Credit, Monetary Policy, Depressions, and More!

[mkemse]

It is very Intresting but Micheal Steele, the New Chair of the Republican National Committe said at the speaking Enbgament yesterday 2-19-09 "Do not put the blame for our current Finicial Situaion on the Democrats, they are not responsible for where we are now"

[MMI]

Ok - I won't blame the democrats ... unless they work in banking.

But as they are in charge of the world's recovery, they are responsible for where we are going.

[DuncanONeil]

You are aware that the down reported housing market is based on an average? 41% of which is the State of California and the rest of the average is the other five States with housing problems. Actually the median value of an existing hous in the nation, over all, has decreased by a grand total of about 2%. That hardly qualifies as a disaster, wouldn't you say?

[tedteague]

to your first point, money is not as glorious as you lead on. You say a car has no inherent value; well money does not either. That is why the value of money changes with inflation, deflation, and exchange rates. Money can quite literally be worthless if people choose not to accept it, which is always a hypothetical option, and usually happens in places with hyperinflation. Money is simply paper, legal tender. It is a commodity widely accepted. Furthermore, money is not the promise of work, if anything, it is a token of work already done. Nothing is being promised. You dont get paid then do the job (if you do, lucky you), it is more like a token os accomplishment. "I worked for ted for 10 hours, and because shaws doesnt accept 4 chickens in exchange for steak, ted has given me the equivalent of 4 chickens on cotton blend i can do whatever i want with." Furthermore yet again, if it is the promise of work, what do you call it when the fed prints money?
The circular flow is right, for the most part. If you get into the paradox and thrift and all that, thats a whole nother issue
2. this sort of goes out the window with the first point. Credit has to be repaid by someone, most of the time
3. The first thing that comes to mind is that there is more than 800 billion in cash. Quite a bit more. 1.7 trillion actually. People also have confidence in banks because of FDIC insurance. It seems you have a problem with the fractional reserve lending system. Quite simply, whats the alternative? Without banks lending money to create more money through interests on loans, the economy turns into a zero-sum game, where by one person making money someone else has to lose the same amount
4. You seem to have confused cause and effect here. The forclosures and defaults contributed to the popping bubble. Prices can only go so high until people simply cannot stop paying them or turning houses over. It is when everybody grabbing money realizes theres too few that bubbles pop. Secondly, the banks stopped lending not because of fear it wouldnt be paid back, but because they needed assets to recover from the bad mortgages and stay in the green (or not too far in the red). Third, interest rates shot up again as a result of the rapidly expanding economy. The Fed sets the interests rates, not banks.
5. Recessionary monetary policy expands the money supply. It more than doubled since '07. The lack of money is because of the liquidity trap, which is caused by sticky wages, which is caused in this case by the high unemployment.
6. Again, your last point is incorrect. When money starts leaving the banks because employment rises, there will actually be a massive inflation problem, not a deflationary heaven
7. You can't raise taxes to fund increased spending because raising taxes decreases consumption spending. If theres not enough money moving, you raise spending and cut taxes and fire money from both barrels. Furthermore, surprisingly, the stimulus spending is not much of the federal budget. 85% of the federal budget goes to defense spending (war on terror and whatnot) as welll as medicaid/medicare/social security. and good luck cutting any of that
8. Again, can't raise taxes in a recession. Its basic macro theory. Furthermore, you don't really have to worry about a concentration of wealth because again, we dont have a zero-sum economy. And even those who are very wealthy are still spending. Buying yachts employs skilled laborers to make those yachts. The wealthy may have a lesser marginal propensity to consume, but the disposable income they use to consume is only brought down by higher taxes.
9. The government can buy it all. At the very least, if the fiscal policy makers were moronic, they'd monetize it. Furthermore the bailout hasnt worked. Job creation has not occurred. And the bailout is supposed to be immediate. the long term solution is market self-correction. Which is what should have happened. And banks do know who they should lend money to. They have rooms filled with Harvard financers who crunch those very numbers all day
sorry for the lengthy reply, but you have some mistakes in your first post

[DuncanONeil]

Read most of it. Speed read the rest.

Very interesting! Not sure i agree with all of it but still very interesting.

One thing I would like to put out for general consumption. Once was informed that every dollar put into circulation has the equivalence of $10.

This covers a lot of ground from the idea of money up to the credit market, why the seizure is bad, and a lot of other things. It's a primer for today's hot issue.

So let's talk money.

Money.
[SIZE="1"]
"There is nothing quite as wonderful as money.

[TantricSoul]

Posts about the topic are appreciated.

Subtle or not so subtle personal attacks are not.

Keep it on topic and keep your posts about the issues not the other posters.

~Tantric