detriment of the country.

• Allowing the TARP mess and bailout to be rushed through without proper debate and a thorough review.

W listened to his Dad and his Dad’s Wall Street cronies way too much, and it got us into bigtime trouble.

In one generation they have changed America from ‘every one gets a chance’ to ‘you take what we give you’. Just waiting for the moment when they demand we get on our knees..

An effective counteraction from Congress would be to take back the airways. Mandate that candidates of a certain threshold would be given, gratis, air time. This would be a good start but not solve all ills.

love the new baseline – thanks for updating. Quick question though: If China, Brazil and other emerging countries are experiencing high levels of GDP growth (and in some cases forecasted to return back to pre-crisis levels as you point out) – what is fuelling this growth? i.e. as a proud alumnus of some your classes, we were made clearly aware that decoupling of global economies was a fallacy. A savings glut in Asia was offset by huge deficits in the US and EU. If US and EU growth is sluggish and we are not going to see a demand led recovery – what then is fuelling China’s pre-crisis GDP growth?

Would appreciate a little help on this.

cheers.