You are making progress.

Without trying to push the politicial issues of this discussion, I have not heard anything of economic value to the country come from the Republican Party for decades, especially these last 8 years.

It is also true that most people including those that represent us are pretty ignorant of basic economics, a critical fault of our educational system.

However, there is an even larger issue here and it is one of corruption. I have worked with and around executives for a very long time and I know how their minds work. It is all about greed, and where there is greed, there will be a way. Our elected officials have access to the best minds in business and economics. Many of them choose not to listen to them.

Partly to lessen the thread's recent somewhat political drift I note:

"Consumer credit decreased at an annual rate of 6 percent in the third quarter of 2009. Revolving credit decreased at an annual rate of 10 percent, and non-revolving credit decreased at an annual rate of 3-3/4 percent. In September, consumer credit decreased at an annual rate of 7-1/4 percent. ..."

You can see the full tabular data vs. time, who is holding the loans, etc. at:
http://www.federalreserve.gov/releases/g19/Current/ (just released today, 6Nov09)

What is clear is that yes Joe American is borrowing less (not using his credit cards or asking for bank loans etc.) but I am not sure this data says he is saving more, although that is often claimed, as spending does not seem to have contracted as much as his borrowing has. It also does not make a lot of sense for Joe to save and defer current pleasures with interest rates so low. Paying down high interest debt is much more attractive.

What is the basis for the often heard claim Joe is now saving ~5% of his income? I.e. are they really just saying he is borrowing 5 to 7% less?

This behavioral change is a mixed blessing in that we need to "deleverage" our financial positions (We were way over extended, addicted to cheap stuff we did not really need from China etc.) But the government seems to follow a Keynesian policy only when it calls for more spending. (No surpluses since Clinton)
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The thread’s "US Economy Finally Inches Out Of Recession" seems to be based mainly on the improved GDP data, but that was more due to growth at the corporate bottom line than the top. I.e. profits and productivity increased in part because firings are up and in part because it is a global economy with the DOW stocks getting more than half of their income from outside of the US sales where the emergence from recession is more real.

Many know my POV that US is headed for an inevitable depression and I think this thread's title claim is just more of the same old "green shoots" optimism. The big, unexpected step up in the unemployment rate seems to support that POV.

i have a weird question thing....

what would people think about the world having the same currency? instead of american dollers, Canadian money, euros, pounds.. things like that.....

No, this just underscores a fundamental confusion between creation and circulation.

When you say 'stimulus' it only means stimulation of circulation, or the velocity of money.

This does not create economic prosperity anymore than people spending all their retirement savings makes them richer.

Its simply another way of sacrificing the future to create illusions in the present.

money supply times the velocity of money IS the current level of economica activity. You can call that "circulation" or any other name you like, but if either factor is low (as velocity of money is now) you have low economic activity, are losing jobs instead of creating them etc. You do not seem to understand anything about the Keynesian theory / model - why US is furiously printing money now etc.

Keynesian stimulations certainly does generate economic prosperity /activity, but it is not an sustainable solution in the longer term due to the increasing government debt. It is only "pump priming" not a water well.


There is no sense to your false analogy. Of course, people spending all their retirement savings does not make them richer. neither would burning it up.
So what? That has nothing to do with Keynesian stimulation of an economy that has fallen into an economic slump.

Don't mis-understand. I am not saying the current Keynesian effort will succeed - I think it will not, but is at best a delay of the coming depression and probably will make it more sever and longer lasting as the Keynesian debts will help completely collapse the dollar.

Finally you only discussed the more minor of the two reasons why some inflation is good for the economic health of a society. Is that because you do not understand how compound interest in a few 100 years will concentrate all the wealth into very few hands, if there is no means of wealth redistribution in operation? I.e. that without inflation, or some such means, the modern high efficiency mass production / consumption society is impossible. – Then without that redistribution of wealth, only a feudal or all wealth possessing Kingdome is possible.

I think when you say economic activity youre really just referring to velocity.

The money supply number is used to calculate velocity...so saying "money supply times the velocity equals X" makes no sense.

There is no quantified singular value in the science of economics called 'economic activity'.

What mechanism of redistribution are you referring to here?

How does a devaluation of the currency create prosperity?

Seems like you have several different concepts here...all jumbled up with no apparent connection.

"... Interest paid on the debt was $22.8 billion - or 7% of federal outlays for October, which is the first month of the new fiscal year. For the month, the Treasury took in $135.3 billion from various sources and spent $311.7 billion. ... Treasury is estimating the annual deficit for fiscal year 2010 to hit $1.5 trillion. That would top the $1.42 trillion registered for 2009, which was the highest annual deficit since 1945. ..."

From: http://money.cnn.com/2009/11/12/news...icit/index.htm

BillyT comment:
You would think you would get some stimulus from a government going into debt at rate of more than 100 billion dollars per month - You will - it is called inflation.

Note US population is ~300E6 and 100 billion is 100,000E6, so each man woman and child is now (and has been for more than a year) going into government debt at the rate of 1000 / 3 or more than $10/ day, but don't worry - it is the price of delaying the depression I forecast GWB's term was making inevitable, while GWB still had three years left as POTUS.

After the dollar collapses, that debt will be easy to pay.

We have yet to experience any inflation. On the contrary, the dollar's purchasing power has been roughly flat or even increasing slightly throughout the recession (as expected).

Inflation will only be a problem if the Fed is too slow to increase rates once the stimulus takes hold and employment recovers.

Carcano, just because you cannot or will not understand what Billy T is saying does not mean that he is jumbling things up without apparent connection.

I find Billy T's writtings quite clear and very coherent. Perhaps you should invest in a few economic/finance courses or reread Billy T's posts with a clear intent to understand and learn.

May be that is the plan all along....

This is our old problem / difference in POV approaches. You look to the past to project the future and I tend to ignore that and attempt to understand the current long to moderate term trends and facts to devine the future.

Certainly as the recession started, money grew tight and the dollar grew stronger as the "safe haven" but since April 09 the Euro has moved from the low of 1.25$ = a Euro to the current 1.5$ = a Euro. That is a 20% drop in the dollars value against the Euro. I do not have immediately at hand the drop of the dollar vs. the Brazilain Real, in that same time frame but dollar only buys 1.7 R$ now, not approximately 2.4R$. Also a large part of the recent oil and gold price rise is really just the dollar growing weaker.

You are assuming employment is going to recover in a year or two. I am not so sure about that.

US GDP and corporation profits* are up BECAUSE employment is down - no domestic top line growth - just cost cutting in the US.

I very seriously doubt that the FED will be able to raise rates for several years, perhaps 4 or 5 years, and as far as the eye can see FED will "print" ~1.5 TRILLION more debt each year to finance the growing debt* - that is printing more than $10 every day for every man, woman and child in the USA!
I read that as indicating strong future inflation.

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*7% of all US gov expenditures in first month of this FY were just to service the growing debt. Any significant increase in interest rate will make that 10%. - Even without any rate increase, this is now in the exponential growth range. Borrow or print ever more dollars to pay the interest on the growing debt. We are not going to "grow our way out of this" disaster - we are digging the hole deeper with near zero real growth. Recal GDP is a false measure of growth - includes repair etc.

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*Some are also getting help for their foreign sales.

?? We're talking about what's happening right now.

That's exchange rate. We were talking about inflation. The dollar buys as much (if not slightly more) actual products and services than it did a year or two ago.

If employment doesn't recover, then inflation won't be a problem.

You said:
that is not "right now" but more like past history.
That too is not "right now" but more like past history.
False - recall the German inflations with no jobs. It can happen here too if the printing press keep cranking out 1.5 (or more) TRILLION dollars every year.

Falling housing prices and falling labor prices and decreased consumer purchasing power power accounts for the lack of inflation.

In my shopping and bill paying I see inflation as being in line with what it has been for the last five years. This inflation rate as seen through shopping and bill paying is clearly higher than what the CPI says that it is but it is not close to being hyperinflation.

The official CPI for the last year and a half has been kept down by falling home rental prices. If they Measured housing in home sale prices the inflation would have been greater in the housing boom and we would have seen outright deflation recently. Home rentals are less volatile than home prices.

All the stuff made in China continues continues to rise in prices at a slower rate than everything else that I spend money on. The American inflation rate minus stuff made in China would have been a lot higher over the last decade than the CPI as a whole including stuff made in China was.

You can and should translate monetary policy back into supply and demand because supply and demand is where there economics really happens. Everything else you could study in economics only matters because of the effects on supply and demand.

The Fed has been cranking out money which increases the supply of money and therefore increases demand for things to do with dollars but people and companies are nervous and prefer saving to spending at this time and lending has been reduced which means that the multiplier effect is lower than normal at this which reduces money supply which reduces demand for things to do with dollars.

"Things to do with dollars" = Consumption + investments in productive capacity (like government owned highways, hammers, industrial robots, fork lifts, electron microscopes, deep fat fryers for fast food restaurants, and college educations) + investment in both conservative and speculative savings with conservative savings meaning bank accounts and government bonds and speculative savings being stocks, bonds, options of all types, real estate, collectibles and whatever else.

For the last 32 years sales of US assets have increasingly paid for US consumption. When this the foreign enthusiasm for purchasing US assets stops we will have a faster falling dollar. When this happens energy and stuff made in China will rise in price. Even American grown food and lumber will rise in price as the falling dollar increases global demand for American agricultural products. This type of inflation will be inflation that is not created by the Fed creating money. This type of inflation is created by a reduction in the supply of things to do with dollars caused by a reduction in the attractiveness of US financial assets.

But strangely enough, you cant explain how devaluing the currency creates prosperity...anymore than Billy can.

American workers can not compete against similar workers in other nations who can create the same products and services cheaper than Americans can simply by selling their efforts (time) and skills (education, job experience) at lower prices than Americans expect to sell their efforts and skills for.

Devaluing a currency changes the ratio of what workers in one nation are paid in relation to what similar workers in another nation are paid.

A small devaluation in the dollar could help American workers compete against Japanese and German Workers. Unfortunately only a massive devaluation in the dollar and other first world currencies would enable American, Japanese and German workers to compete against similar Chinese, Indian and to a lessor degree Mexican workers in a relatively free market in which first world workers are not protected by tariffs or other forms of government protection for their wages.

I think the German and Japanese political and economic elites understand the nature of the economic dilemma that first world nations are facing but their American counterparts tend to be oblivious because reality runs counter to the ideologies of American exceptionalism and the superiority of free markets.

Free markets are superior but they do fail sometimes. As far as I am concerned the currency markets failed when they priced the wages of new graduates with degrees in electrical engineering so much lower in the third world than they price the wages of new graduates with degrees in electrical engineering in the first world.

Nirakar has explained that in post 58, but I can add a few examples. China has for more than a decade kept its currency "devaluated." I.e. worth less than the value it would have if allowed to float freely. (Currently, since July of 2008, pegged at 6.83 Yuan to the dollar) In the decade before that China had a "slipping peg", which as I recall allowed the Yuan to drop from > 8 to the dollar down about 22%, Many think the Yuan is still devaluated by ~20% - this greatly aid their exporters, made many prosperous, until the US financial problems hit in late 2008 as American could not afford to import as much as China could produce.

On the other side of the same function, Currently Brazil's Real is "over valued" only 1.7R$ will buy a dollar. The real has gained about 33% on the dollar in 2009 thus far. ("over valued" is the opposite of "devalued" so has the opposite effect - I.e. destroys prosperity especially in the exporting sector, but even in the producers making goods for the domestic market as with the strong Real, many, for example will import wine from France or Chile, instead of buy a locally produced bottle.)

As others have noted, you seem to lack the ability to understand relatively simple economics, especially theoretical relationships. That is why I did not respond - Certainly I could have explained in detail the theory of why modest devaluation can aid the local producers - make them more prosperous. (As it boosts both exports and domestic consumption via reduction of the competiting imports). I did not do so because I too think your comprehension powers are limited. Thus I gave above two current examples - the Chinese one with devaluated currency making booming exports and the Brazilian one with super valued currency closing factories that once exported.

A few years I sat some hours in the NYC Macy's ladies shoe department. (A better place to wait for my shopping wife than the men's shoe department as no one interrupted my reading by trying to sell me some shoes.) When I had finished all my reading material, out of boredom and a long interest in economics, I started to pick up shoes and see where they were made.

At least 2/3 were made in Brazil. (Natural economically as Brazil has world's largest herd of leather producers, had cheap labor and sort of a devalued Real back then. -Now you will not find even 5% of the shoes in Macy come from Brazil. Most of those shoe factories are closed. The labor costs in Brazil are higher, and the Real is not devaluated now - it is super valued. The cows are still here making the raw material for leather - I assume it is exported to low labor cost Asian regions like Vietnam, not China as they are prosperous now with their devaluated currency so no longer have cheap labor. Chinese worker's purchasing power is growing at ~15%/ year now.

P.S. Don’t assume that I cannot explain some aspect of economic, just because I judge the effort would be wasted.

"... A survey by Foresight Analytics found that 53 percent of commercial real estate mortgages due by 2014 -- or some 770 billion dollars -- were "underwater," meaning the borrowers owe more than the value of the property.

Atlanta Fed president Dennis Lockhart said he is concerned that "there could be an impact resulting from small banks' impaired ability to support the small business sector -- a sector I expect will be critically important to job creation." Lockhart said small banks hold a large portion of commercial real estate loans, which could mean a tightening of lending as defaults rise.

Kent Engelke, chief economic strategist at Capitol Market Securities, said that although the situation appears dire, banks have been through this kind of crisis before. "Based upon firsthand experience I believe banks will work their borrowers (by) extending maturities ... as long as the project is cash flowing waiting for asset values to recover," he said.

"While I do believe commercial real estate is an issue I don't think it will become the event many fear... Moreover once banks become more confident about the recovery, banks will then begin lending hence adding further support to commercial real estate." ..."

From: http://news.yahoo.com/s/afp/20091115...ertycommercial

Billy T comments:
Article closes more on the up side with Kent Engelke's comments, but I think he is "Whistling past the graveyard."

Certainly he is correct that banks will not foreclose on underwater properties that still have net cash flow. Now with rents falling and vacancy rates rising*, some owners (they are corporations) are declaring bankruptcy and just walking away, so this is not the time to sell into a deeply distressed market.

So long as the bank can pretend that the loan will be paid, it does not need to eat the loss - it can carry it on the books at face value, not discounted to market value, which is likely to less than 50% of that.

Also one must note that Kent is not a disinterested observer - if too many properties go under, so might his Capitol Market Securities. I.e. his self interest is to be as optimistic as possible, just like a real estate agent always thinks it is good time for her customer to buy as "prices will soon be going up again."

I think the Atlanta FED president has the more correct POV even assuming that the jobless recovery will continue. Admittedly, my POV is biased as I think the "recovery" is a false one - due to firing workers and cutting other costs with little if any top line growth in US sales. Most companies are getting their profits from foreign sales, not the domestic US market because Joe American is paying off debts, not buying except the essentials.

Commercial properties have large fixed expenses, including various types of insurance. I wonder if the rate at which underwater buildings are catching fire is increasing? There has been a marked increase in the cars that are catching fire, and quite a few owners have been caught setting fire to their cars they could not keep up the payments on. Anyone have data on this?
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* "... A survey by the consultancy PricewaterhouseCoopers and the Urban Land Institute suggests the market may continue to slide into 2010. The survey respondents predict that commercial real estate vacancies will continue to increase and rents will decrease across all property sectors before the market hits bottom in 2010. It projects value declines of 40 percent to 50 percent off 2007 market peaks, setting up the potential for big bargains. ..."
From same source given above.