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Good post Musk - as a spanish-speaking Texan with a fondness for many things Mexican, I've never been terribly confused about which culture was one to live in and which was only for visiting.
I agree, the pendulum is swinging back from a period in which corporate interests and the ultra-wealthy got away with shifting a huge amount of wealth and power their way. All this while the rest of America was pre-occupied with getting rich by flipping stocks or houses or cards in online poker games.
It would seem many of us bought into the idea that if we just speculated on something, lived off borrowed money and got that pesky government out of our lives, we'd all get rich. That whole business about getting educated, working hard, postponing gratification, etc... was too old fashioned.
Ironically (and painfully, for me at least) when the bubble popped and the music stopped, the government poured money on the banksters and rushed out programs to aid the imprudent. Not being a home-equity-spending, over-indebted fool or a Goldman partner has not paid well.
While it is a little galling to see recklessness rewarded, I'm old enough to have perspective on what really constitutes tragedy in life, and I kept enough of my battered fortune to play this rebound to good effect. That doesn't mean I'm not angry, embarrassed and disappointed to see the US screw up this badly and flounder around so in trying to recover.
I do think we'll right ourselves in time. The country has basic strengths of infa-structure, education and rule of law that some other nations can only envy. Does this mean we'll dial back to the heady stupidity-is-rewarded days of early 2007? Doubtful. But I'll take my chances that this will remain a preferable place to live whatever happens.
I always enjoy the dialogue between you and doc. On a board that sees too many pumpers and fools, you two are worth reading.
Petro: Thanks for your post and for the compliment.
Doc: Apparently we disagree rather profoundly on these issues, especially wrt DEBT...
You say debt was the cause of the crisis and that the countries with the least debt will be more productive in future. Yet your policy prescription is to give loans to individuals, many of whom could not afford to be in debt in the first place. Correctly applied, debt ADDS to productivity and is an important source of wealth (if you've had a mortgage anytime between between 1960 and 2007, or invested on margin in an up market, you know what I mean.) But debt comes with risks, too, and we have all experienced the consequences of debt/risk mis-applied and out of control. My point: Debt is not in itself a bad thing.
I think giving out loans to individuals during the worst of the crisis would have been like fighting a forest fire with garden hoses rather than airborne tankers full of fire retardant chemicals -- an exercise in futility. Saving the banks was essential because without them the financial system and the economy cease to function. Obama's prescription differs little from Bush's b/c it's the right policy, the right medicine. The banks have been saved, capital is formed and allocated and, yes, there is more healing to be done. But would you really rather we'd messed around with alternative medicine while the patient lay prostrate?
Regarding cash for clunkers and the new home tax credit: Yes, these are temporary, imperfect and, maybe, long-term-ineffective fixes -- lipstick on the pig. But I doubt you could find one UAW worker, one auto exec, or one starving real estate agent that thinks they were a bad idea. Sometimes you just need to make the pig look a bit prettier, even if for a day.
to write down the bad debts and take our lumps.
Mish had another great post on deflation, and the Obama Administration's policies, like the Bush ones before, favor the rich. See the link: http://globaleconomicanalysis.blogspot.com/2009/11/is-debt-deflation-just-beginning.html
<I think giving out loans to individuals during the worst of the crisis would have been like fighting a forest fire with garden hoses.>
No, Musk, it is more like fighting a forest fire, and the banks are hoarding water.
< Yet your policy prescription is to give loans to individuals, many of whom could not afford to be in debt in the first place.>
The programs that have been "successful" (cash for clunkers, housing credit) per Congress not me have been the ones where money has been given to the consumer. The bank bailouts have done zilch in getting money to consumers and stimulating demand.
<Saving the banks was essential because without them the financial system and the economy cease to function.>
I am not so sure about that. First off, there were banks that stayed small and smart versus ones that made a bunch of dumb loans and acquisitions for the mere sake of
getting bigger. The government is supporting the latter at the expense of the former.
There is no easy solution to this banking mess, but I liked the Swedish model of nationalizing the banks better than the one we are currently following.
And anyone doing high fives over the banks being saved IMO is deluding themselves. Most of the country's banks were insolvent then and are insolvent now. Last Friday, nine banks failed in one day, a new record.
<You say debt was the cause of the crisis and that the countries with the least debt will be more productive in future.>
Irresponsible debt leading to overcapacity in so many areas was the cause of the crisis. Countries that did not go on this debt binge are certainly going to be able grow faster than countries that did.
<My point: Debt is not in itself a bad thing.>
Agreed. But debt is good only if you can get a higher percentage return than the interest rate you borrowed at. And many times that is not an easy calculation to make.
If you have a negative return, even borrowing at 0%, as the government is currently doing, is going to be a problem.
Good to hear from you PG. Even though Musk and I disagree somewhat on this topic, I do enjoy reading him.
I can understand how my views confuse people. On the one hand, I think the USD is way undervalued, and I defend the U.S. when it comes to its currency against those buying gold, oil, or other currencies.
OTOH, I am trashing the U.S. economy, and it's possible to do both. My model is Japan post 1990. Since the Nikkei hit 40,000 in 1989, the yen is at or near an all time high versus the dollar while the Japanese economy and stock market have been in a twenty year funk.
As for the U.S. versus Latin American, I again go to the Japan example and compare Japan to China. Japan is safer, wealthier, has a better rule of law and is not as oppressive as China is. OTOH, China is growing, dynamic, and much more alive than the aged Japan.
<I agree, the pendulum is swinging back from a period in which corporate interests and the ultra-wealthy got away with shifting a huge amount of wealth and power their way. All this while the rest of America was pre-occupied with getting rich by flipping stocks or houses or cards in online poker games.>
Just like Japan, right? Propped up by government debt, there are zombie banks and corporations that were shells of what they used to be which sounds quite familiar to what we have in the U.S. today. Per Bill Gross, the wealthiest Americans were not the most productive, intelligent, or hardest working, they were the ones best able to get money from banks.
< The country has basic strengths of infa-structure, education and rule of law that some other nations can only envy.>
And again just like Japan.
<Does this mean we'll dial back to the heady stupidity-is-rewarded days of early 2007? Doubtful. But I'll take my chances that this will remain a preferable place to live whatever happens.>
We'll see on that score, PG. I've been disappointed with what Obama. The Dems and Obama do seem to be willing to stick it to the big companies in health care. We'll see how that plays out once the final health care law gets signed into being.
However, Obama has done zip with regards to financial reform. And now we find out that the person who authorized that $13 billion to Goldman Sachs via the AIG bailout was (drum roll please) our beloved Secretary of the Treasury, Timothy Geithner. See the link: http://www.bloomberg.com/apps/news?pid=20601039&sid=aLllpEiqrgpQ#
So we now know that Goldman Sachs not only had the previous SOT Hank Paulson looking out for them, they have the current one as well.
And Geithner is already busy drawing up another plot to give him even more power and money. See the link: http://www.youtube.com/watch?v=pIuwVJ-WqnY
Everybody who is so enamored with Obama has to answer the following question. When it comes to the stock market, commodities market, and the way the bailout has been handled to date, how has Obama differed in any way from Bush?
I especially like the comment related to "capture" of the regulatory bodies as it relates to the world of finance.
But I also wonder about regulatory capture in other areas. The FDA and the EPA specifically but there are no doubt others.
And somewhat related, what are your thoughts WRT the swine flu shot.
From a regulatory standpoint, are you satisfied that the testing of anything new these days is as thorough and unbiased as it should be?
I really get suspicious when I hear that the swine flu had been declared a pandemic over a month ago(based on the evidence as of that date) when there have been a large number of influenzas over the years that had proven to be much more serious in terms of morbidity than the swine flu has shown to be.
Exactly why the swine flu is declared a pandemic (according to a strict definition of the term) while so many other more widespread(and serious) influenzas weren't is especially troubling to me.
Where's the consistency?
WHO and FDA been "captured" too?