As long as debt’s too high, get used to the market gyrations
So…the markets.
As I begin writing this — and the only certainty right now is that things are uncertain — the Dow is down another 2 percent and the Nasdaq 3 percent. By now, all but forgotten are the morning’s jobs numbers: a small reduction in the unemployment rate, which is either a) worse than it looks because a whole lot of people have simply given up looking for work, or b) slightly better than it looks because the job-creation number is lower than it should be due to the Minnesota government shutdown.
It is overly simplistic to attribute the steep falls Tuesday, Thursday and today to the debt-ceiling deal. Mainly because a reduction of $7 billion in federal spending (a fraction of 1 percent of gross domestic product) between now and October 2012 isn’t the reason investors are worried about another recession. And it’s not a sign that investors think Washington is overly dysfunctional right now — otherwise, they wouldn’t be rushing to buy Treasurys and pushing down yields the way they are.
Or do you really think the markets would have reacted better to higher taxes on millionaires, billionaires, oil companies and corporate jet owners? Or a “clean” debt-ceiling increase?
Besides the yields for Treasurys, I think there are two other important data points right now. They’re the yields for Italian and Spanish 10-year notes, both of which have passed and remained above the 6 percent mark during the past week. The worry is that these countries — and the big banks that hold big chunks of their debt — are heading to bailout territory, and that no one can bail them out.
To understand why, consider the relative sizes of these countries and those which have already received bailouts: Greece, Ireland and Portugal. Spain’s GDP in 2010 was $1.4 trillion, and Italy’s $2.1 trillion.
The combined GDPs of Greece, Ireland and Portugal: $738 billion. Even Belgium, which is also making some people jittery, is about the size of Ireland and Portugal combined.
Italy represents about one-eighth of the entire European Union’s economic output, and Spain about one-twelfth. Together, they surpass that of Germany, the country called upon to bail out the first three little PIIGS.
All of these countries’ debt-to-GDP ratios, with the exception of Spain, are near or above 100 percent. Spain and Italy together have public debt of more than $4 trillion. They’re simply too big to bail out, which is even worse than too big to fail.
That, and the continued sluggishness of the U.S. economy, is primarily what’s driving down equities markets. And both problems are related to the deleveraging that the governments of major industrialized nations have yet to undertake.
The good news? Since I started writing this post, the Dow has recovered so that it’s actually up 1 percent and Nasdaq just above break-even. That suggests to me that people have money to spend when they see bargains, and there surely are a few after the routs of the past week.
But stock prices are ultimately a reflection of perceived future profitability. As long as we are undergoing — or, worse, trying to delay — the needed deleveraging, there’s going to be a lot of economic fear and a lot of bouncing around by the markets yet to go.
– By Kyle Wingfield
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89 comments Add your comment
Hillbilly D
August 5th, 2011
1:06 pm
The stock market and the real economy are two different things, in my opinion. The stock market is a lot like a poker game. There are winners and there are losers but the same amount of money leaves the table that came to it, just in different pockets.
MarkV
August 5th, 2011
1:07 pm
Kyle,
Thank you for one article I can agree with wholeheartedly.
JDW
August 5th, 2011
1:09 pm
One of the things that constantly amazes me about pundits, politicians and people in general is they have no clue what actually drives a market. You always hear the Fundamentalists talk about earnings, US debt, or PE ratios. Then you have the Technicalists (AKA Snake Oil Salesmen) that want to talk about support levels and Elliott waves.
Folks it is real simple…more people want to buy than sell the price rises…more people want to sell than buy the price goes down. It makes no different WHY those decisions are made simply that they ARE made.
Now here is the important part, people drastically underestimate the impact of pessimistic journalists, Teahidist politicians and all other sources of angst in our media addled society on markets. It scares them and makes them do dumb things like sell perfectly good stocks, coming off record earnings, at historical low PE’s (read cash flow valuation), save instead of spend, and horde cash instead of hire.
So as long as our journalists, politicians an other lunatic fringes are insistent on sowing FUD (Fear, Uncertainty and Doubt) you can be sure volatility will continue. Should those groups knock off the Chicken Little act things would get better quick.
ByteMe
August 5th, 2011
1:13 pm
The stock market is about corporate profits, which have little to do with government deleveraging and everything to do with consumer deleveraging. Treasury yields have everything to do with government deleveraging and the bond market — which is usually smarter than the equities market — as you rightly noted is continuing to give a vote of confidence to our government… so maybe all is not as bad as it seems yet.
And “bouncing around” is what you get during a secular bear market. That’s one of its basic definitions.
Alice
August 5th, 2011
1:13 pm
So JDW, what you’re saying is when Kyle Wingfield talks, everyone listens. Hmmmm, interesting.
StevenH
August 5th, 2011
1:18 pm
Hillbilly is exactly right. When the analysts say the market has lost $2T in eight days, they really mean; $2T changed hands! The investment banks (Goldman Sachs) steer the markets to swing in whatever direction they choose. It’s illegal for an investor to buy his picks within 72 hours of tooting them. GS, on the other hand, can “recommend” a stock to their investors knowing full well they’ll be shorting or dumping it. Greed is the driving force behind investment firms, and casinos can only salivate at the house advantage these brokerages have created for themselves.
Has Goldman polished that revolving door to the Whitehouse this week?
ByteMe
August 5th, 2011
1:26 pm
When the analysts say the market has lost $2T in eight days, they really mean; $2T changed hands!
No, that’s not right. What they’re saying is that the aggregate current value of the equities that trade in a certain set of USA markets and are held by someone at a single moment in time is now $2T lower than it was at a single point in time a few hours/days earlier.
Ain’t computers amazing for being able to keep up with that?
Kyle Wingfield
August 5th, 2011
1:29 pm
JDW @ 1:09: “more people want to buy than sell the price rises…more people want to sell than buy the price goes down”
The problem with your line of thinking, or at least the way you’ve described it here, is that you’ve presupposed the upward or downward movement of the price. The price has to move in one direction or the other before what you’ve described could be true, and that movement usually happens for a reason (or, in more normal conditions, a plethora of reasons for the plethora of traders).
The pundits you obviously disdain are simply trying to explain that movement. If you think those explanations drive investors’ decisions, I’d say you have a pretty low opinion of investors.
JDW
August 5th, 2011
1:30 pm
Alice wrote…”So JDW, what you’re saying is when Kyle Wingfield talks, everyone listens. Hmmmm, interesting.”
Ahhh but if that were only true. No Kyle is a symptom and an example of a much larger universe of problems. He does however do his fair share of myth perpetuation. Others that enjoy larger bully pulpits bear a much larger responsibility.
Say for instance right wing politicians that think it is ok to create FUD regarding debts ALREADY INCURRED rather than actually working to fix the budgeting problems that created the debt.
Kyle Wingfield
August 5th, 2011
1:32 pm
ByteMe @ 1:13: But, as you’ve noted before, the current problems have much to do with credit. And as long as the banks that provide this credit are saddled (collectively) with trillions of dollars of public debt from governments whose ability to pay it all back is looking less and less credible, they’re less and less able to extend said credit.
JDW
August 5th, 2011
1:33 pm
Kyle wrote…”The problem with your line of thinking, or at least the way you’ve described it here, is that you’ve presupposed the upward or downward movement of the price.”
See there in lies the misunderstanding…there is no presupposed movement. The act of buying or selling CREATES the movement. The price you see for a given stock is the price at which the last transaction occured. No movement occurs until the next transaction.
Kyle Wingfield
August 5th, 2011
1:36 pm
JDW: Prices change every second of the trading day. There is no price from which all decisions flow. The “price at which the last transaction occurred” was established for a reason.
JDW
August 5th, 2011
1:40 pm
I missed this one Kyle wrote “I’d say you have a pretty low opinion of investors”
Yes, the average investor is completely unequipped to make market based buy/sell decisions, and that is based on 30 years hard evidence. The average investor should never try to time the market or make decisions based on current events. They should buy their choice of funds and let the market take its course over at least a 5 year time horizon.
JDW
August 5th, 2011
1:44 pm
Again Kyle you don’t understand how it works. What causes the price to change is the last transaction. It was established by what a Marketmaker was willing pay for a stock or sell a stock.
The only reason that a price is established is in fact the last transaction.
Kyle Wingfield
August 5th, 2011
1:47 pm
“The only reason that a price is established is in fact the last transaction.”
So why does the price ever change? Or does that bring us back to blaming the pundits?
JDW
August 5th, 2011
1:51 pm
Kyle wrote…”So why does the price ever change?”
The law of supply and demand.
Kyle Wingfield
August 5th, 2011
1:53 pm
And why does demand change?
JDW
August 5th, 2011
1:53 pm
Each stock has a variety of Marketmakers. Those Marketmakers publish the prices at which they are willing to buy and sell and the amounts they will take at that price.
When an order comes in they simply go down the line until the order is filled. The published price is the one that executed last.
Kyle Wingfield
August 5th, 2011
1:56 pm
You still haven’t explained why “an order comes in.”
Joe the Plutocrat
August 5th, 2011
1:57 pm
KW, you should have shut down the thread after Hillbilly D’s post at 1:06. the stock market is no different than any “market”. what was once a measure of business/vis a vis the “value” of a company when compared to other companies in the market (does it SUPPLY goods and services as DEMANDED by the market?) has become a casino for a handful of gamblers (speculators). in addition, in order for these Wall Street cowboys to ‘gamble’ the Federal Reserve Bank must make money “cheap”. back to housing: when interest rates dropped, air was pumped into the housing market (ever heard of INFLATION?). this invited speculators at the Main Street level (”flipping” and fraud), and Wall Street level (buy as much bad loans as lenders – big and small – approved, securitize the loans and sell them to others, AND insure yourself agains lost via the derivitive scam). then, when the “pot” gets to be about $800 or $900 billion, and the hand is “called” – claim you are “too big to fail” and the US Taxpayer will cover your losses. AS HD points out, that (TARP) money didn’t disappear; it simply went to the the players with the good cards (and ability to bluff a bad hand); aka Goldman Sachs. check this out; my IRA has lost 2/3 its value since ‘08. my home has lost about 40% of its value during the same period; and I don’t “gamble”.
Lil' Barry Bailout (Revised Downward)
August 5th, 2011
1:59 pm
Most shares are traded by professional investors working for large institutions, not by individuals. Although I agree with much of what JDW says above, professional investors are not frightened into selling by “teahadist” politicians. That’s just your hatred of your Idiot Messiah’s betters showing through.
JDW
August 5th, 2011
2:00 pm
Kyle wrote “And why does demand change?”
You have to break it into two parts long term and short term.
Long term you would hope a companies fundamentals would rule the day but in practice if that were true Warren Buffett would not be a rich guy. He has made his fortune finding situations where a companies value is not reflected properly by the market, to his way of thinking, and changing the equation.
Now to the short term, which was your topic…volatility. Almost always 100% hype. A news or other event creates an imbalance in the flow of orders and supply and demand kicks in. Then remember the Marketmakers? They shoot the average investors like fish in a barrel…that’s why they make the big bucks.
JDW
August 5th, 2011
2:02 pm
@ Lil Barry…wonders will never cease…and I aggree the Pro’s aren’t spooked they are taking advantage of those who are.
JDW
August 5th, 2011
2:03 pm
Kyle wrote…”You still haven’t explained why “an order comes in.”
Because someone picked up the phone called thier broker and said sell or buy.
Kyle Wingfield
August 5th, 2011
2:07 pm
JDW: The only part of your 2 p.m. that I’d disagree with is the “almost always 100% hype” part. Some news and other events have more substance than others.
But I would point out that, whether it’s fundamentals or finding undervalued companies or news or some other event, these are all things that cause demand to change.
If you can agree with that, I think we can shake on this one.
Joe the Plutocrat
August 5th, 2011
2:12 pm
JDW, has anyone (besides Glenn Beck) broached the subject of a “gold bubble”? do the rubes who are buying gold actually think it has ANY value? it’s like the housing market; it “bubbled” because speculators and individual investors foolishly believed they could “flip” a property, when in truth the MORTGAGE was the asset, not the property. see if you can follow this; GOLD (Au) has no value; the “value” is in the increased price and as we saw yesterday, when the stock market hiccupped, so did the price of gold.
JDW
August 5th, 2011
2:15 pm
Lil Barry wrote…”Most shares are traded by professional investors working for large institutions, not by individuals.”
Shares yes trades no. Individual trades are about 60% of the total last time I looked. Share volume is much more institutional. But remember that many of those institutions are acting on orders from investors, say a mutual fund, or they are hedging…those guys drive volume but in many cases they will take pennies per share net and go have a cocktail. The volume that really drives price shifts are the market orders…might as well walk around with a kick me sign.
JDW
August 5th, 2011
2:17 pm
Kyle wrote, “Some news and other events have more substance than others.”
Agreed, some things have more substance.
JDW
August 5th, 2011
2:19 pm
@Joe…Gold is in a different world right now. I thought about shorting it at $1200 and thankfully decided I have better sense. Again it is supply and demand. This time on the upside. I have an inkling that some of this is being caused by governments diversifying thier dollars.
Lil' Barry Bailout (Revised Downward)
August 5th, 2011
2:25 pm
Obozo will be feasting and partying at a $71,000 per couple dinner while over 45 million regular Americans struggle to get by on food stamps. That would be your lead story on the news tonight, ‘cept the media isn’t so interested in bashing their Idiot Messiah.
Joe the Plutocrat
August 5th, 2011
2:26 pm
JDW, I disagree (as best I can) re: gold. I think it’s solely “demand” and has nothing to do with “supply”. (don’t tell anyone), but I find it hard to believe the gold beng sold at $1600 actually exists; as if Armeggedon does arrive and people are going to line up (as they did at the Bailey Building & Loan in “It’s A Wonderful Life”) and collect their gold. I am not some looney “survivalist” but lets be honest, bottle water ($3/case), 00 buckshot ($250/500 rounds), and canned food (2/$1 “with your Kroger Plus Card”) are far better investments. This is perhaps the only “light at the end of the tunnel” – namely that the real players can’t kill the goose that lays the golden eggs (John Q. Public).
Hillbilly D
August 5th, 2011
2:26 pm
JDW, has anyone (besides Glenn Beck) broached the subject of a “gold bubble”?
From the outside looking in, it looks like there is a permanent speculative bubble, just moving from place to place. It’s been in oil, housing, gold, etc. Wish they would just find themselves a good poker game and leave the rest of us alone.
It is jobs not the debt, stupid.
August 5th, 2011
2:30 pm
Debt schmet.
The market is gyrating because nobody is hiring and the last 2-3 weeks proved that (conservative) leadership is more interested in political gain than economic gain. We don’t need austerity at this time. We need stimulus. Austerity has been practiced all over Europe for the last 12-18 months and economies are cratering!!!!!!!!
The last, stripped-down stimulus didn’t do the job completely. Businesses are sitting on cash because people aren’t buying.
Look at FDR’s response to the great depression. When the federal government was helping to create jobs with massive public infrastructure investment the economy was growing. When FDR decided to cut spending in the middle of an economic downturn the results were disastrous.
When FDR decided to move away from big government spending policies that saw the unemployment rate fall from a high of 25% in 1933 to 14% by 1937, he launched one of the sharpest economic downturns in American history — the “Roosevelt Recession” of 1937-38. In just a few short months, the GDP declined by 13 percent; industrial production by 33 percent; wages by 35 percent and an estimated four million people lost their jobs.
FDR and Congress reversed course and passed a massive stimulus bill to put people back to work and repaired the damage to the Depression-era economy. Within three months growth had returned and the economy was back on track.
People who collect unemployment spend that money. They don’t add it to their balance sheets. Construction workers working on public infrastructure projects (or merely leaning on their shovels in the shade) spend that money.
Tax breaks for large corporations don’t result in more jobs. It doesn’t matter how many times Rush and Hannity say it does. It is not true.
Companies hoard cash during recessions. The unemployed and blue collar employees DO NOT hoard cash during recessions. You want the economy to pick up? Make sure people who will spend money get some money to spend.
Look at GE, Apple, Google, Oracle, Microsoft. They are swimming in cash and not using it to hire.
Joe the Plutocrat
August 5th, 2011
2:31 pm
Li’l Barry, vent much? do you actually think ANY OF THIS has to do with Obama, his re-election fundraising, or food stamps? we have been a bedt-fueled economy for the past 30 years. Remember the “deficits don’t matter” mantra of the Reagan Administration? Our economy mirrors the housing bubble, because Wall Street is a “bubble, bust, bailout” system. If anything, Obama is no better or worse than any of his predecesors. You can not like him because he’s a Democrat or not like him because he went to Harvard, or not like him because he has big ears, but to think he has the intelligence to plan and execute such a conspiracy is lunacy. don’t get me wrong, somebody planned this, but Obama is like Oswald in Dallas, he’s a patsy at best.
I Report (-: You Whine )-: Thee Magnificent!!! mmm, mmmm, mmmmm! Just sayin...
August 5th, 2011
2:34 pm
They could be jittery because we have a total clown in the office of the Presidency, no?
Joe the Plutocrat
August 5th, 2011
2:40 pm
I Report, or, as George Bailey noted in the aforementioned “It’s A Wonderful Life”; “…because we’re panicking and he’s (old man Potter) not…”? if you feel good about yourself because you didn’t vote for Obama and you think he’s a “clown” consider America a circus and start humming “Send in the Clowns”. Clowns are not the reason the circus exists (or people attend the circus); the circus is the reason the clown exists (distract viewers when acts change, or divert attention from a accident). Ergo, Obama may be a clown, but so was Bush, Clinton, Bush 41, Reagan, et al…
JF McNamara
August 5th, 2011
2:48 pm
The markets are jittery because they know that their lifeline won’t be able to help them out anymore. If they need help and the Tea Party says no, then they are hung out to dry. No more stimulus packages. No more bail out money unless they hide it through the Fed.
No matter what rhetoric people push, government spending is a key driver of our economy. Reduce that and reduce our growth. Europe is a big problem, but American consumers largely aren’t holding foreign debt. A prolonged slowdown with no stimulus would stagnate us. That’s bad news.
Either way, we’ll see next week. Its probably just a trading thing. Traders and Hedge funds sell any uncertainty.
It is jobs not the debt, stupid.
August 5th, 2011
2:51 pm
“No matter what rhetoric people push, government spending is a key driver of our economy. Reduce that and reduce our growth.”
Amen, JF McNamara!!!!!!!!!!!!!
Cut government spending during a recession, things don’t improve.
Finn McCool
August 5th, 2011
3:03 pm
Now here is the important part, people drastically underestimate the impact of pessimistic journalists, Teahidist politicians and all other sources of angst in our media addled society on markets.
Um, now who isn’t being realistic? You really think day traders and people popping in at lunch time to trade on rumors and fear is enough activity to change the market?
Employees in the trading houses that represent the vast majority of market trades aren’t tuning into the Street.com or whatever popular show/blog/magazine/podcast to figure out what to do next. They aren’t swayed by fear or popular thinking, they are making the market. They determine where the next bubble will be and when things will look rosy for the small investor and know when the small investor isn’t looking (which means it’s time to swipe all the small investor’s money off the table while they are distracted.)
Wake up. Read some Matt Taibbi or somebody with a clue!
saywhat?
August 5th, 2011
3:04 pm
Rob the rich (in the form of higher taxes, closed loopholes etc), give to the poor (unemployment insurance, public works projects, domestic spending), and before long, all that was robbed will be returned twofold (in the form of increased consumer demand, resulting in greater business/investment profits, as a result of growing economy.)When it is no longer necessary to give to the poor, use revenues to pay down the debt.
The increased consumer demand and growing economy will more that replace business revenue losses due to taxes. Think of it as the reverse Laffer curve.
Ayn Rant
August 5th, 2011
3:13 pm
Kyle, markets fluctuate, as J. P. Morgan noted in 1908. Nothing scares investors and sensible citizens more than the thought of trimming the federal deficit, which is 10% of our GDP, without a plan for, or a hope of, replacing the jobs and consumer spending that the deficit supports.
Big Business is rumored to be sitting on $1.5 trillion waiting for an uptick in consumer demand. The foreign sovereign funds have $4 trillion dollar-denominated accounts parked somewhere awaiting the opportunity for loss-free investment or exchange. And, our Congress has just passed a hare-brained plan to cut our GDP. Hardly, an incentive to coax the parked trillions of dollars into job-creating investment in America, would you think?
Republican/Tea Party slogans and propaganda fool unthinking people but not Investors and investment managers. The purpose of the Republican BS is not to cut the deficit or create jobs; it’s to keep taxes low for the ultra-rich, and keep subsidies and tax breaks high for Big Business. The middle class can dwindle away; the poor can go to hell.
marko
August 5th, 2011
3:16 pm
the whole dismal planet sits on the edge of financial collapse. Kyle seems mystified that global markets aren’t leaping for joy over the Tea Parties smashing victory. Kyle and his Tea party pals remind me of the fleas on an elephants back. They just sit back and marvel over all the dust they make.
itsmeagain
August 5th, 2011
3:24 pm
Ok, i’m gonna play a game. Before i read the article, i’m gonna guess that its a rant about how the market will swing due to something Democrats have done or will do… Lets see if i’m right
MarkV
August 5th, 2011
3:29 pm
Ayn Rant @ 3:13 pm: “The purpose of the Republican BS is not to cut the deficit or create jobs; it’s to keep taxes low for the ultra-rich, and keep subsidies and tax breaks high for Big Business.”
Perhaps something else should be added to the purpose: To make sure that Obama does not succeed in anything.
Kyle Wingfield
August 5th, 2011
3:31 pm
saywhat @ 3:04: Yes, because spending an extra $800 billion *without* paying for it worked so well — spending another, say, $800 billion with one hand while taking it out of the economy with the other hand is bound to be even better!
Ayn @ 3:13, meanwhile, still believes that growing government spending more slowly means “cutting our GDP.”
And now I’ll play a game: Whatever I actually wrote, itsmeagain will claim I blamed it on the Democrats.
Lil' Barry Bailout (Revised Downward)
August 5th, 2011
3:35 pm
When Obozo succeeds, America fails. That’s his plan.
Kyle Wingfield
August 5th, 2011
3:35 pm
Btw, could it be that *Italy* will have a balanced-budget amendment to its constitution before we do?
http://online.wsj.com/article/BT-CO-20110805-715008.html
Lil' Barry Bailout (Revised Downward)
August 5th, 2011
3:38 pm
“government spending is a key driver of our economy”
——-
If only they didn’t have to first take the money from the more productive private sector first!
I Report (-: You Whine )-: Thee Magnificent!!! mmm, mmmm, mmmmm! Just sayin...
August 5th, 2011
3:40 pm
The libs like to quote Thomas Jefferson, so chew on this-
“Suppose that a majority, on the first day of the year 1794, had borrowed a sum of money equal to the fee-simple value of the State, and to have consumed it in eating, drinking and making merry in their day; or if you please, quarrelling and fighting with their unoffending neighbors.”
If that generation tried to pass that debt to the next generation, “Every one will say no,” Jefferson wrote, “… the laws of nature impose no obligation on them to pay this debt. And although, like some other natural rights, this has not yet entered into any declaration of rights, it is no less a law, and ought to be acted on by honest governments.”
If we only had an honest government….
By the way, nowadays dummycrats are “eating, drinking and snorting” their way through other people’s money, just sayin…
Road Scholar
August 5th, 2011
3:45 pm
lil barry: What do you suppose rich people should do with all their money, esp after the tax break?
Lil' Barry Bailout (Revised Downward)
August 5th, 2011
3:54 pm
What business is it of mine to tell people what to do with their property?
independent voter
August 5th, 2011
3:57 pm
Obama does not need any help in not succeeding… its easy to tell on this blog who has never run a company.. invested their own time and money and maybe failed once or twice… worked on commission.. no salary… gov’t union workers… they are easy to spot… class warfare by Obama.. hate the fat cats…. who pays the taxes ????? we can’t all work for the gov’t… just look at the Post Office bleeding Billion$… Dept.s energy, education, and yes defense.. once a gov’t program gets started can’t get it under control
MarkV
August 5th, 2011
4:00 pm
Kyle,
I do not know what Ayn Rant exactly meant @ 3:13 regarding “cuttung the GDP,” but most economists I have heard from (not including Treasury Secretary Geithner) believe that the spending cuts will hurt the economy in the short run
the original and still the best John Galt
August 5th, 2011
4:02 pm
The “Supply” part of the equation has little to do with the “price” of gold. The supply of gold is relatively stable; even the new mines discovered in the past few years, along with highly effecient methods of extracting gold from the ground, contribute only a small percentage to the supply of gold on the market at any given time.
The “price” of gold has a little more to do with demand, since gold is a traditional hedge against inflation, so those who understand that inflation is about to go through the roof are using gold to alleviate some of the pain this will cause, by ensuring that they own hard assets.
I put the term ‘price” in quotation marks, because the expression of the number of fiat dollars it takes to buy an ounce of gold has more to do with the value or lack of value, or “purchasing power,” that the fiat dollars have.
40 years ago gold cost 35 paper dollars an ounce. Today it costs 1650 paper dollars an ounce. What has changed?
saywhat?
August 5th, 2011
4:03 pm
Kyle, spending 800 billion DID help the economy, and likely kept us out of depression.Witness the economic slowdown as the stimulus winds down. As for getting another “800 billion without paying for it”, that is not what I am proposing. 800 billion needs to raised in the form of taxes on the wealthiest indiviuals and cash-rich corporations who refuse to spend or invest it. This is not taking money out of the economy- it is forcing money INTO the economy. What they lose they will recover as history of the last 40 years definitively shows money trickles up, not down.
carlosgvv
August 5th, 2011
4:08 pm
The Government says we probably wont go into another recession. As long as unemployment stays between 9 and 10%, we are not only in one but have never gotten out.
Kyle Wingfield
August 5th, 2011
4:27 pm
MarkV: But there aren’t any cuts in the short run — at least none worth mentioning. It’s $7 billion in FY12.
Kyle Wingfield
August 5th, 2011
4:32 pm
Sorry, that $7 billion figure was from an earlier draft. It’s actually $25 billion — which is about one-sixth of 1 percent of GDP. Not even a rounding error. That’s not why everyone suddenly decided the U.S. is on the verge of a double-dip.
marko
August 5th, 2011
4:36 pm
In 1914 henry Ford started paying his workers five bucks a day. A princely sum at the time. Henry reasoned that if he was to sell cars people would need to make enough money to afford them. Today Wal-Mart employees are paid enough to by the Chinese junk they sell. if they don’t mind living in trailers. The problem would seem to be that job creators (Republican for rich people) don’t seem inclined to create any jobs. Apart from having lots of money, rich people are pretty much like anybody else. As such they should rewarded for doing good and punished for bad stuff. Remember the wall street bailout? 700 billion and nobody went to jail. Forget jail, nobody got fired. In the world I live in, if a fellow wrecks a truck, he gets fired. In the magical world of the financially elite, drive AIG off a cliff and you get a bail-out. Why do billionaires get bailed out, and we’re told that we can’t afford grannies dentures anymore? Just a thought, why not give tax breaks to job creators that actually create jobs, and tax the living hell out of those that don’t.
Kyle Wingfield
August 5th, 2011
4:37 pm
From 2012-2021, according to CBO’s projections, it’s about one-half of 1 percent of the cumulative GDP for those years. Again, not earth-shattering by any stretch of the imagination.
real john
August 5th, 2011
4:39 pm
Say What?
The $800 billion stimulus is up for grabs as to whether it actually helped or even HURT the economy. The revised GDP numbers how GDP contracted -.03% in 2008. In 2009, the year the stimulus was passed, it contracted -3.5% according to the new figures out so one could argue it may have actually made things worse.
Rafe Hollister
August 5th, 2011
4:39 pm
Kyle, don’t worry about it, Barry said today “everything is going to get better”. I’m convinced, he is always right isn’t he? It is the summer of recovery, right?
.1%(millionaires as percent of total taxpayers) pay 38% of all federal taxes.
$3700 in taxpayer money goes to subsidize every passenger leaving from Ely, NV airport.
Dems/Obama solution to all problems, raise taxes on that .1%, as it is only FAIR.
Toby
August 5th, 2011
4:39 pm
In 82 I opened a restaurant, I never knew we were in a recession. In 82 there was no cable news or blogs,i find that interesting.
Joe the Plutocrat
August 5th, 2011
4:43 pm
John Galt, 10-4; just as the “value” of a paper dollar has lost is now between four and five cents (losing 95% of its buying power). here’ the proverbial $16 trillion question; where’d the 95% go? it didn’t disappear, now did it? what we need to do is find one of ‘em highfalutin computers, find some geek (probably Asian) to write a program and see if the missing 95% of buying power of all the GDP dollars generated between 1919 and 2011 is somewhere in the $14-$16 trillion on our tab?
Joe the Plutocrat
August 5th, 2011
4:48 pm
when it comes to “finance” and “economics” I plead the 5th Dimension, but does anyone remember the pundits and analysts yammering about how the TARP recipients were not going to use the $800 billion to add jobs or invest in IT upgrades; they were going to “stabilize their balance sheets” (pay executive bonuses and just kinda sit on the rest). well that’s where half of the $1.5 trillion American corporations are sitting on is sitting.
MarkV
August 5th, 2011
4:50 pm
Kyle,
I did not write that the cuts were “why everyone suddenly decided the U.S. is on the verge of a double-dip.” In that I agreed with you in your article.
But the economists still believe than ANY cuts hurt the economy in its current state. I think that you are too cavalier in your calculations. “$25 billion — which is about one-sixth of 1 percent of GDP. Not even a rounding error.” I find it amazing how some people are outraged by spending of several millions or hundred of millions, but then dismiss several tens of billions as negligible. Not to mention the fact I asked you about before without getting an answer – who are the people who will NOT get the money, and therefore will NOT spend it?
the original and still the best John Galt
August 5th, 2011
4:59 pm
Joe: Amen, brother, you’re on the right track. It’s more like 200 trillion in reality though. Get ready for a glass of beer to cost 6 billion dollars, just like one cost 6 bllion marks at the height of inflation in the German Weimar Republic days in the 1920’s.
MarxV
August 5th, 2011
5:06 pm
Two nice things to say about economist: First, they are usually wrong in their forecasts or predictions. Secondly, you can usually find one or two, if not a group of them, that will agree with you on just about any issue to your liking.
Paying down debt is a wise move, more spending/deficit spending isn’t.
Lil' Barry Bailout (Revised Downward)
August 5th, 2011
5:06 pm
Capital is on strike in large part because Obozo has created an environment where investors and businesses can’t be sure their investments won’t be confiscated or converted to some government purpose (Chrysler bondholders a prime example).
Your business-bashing Idiot Messiah and his lack of respect for private property is the problem.
Jefferson
August 5th, 2011
5:20 pm
That’s what you say, with a gleam in your eye at that.
yuzeyurbrane
August 5th, 2011
5:38 pm
Oh, Kyle, so you are an expert in economics now? Excuse me but I think Paul Krugman has a few more credentials by his name. Why not just man up? You know the old Potter Barn Rule–if you break it, you own it. You and John Boehner got 98% of what you wanted and now the cold aggregate wisdom of the market has delivered a verdict. Put on your big boy pants.
Hillbilly D
August 5th, 2011
5:51 pm
I don’t claim to be an expert on high finance but it seems to me the problem with the economy is decreased consumer demand. When I was growing up, my grandparents and parents used to tell me about the Great Depression and how they got through it. It was a life altering situation that they never forgot. I think something similar happened with the Great Meltdown. Many people had an epiphany about consumerism and realized they can live without a lot of the things that they thought they couldn’t. I think many people’s outlook has changed for the rest of their lives, just as happened during the Depression. I don’t look for consumer demand to ever get back to previous levels until a generation or two has passed and the lessons of the Meltdown have been forgotten, just as the lessons of the Depression were forgotten.
Rafe Hollister
August 5th, 2011
5:56 pm
Yuzey
NO, we did not get anywhere near what we wanted. S&P and Moody’s wanted 4T in real spending cuts. We got pie in the sky, smoke and mirror spending cuts over 10 years, if they ever happen.
How about returning to 2008 Federal spending levels. Barry has increased spending by 28% since his regime began. Reduce that by 5% each year until we get back to 2008 levels and retire the budget deficit in about 10 years. The Tea Party was unable to get spending cuts that take effect now, so we did not get what we wanted. The Compromise was just something the politicians use to change the subject for a few days.
Kyle Wingfield
August 5th, 2011
5:58 pm
Let’s call it the Yuze Corollary to the Pottery Barn Rule: If you’re in the store when it breaks, you own it.
Rafe Hollister
August 5th, 2011
6:00 pm
Hillbilly
I totally agree, but the only way to increase demand is to return some money to the taxpayers through tax cuts. Maybe a little found money will convince Grandpa to buy Grandma some new threads.
Linda
August 5th, 2011
6:02 pm
The reason that the European countries are in trouble is due to socialism & spending more money than their revenues. Their austerity measures have absolutely nothing to do with the problems that predicated their demise. That’s where the US is headed. The US is in big trouble.
The history that I learned about FDR is different from other bloggers on this post.
I have a degree in economics. The economic principles I learned are very different from other bloggers on this post.
The progressives have been able to skew history & economics, among other subjects. This is the reason that we need to close the natl. Dept. of Education.
I am inclined to side with the credit rating agencies, who have stated that our debt is negative, & with the Defense Dept., who has stated that our debt is the worst threat to our natl. security.
The USA is a republic, not a socialist country. We need to restore America, not transform it.
Lil' Barry Bailout (Revised Downward)
August 5th, 2011
6:09 pm
yuzeyurbrane: Oh, Kyle, so you are an expert in economics now? Excuse me but I think Paul Krugman has a few more credentials by his name.
————————————-
Krugman hasn’t been an economist for a couple of years now. He’s a full-time Obozo receptacle.
MarkV
August 5th, 2011
6:18 pm
There are five socialist countries in the world at this time. All of them are republics.
Lil' Barry Bailout (Revised Downward)
August 5th, 2011
6:21 pm
Obozo has lots of folks with “credentials” working in his regime. How’s that working out?
yuzeyurbrane
August 5th, 2011
6:30 pm
If we all weren’t in danger of going down the economic toilet because of these ideological fantasies that you try to pass as facts, I would get a little pleasure out of Kyle starting to try to rationalize the cold hard impartial verdict of the market.
Lil' Barry Bailout (Revised Downward)
August 5th, 2011
6:31 pm
“All of them are republics”
——————
…and two of them have the temerity to call themselves “Democratic”.
Lil' Barry Bailout (Revised Downward)
August 5th, 2011
6:38 pm
yuzeyurbrane: If we all weren’t in danger of going down the economic toilet because of these ideological fantasies that you try to pass as facts blah blah
——————————–
We aren’t in danger from a newspaper columnist’s opinions. We’re in danger from our current economic, fiscal, and regulatory policies. Won’t all those highly credentialed experts in your Idiot Messiah’s administration be so proud to have been present at the downgrade?
Linda
August 5th, 2011
7:03 pm
Republic countries, such as the US, who have a progressive/socialist president & a majority in the left wing party, who demand more spending to advance their agenda, want to bring down their respective countries to their knees. It’s happening in Europe & is happening in the US right before our eyes.
I Report (-: You Whine )-: Thee Magnificent!!! mmm, mmmm, mmmmm! Just sayin...
August 5th, 2011
8:47 pm
S&P downgrades U.S. credit rating for first time
Wow, isn’t obozo just the greatest?
Lil' Barry Bailout (Revised Downward)
August 5th, 2011
9:29 pm
IMHO, Obama’s incompetent performance, resulting in America losing its AAA credit rating, is damn close to grounds for impeachment.
You've been schooled again Kyle
August 6th, 2011
5:21 am
Kyle
Stick your conservative head in the sand all you want but history has proven that a recession is not the time for austerity.
You've been schooled again Kyle
August 6th, 2011
5:27 am
Linda – do you even pay attention to what is going on in Europe? European countries haven’t been spending more, they’ve been spending less. That’s what has exacerbated the downturn and killed economic growth all across Europe. Turn off fox news and read.
Pottery Barn Rule
August 6th, 2011
7:52 am
I’m curious of the Pottery Barn rule applies to airplanes crashing into the twin towers?
No standards, and poor reasoning, in U.S. downgrade | Kyle Wingfield
August 8th, 2011
5:02 am
[...] the really big losses didn’t come until afterward (when there just happened to be a lot of other unpleasantness going on elsewhere in the [...]