Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

[FreshFish]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

it is said that the world is a comedy to those who think and a tragedy to those who feel.

Part of me would find Clueless Ben Bernanke and his cohorts mildly amusing if it wasn't for all the hardship they were inflicting on the rest of us.

Clueless Ben floundering around again in front of Congress this week.


Whether you are a Keynesian or a monetarist, you both agree that the velocity of money is a key driver of economic growth. it's in all the Economics 101 textbooks and has been validated many times in retroactive regression analyses.

So Clueless Ben and The Gang embark on this ultra-low interest rate regimen, that starves savers and fixed income investors of yield, thereby driving down the velocity of money. and then they express bewilderment at why economic growth is so anemic.

I guess when you are really smart and super-sophisticated you can ignore the fundamentals, eh?




Not only that, but long-term Treasury securities are a very important tool in complex financial arrangements known as "counterparty swaps." These swaps are a crucial tool in financial management, used to make sure what you need at a certain future date actually will be available at that future date. Treasury securities are frequently used as collateral in these swaps in case of non-performance by one of the parties involved. and so Clueless Ben and The Gang have been draining Treasuries from the market with their bond-buying binge. So there is less collateral available, and fewer swaps than we'd have otherwise. Again, they are deliberately removing something vital from the market (yield above, collateral here) and then scratching their heads when the markets respond in a completely understandable and predictable manner. You have less yield = lower growth; you have less collateral = less business activity. and yet these geniuses with their sophisticated computer models somehow can't discern these things?




Reminds me so much of the weather forecaster who is so enamored of his computer models that he neglects to look out the window, and predicts a sunny day even though anyone with eyes can see the raindrops falling from the clouds!

 

[Rover]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Ummmm...how do high interest rates encourage growth? They encourage savings which while not a bad thing tends to be anti-growth, no?

 

[Bill]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

it is said that the world is a comedy to those who think and a tragedy to those who feel.

Part of me would find Clueless Ben Bernanke and his cohorts mildly amusing if it wasn't for all the hardship they were inflicting on the rest of us.

Clueless Ben floundering around again in front of Congress this week.


Whether you are a Keynesian or a monetarist, you both agree that the velocity of money is a key driver of economic growth. it's in all the Economics 101 textbooks and has been validated many times in retroactive regression analyses.

So Clueless Ben and The Gang embark on this ultra-low interest rate regimen, that starves savers and fixed income investors of yield, thereby driving down the velocity of money. and then they express bewilderment at why economic growth is so anemic.

I guess when you are really smart and super-sophisticated you can ignore the fundamentals, eh?




Not only that, but long-term Treasury securities are a very important tool in complex financial arrangements known as "counterparty swaps." These swaps are a crucial tool in financial management, used to make sure what you need at a certain future date actually will be available at that future date. Treasury securities are frequently used as collateral in these swaps in case of non-performance by one of the parties involved. and so Clueless Ben and The Gang have been draining Treasuries from the market with their bond-buying binge. So there is less collateral available, and fewer swaps than we'd have otherwise. Again, they are deliberately removing something vital from the market (yield above, collateral here) and then scratching their heads when the markets respond in a completely understandable and predictable manner. You have less yield = lower growth; you have less collateral = less business activity. and yet these geniuses with their sophisticated computer models somehow can't discern these things?




Reminds me so much of the weather forecaster who is so enamored of his computer models that he neglects to look out the window, and predicts a sunny day even though anyone with eyes can see the raindrops falling from the clouds!

Treasury Bond interest rates are on the rise. For more than four years now, the Fed – through its multiple quantitative easing programs – has been the world's biggest buyer of Treasury bonds. So now with interest rates on the rise, the Fed is underwater on all of the purchases it made over the past year.

Not only is the Fed printing money to buy up U.S. Treasury debt, it's now losing money on the bonds it bought.

 

[FlagDUDE08]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Ummmm...how do high interest rates encourage growth? They encourage savings which while not a bad thing tends to be anti-growth, no?

You have to strike a balance, though. With the low interest rates we have now, the savers aren't loaning out money because the amount of interest being garnered is not worth temporarily parting with the money and potentially losing it by means of default. The only exception is student loans, because they cannot be dissolved in bankruptcy court. If the savers aren't willing to lend out the money, you don't have any way to obtain capital, which results in no growth. Where do you think this money comes from, thin air?! In every transaction, one party gains wealth, while the other party loses wealth. Obviously the trick is to be the gainer.

 

[Rover]

You have to strike a balance, though. With the low interest rates we have now, the savers aren't loaning out money because the amount of interest being garnered is not worth temporarily parting with the money and potentially losing it by means of default. The only exception is student loans, because they cannot be dissolved in bankruptcy court. If the savers aren't willing to lend out the money, you don't have any way to obtain capital, which results in no growth. Where do you think this money comes from, thin air?! In every transaction, one party gains wealth, while the other party loses wealth. Obviously the trick is to be the gainer.

I'm all for striking a balance. I'm not sure current low rates in the US are holding back growth. IMO a way too underreported problem is that the US is getting next to zero help from the rest of the world. For places that buy our products (not China, which is much more of a seller to us) they're all economic basketcases. Japan, England, the EU, Mexico. Low rates and the accompanying cheap currency ought to be boosting exports to high levels, but you can't do that when your trading partners are circling the drain.

 

[FlagDUDE08]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

I'm all for striking a balance. I'm not sure current low rates in the US are holding back growth. IMO a way too underreported problem is that the US is getting next to zero help from the rest of the world. For places that buy our products (not China, which is much more of a seller to us) they're all economic basketcases. Japan, England, the EU, Mexico. Low rates and the accompanying cheap currency ought to be boosting exports to high levels, but you can't do that when your trading partners are circling the drain.

That problem doesn't seem all that under-reported, but you also have to consider what we're offering, which at this point is becoming mostly services. That's not exactly something in demand.

If you're not sure current low rates in the US are holding back growth, then I challenge you to see about your ability to get a bank loan in order to start a business. Banks are not lending. Plain and simple. Where else are you going to get the money? Lending Club?

 

[Rover]

That problem doesn't seem all that under-reported, but you also have to consider what we're offering, which at this point is becoming mostly services. That's not exactly something in demand.

If you're not sure current low rates in the US are holding back growth, then I challenge you to see about your ability to get a bank loan in order to start a business. Banks are not lending. Plain and simple. Where else are you going to get the money? Lending Club?

Flaggy I've gotten a bank loan to refinance my house to take advantage of these low rates, which is the benefitial flip side of this issue as it puts money in people's pockets. I re-fi'd a few months ago and got in under 4%. Can't speak for the world or small businesses but if you're a good risk they'll lend you the cash.

 

[St. Clown]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Flaggy I've gotten a bank loan to refinance my house to take advantage of these low rates, which is the benefitial flip side of this issue as it puts money in people's pockets. I re-fi'd a few months ago and got in under 4%. Can't speak for the world or small businesses but if you're a good risk they'll lend you the cash.

You're getting loans that have a solid piece of equity backing it. Small businesses don't have that luxury, unless the owner is willing to mortgage its personal, non-business related properties. Non-collateralized loans are not easy to obtain right now without an airtight case, for relatively small amounts, thus leading to a higher than normal probability of repayment.

 

[Rover]

You're getting loans that have a solid piece of equity backing it. Small businesses don't have that luxury, unless the owner is willing to mortgage its personal, non-business related properties. Non-collateralized loans are not easy to obtain right now without an airtight case, for relatively small amounts, thus leading to a higher than normal probability of repayment.

No doubt, but I would argue if you don't have the collateral perhaps you shouldn't be getting those loans? Sounds a little heartless I agree but the business should have to put something up (the building, inventory, etc). I'm sure you know this already, but the days of cheap no-strings-attached money are most likely never coming back so I'm not sure the country can replicate that kind of lending and subsequent business expansion due to it anymore. We'll have to find another way. All in all growth in the US isn't bad when you consider external factors that "we" can't control.

 

[unofan]

Whether you are a Keynesian or a monetarist, you both agree that the velocity of money is a key driver of economic growth. it's in all the Economics 101 textbooks and has been validated many times in retroactive regression analyses.

No, it isn't. In fact, traditionally the velocity of money is treated as a constant, especially in econ 101 classes. The whole point of quantatative easing is to expand the money supply and prevent deflation because the velocity of money crashed due to the credit crisis - something somewhat unprecedented. A quicker movement of dollars effects the money supply and inflation, not real GDP which is based on the value of goods and services.

The multiplier effect is related but different. It says the dollar you spend is thereafter spent in part by the recipient, and so forth down the line. That is seen as an economic driver, but like velocity it's seen as a pretty steady number in general.

 

[FlagDUDE08]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

You're getting loans that have a solid piece of equity backing it. Small businesses don't have that luxury, unless the owner is willing to mortgage its personal, non-business related properties. Non-collateralized loans are not easy to obtain right now without an airtight case, for relatively small amounts, thus leading to a higher than normal probability of repayment.

You're forgetting one other thing: With a re-finance, the bank is sacrificing profit potential in order to be able to actually earn money. In case anyone is not aware, the Federal Funds Rate is the rate that banks lend to each other in order to make sure that their cash reserves are at least the FDIC minimum. So if I loaned out beyond the FDIC regulations, I'd have to borrow to get back to where I need to be. Obviously if those rates go down, I can afford a re-finance, especially if the customer could potentially do the re-finance with another bank and then I'm stuck with 0 extra. You're absolutely correct, though, that there must be some sort of default "insurance", whether you do it through assets as collateral and/or loan diversification.

There's nothing wrong with shrewdness when it comes to loaning out money. However, they were shrewd in the 30's, and then things opened up after WWII finished. It is a cycle.

 

[FlagDUDE08]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

No, it isn't. In fact, traditionally the velocity of money is treated as a constant, especially in econ 101 classes. The whole point of quantatative easing is to expand the money supply and prevent deflation because the velocity of money crashed due to the credit crisis - something somewhat unprecedented. A quicker movement of dollars effects the money supply and inflation, not real GDP which is based on the value of goods and services.

The multiplier effect is related but different. It says the dollar you spend is thereafter spent in part by the recipient, and so forth down the line. That is seen as an economic driver, but like velocity it's seen as a pretty steady number in general.

If the velocity of money crashed, it's not constant, now is it? You may want to re-phrase.

 

[Rover]

You're forgetting one other thing: With a re-finance, the bank is sacrificing profit potential in order to be able to actually earn money. In case anyone is not aware, the Federal Funds Rate is the rate that banks lend to each other in order to make sure that their cash reserves are at least the FDIC minimum. So if I loaned out beyond the FDIC regulations, I'd have to borrow to get back to where I need to be. Obviously if those rates go down, I can afford a re-finance, especially if the customer could potentially do the re-finance with another bank and then I'm stuck with 0 extra. You're absolutely correct, though, that there must be some sort of default "insurance", whether you do it through assets as collateral and/or loan diversification.

There's nothing wrong with shrewdness when it comes to loaning out money. However, they were shrewd in the 30's, and then things opened up after WWII finished. It is a cycle.

I'm not refinancing with the same bank. I'm refinancing with a different one. Think of it as competitors undercutting each other to sell a product.

 

[FlagDUDE08]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

I'm not refinancing with the same bank. I'm refinancing with a different one. Think of it as competitors undercutting each other to sell a product.

As I figured. But did you sacrifice your savings in closing costs? I'd assume not all of it, as I'm going to assume you to be in the crazy but not stupid section. Not crazy to re-finance, of course, just in other areas.

 

[Rover]

As I figured. But did you sacrifice your savings in closing costs? I'd assume not all of it, as I'm going to assume you to be in the crazy but not stupid section. Not crazy to re-finance, of course, just in other areas.

Heh. I kicked in some bucks but don't remember the exact amount. It was pretty small however as I calculated I'd make my money back (via lower monthly payments) in a year I think.

 

[FlagDUDE08]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Heh. I kicked in some bucks but don't remember the exact amount. It was pretty small however as I calculated I'd make my money back (via lower monthly payments) in a year I think.

I'm surprised you don't make the same monthly payments, or somewhere in between, in order to down the principal and save even more money. Don't take my word for it, though; let the mass media tell you.

<iframe width="560" height="315" src="http://www.youtube.com/embed/e_D72LYNqEc" frameborder="0" allowfullscreen></iframe>

 

[FreshFish]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Been reading Kahneman's latest book, Thinking Fast and Slow. Fascinating implications for economics and public policy.

Apparently most people make their initial assessments / decisions based on intuition ("fast" thinking). Then they review these initial decisions with their rational, logical mind ("slow" thinking).

However, they do NOT use the logical mind to reassess their initial decision! Instead, they use their logical mind to justify after the fact the decision they had already made.

Surprisingly, perhaps, this natural human condition is more pronounced the more intelligent a person is: they develop both more extensive ex-post-facto rationalizations, and also have a greater number of them, than other people.

In other words, they way our minds seem to be wired, we use our intelligence not to examine our initial snap judgments more critically, but instead to "dig in our heels" and defend them more vociferously instead!

 

[Bill]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Been reading Kahneman's latest book, Thinking Fast and Slow. Fascinating implications for economics and public policy.

Apparently most people make their initial assessments / decisions based on intuition ("fast" thinking). Then they review these initial decisions with their rational, logical mind ("slow" thinking).

However, they do NOT use the logical mind to reassess their initial decision! Instead, they use their logical mind to justify after the fact the decision they had already made.

Surprisingly, perhaps, this natural human condition is more pronounced the more intelligent a person is: they develop both more extensive ex-post-facto rationalizations, and also have a greater number of them, than other people.

In other words, they way our minds seem to be wired, we use our intelligence not to examine our initial snap judgments more critically, but instead to "dig in our heels" and defend them more vociferously instead!

Sounds reasonable. How many politicians are willing to admit they made a bad political decision and would do it differently if they had another chance?

Have you read David Stockman's "The Great Deformation"? Looks like it might be a good read. I plan on getting to it this Summer.

 

[FlagDUDE08]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

Sounds reasonable. How many politicians are willing to admit they made a bad political decision and would do it differently if they had another chance?

Have you read David Stockman's "The Great Deformation"? Looks like it might be a good read. I plan on getting to it this Summer.

Woodrow Wilson regretted creating the Federal Reserve.

 

[FreshFish]

Re: Strands in the Tapestry: the Business, Economics, and Tax Policy Thread

An excellent essay from the NYTimes that helps explain why the USA is still a "spirituality-driven" nation, even while self-reported participation in organized religion declines.

Traditional forms of morality that required extensive social cooperation in relation to a hard reality defined by scarcity have largely collapsed and been replaced with this New Age therapeutic culture of well-being that does not require obedience or even faith — and certainly not feelings of guilt. Guilt must be shed; alienation, both of body and mind, must be eliminated, most notably through yoga practice after a long day of mind-numbing work.

In the gospel of authenticity, well-being has become the primary goal of human life. Rather than being the by-product of some collective project, some upbuilding of the New Jerusalem, well-being is an end in itself. The stroke of genius in the ideology of authenticity is that it doesn’t really require a belief in anything, and certainly not a belief in anything that might transcend the serene and contented living of one’s authentic life and baseline well-being. In this, one can claim to be beyond dogma.

Whereas the American dream used to be tied to external reality — say, America as the place where one can openly practice any religion, America as a safe haven from political oppression or America as the land of opportunity where one need not struggle as hard as one’s parents — now, the dream is one of pure psychological transformation.

One possible translation: traditional morality is too hard and takes too long to bear fruit.


It certainly helps illluminate why people born in the mid-1950s or earlier and people born in the mid-1960s or later seem to speak two different languages.