JohnG@lt wrote:
Diesel_dyk wrote:
We need a little deflation to go with the deleveraging. The bubble has to come down. I would look for the market to go down to levels last seen around the start of the tech or dot com bubbles. You simply can't have all that excessive leverage coming out of the market and not expect deflation. the printing of money was used to replace all those rotten financial instruments, you could almost think of it as a dialysis for the market. bad blood out, good blood in, but the amount money in the system didn't really go up like people are thinking it did. M3 is decreasing because M3 includes tradeable financial instruments. And the reason why M3 is shrinking is that those toxic instruments are being taken off the books, and financial institutions are having to deleverage and that means that they have less money to put into more those paper instruments.
at worst the govt has devalued our currency in order to soften the deflationary blow and bought some time to permit financial institutions to adjust to the new reality.
The crash and the aftershocks we are experiencing were 30 years in the making. We've just corrected for the "no red tape" "we're open for business" folly of reaganomics.... Welcome back to 1980.
Eh, it's simply because banks are being forced to hold more cash on hand instead of being allowed to lend it out. Since our banks create money via fractional reserve banking practices, when they aren't lending, the amount of money in the system decreases.
Deflation is such a big no no in economics because it increases the costs of borrowing money and it increases a companies real costs in overhead and salaries. Marginal companies then go belly-up because they get hit from both sides.
As for the 'folly of reaganomic' I seem to remember him pulling the country out of the stagflation it experienced under Carter, but that's a different subject.
What we need now is a normalization of our monetary system. We need the Fed Reserve Rate jacked back up to normal levels and we need them to come down off Mount Olympus and stop thinking they can monkey with the economy without shiploads of unintended consequences. Bernanke sucks, Geitner sucks, they all need to go and be replaced with hard money Monetarists.
If you have a market that goes up, you have to permit it to come down at some point. I agree that the fed policy on inflation was a real problem. The govt has been under reporting inflation and they even stop reporting M3 data. Using that flawed inflation data, they obviously had a flawed interest policy, and that laid the basis for the financial bubble. I would say that the bubble was permitted to become so large that we are going to experience deflation, rather than recessionary contraction. I realize the deflation is not a great idea, but what is the solution, I don't think that skewing the economy so that marginal businesses can survive is the best bet, it would be throwing good money after bad. Perhaps these companies are only a live because of easy money generated in the bubble. Who knows?
Agree with you on the fractional reserve money supply comment. requiring larger bank reseves means less lending and a decrease in the money supply. tighter credit and more expensive borrowing. but the comparison shouldn't be with what was just permitted, but should be compared with a sane and reasonable level in what I assume you are calling a normalization of the monetary system.
As far as the folly of reaganomics.... well its goes without saying that he is the poster child for less regulation and less red tape. and although you could say it started with him, its the subsequent congresses and presidents that really screwed the pooch. The crash we see today is the result of less regulation and less red tape, because it was the mantra that red tape gets in the way of businesses ability to make profit. less red tape = more profit.... But then you get a huge crash and I call that folly.
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( Reagonomics )
( 1980-2010 )
( RIP )
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________________ Should have happened 15 years ago with the dot.com bubble. We didn't learn our lesson
then but we sure should get the point now don't you thnk
