Thanks Scarecrow digg

Great post, thanks. More people need to see this diary, very relevant. Too many think the govt should not aid the auto cos, or put out more money for stimulus. The bad taste left by the $700 billion “bank” bailout has soured people. The Rethugs want destruction of the economy. Blaim will be placed on the Dems, the Rethugs think they will benefit in 2010.

last sentence should say “blame” not blaim.

as I’ve been saying from the start, the bailout had to fail since it was simply giving more of our assets to the very people who stole it in the first place

even if that were not the case, the bailout was giving middle men the oportunity to make profit on their failure, why the HELL would I want to give the people who failed my money for their profit?

the bailout should have been government appropriated NOT business appropriated and we should have gotten product for the investment

we should have repaired our roads, bridges, tunnels, schools, cleaned our envirnment and invested in alternative fuel and cleaning the planet

the loaining industry could have been part of the bailout but only in so far as they would borrow the assets at a reduced rate and that borrowing would be based on their actual products not some dividend they made up in their own head

from the very start many of us have been saying what krugman just said so we agree with him

Roubini was the first I heard to state the need for a big stimulus. eCahn here has also pointed out repeatedly that the only way we are going to get out of this mess is by spending our way out. It’s called Keynesian economics, and, unlike the voodoo economics of deregulation championed by Paulson, Greenspan, Rubin, Summers, and, of course, the Bush Administration, it works. The problem is that we are in pre-depression territory and the aforementioned economic leadership still has sway over our economic policy, and they remain as wrong as they ever were.

I believe we just went through a period where the government via the Fed under Alan Greenspan’s knowing watch provided an unprecedented stimulus to the ‘economy’ — that is to say, the financial sector — that begat what became the housing bubble representing in turn the grossest possible misallocation of resources in the economic history of the United States.

The last thing the economy needs at this point is another exogenous, artificial financial priming. The economy is after all the unintended consequence of many actors. A stimulus from a single source as opposed to the multitudes, independent of that source, ultimately winds up causing dislocations severely impairing the economy.

As much as the Bush government claims to be laissez faire, it has been one of the most interventionist governments in the history of the world. The unfolding economic calamity we’re now witnessing is the product of this government’s myriad intrusions on millions of independent actors.

Thanks, Scarecrow. We need to be saying this over and over. Small quibble:

But Government is as frozen as the credit markets, primarily because an obstructionist Republican Party, already at its lowest disapproval approval level in decades, is still clinging to the delusion that they can resurrect themselves by restricting government spending.

Where’s Bush ?
Flying over his new south American digs where he’ll live out his days as the person who destroyed what used to be known as the United States.

The Rethugs are going to cling to their ideology even as they drown in it.

Isn’t an action, intentional action to cause harm, illegal?

What legal arguments do citizens have to use to “break” the repugs?

That aside, I have been crunching numbers for days to structure the auto bailout in the form of an economic stimulus…Anyone want to weigh in and add ideas, I am all ears (or eyes as the case may be).

An economic rebuilding of this magnitude will take 10 years and at least 8 to 10 trillion dollars. Yes we can, and unlike war everyone will be invested and involved and will benefit. Let’s rebuild progressively.

What, are you running a Leontiev input-output model?

roubini on oct 27:

The U.S. government should enact an economic stimulus package of between $400 billion and $500 billion before the end of the Bush administration in January, New York University professor Nouriel Roubini said.

Roubini, who predicted the current financial crisis in 2006, said the economy risks falling into “a self-fulfilling animal spirit recession that is more severe than otherwise” because of the collapse of credit markets and weak consumer and corporate spending.

“The only way to increase aggregate demand is going to be through” government spending on roads, bridges and other infrastructure, Roubini said at a Bloomberg conference in New York. “We need a huge plan, $300 billion is not going to be enough. I think we’re going to need a plan of $400 billion to $500 billion.”

U.S. Treasury officials and other policy makers are grappling with financial turmoil that has pushed down the Standard & Poor’s 500 Index by 42 percent this year, its worst annual retreat since 1931.

“If we don’t do that fiscal stimulus today, three months from now, six months from now the collapse of the real economy is going to be so severe that anything we’re doing today to recapitalize the financial system is going to be undone,” Roubini said.

on oct 30 roubini testified before the house and senate’s joint economic committee. from his opening statement:

Given the size of the expected contraction in private aggregate demand (likely to be about $450 billion in 2009 relative to 2008) a fiscal stimulus of the order of $300 billion minimum (and possibly as large as $400 billion) will be necessary to partially compensate for the sharp fall in private aggregate demand.

This fiscal stimulus should be voted on and spent as soon as possible as delay will make the economic contraction even more severe. A stimulus package legislated only February or March of next year when the new Congress comes back will be too late as the contraction of private aggregate demand will be extremely sharp in the next few months. Such policy action should be legislated right away – in a “lame duck” session right after the election – to ensure that the actual spending is undertaken rapidly in the next few months.

roubini today: The Deadly Dirty D-Words: “Deflation”, “Debt Deflation” and “Defaults”. And How Central Banks Will Have to Resort to “Crazy” Policies as We Have Reached Such Bermuda Triangle of a “Liquidity Trap”

i’m not going to quote from this one because i think we should all just go read the whole thing.

p.s. my emphasis

Not to worry

This week Citigroup’s already depressed shares have lost half their value, and shares of Bank of America and JPMorgan Chase are down 30 percent.

Those declines have come despite reassuring comments from Treasury Secretary Henry M. Paulson Jr., who told National Public Radio a week ago that people were no longer worried about the possibility of a major bank failure. “I’ve got to tell you,” he said. “I think our major institutions have been stabilized. I believe that very strongly.”

http://www.nytimes.com/2008/11…..=1&hp

Looks like a double-bind, to me.

Thanks much, Selise. Good (but scary) stuff.

Hey, Hank, I’ve got a piece of top quality swampland I wanna sell ya.

I misspelled the name. Wassily Wassilyovitch Leontief.

We’re all going to be taking seminars on “deflation,” as in what happens when the expected price of your crops is below your cost of planting?

Thanks for the catch, Bilbo. Fixed.

didn’t krugman tell me that paulson knows what he’s doing? or did i dream that?

Looks like a Category 5 shitstorm from my vantage point.

Krugman is a seat of the pants type economist. Each economist has his/her special area. That’s all they know.

I believe we just went through a period where the government via the Fed under Alan Greenspan’s knowing watch provided an unprecedented stimulus to the ‘economy’ — that is to say, the financial sector — that begat what became the housing bubble representing in turn the grossest possible misallocation of resources in the economic history of the United States.

The last thing the economy needs at this point is another exogenous, artificial financial priming.

What you are suggesting is a recipe for a depression. You do not contract demand to get out of the mess we are in. You stimulate it, i.e. you spend your way out of it. We have in this country two economies, one real, one paper. The housing bubble and financial meltdown are creatures of the paper economy. What we need to do is stimulate the real economy.

Looks like a double-bind, to me.

would you explain? thanks.

So where are Congress and the Administration?

Shhhh. Don’t bother them until the UAW is broken.

Ok so i get the whole producing (farmer) analogy of deflation but what if you are a teacher or policeman who gets a salary. Is deflation good since you would be able to buy more things with an already small pay check?

i don’t know why modern Democrats get credit for being pro-union, as far as i can tell they have done more to break unions than the Republicans have (the big difference is that the Ds smile and make nice while doing it).

didn’t krugman tell me that paulson knows what he’s doing? or did i dream that?

Krugman has been quite supportive of Ben Bernanke (unwarrantably so IMO), but I believe he has been pretty critical of Paulson. I get the feeling he’s starting to lose his enthusiasm for Bernanke too.

The depression was an adjustment period wringing out bad banking policy. The measures taken to prevent that adjustment from taking place made things even worse. A repeat is taking shape.

The stimulus needed for the producing sector of the economy — from design, to machines that make machines, tooling, components, and assembly — is the provision of long-term capital.

Monetary policy for decades, at least since the 2nd WW, has produced an investment environment that is short-term rather than long-term. The policy has made it basically too risky to make the long-term commitment required to stimulate productivity.

First of all, deflation does not cancel, i.e., the economic depressing influences vastly outweigh the stimulative effects. That’s because the infrastructure of the sectors undergoing deflation become unproductive.

The other aspect of deflation is that it makes monetary policy ineffective, since nominal interest rates can’t go below zero. And you are in the middle of such an episode. So deflation is much worse than inflation because the tools to fight it a very limited.

He seems to be shifting ground.

Ding. The Ds treat the unions like the Rs treat the fundies.

There are economists on thread who can probably answer your question better. But suppose commodity prices tank. That means those who produce things can’t survive because they’re not paid enough given their stubborn (sometimes fixed) costs. Many stop producing, go out of business and unemployment swells, thus further lowering aggregate demand, pushing the economy further down, etc. Looks like a nasty spiral to me. Sure, if your income is both adequate and safe, it’s a great time to buy, but many are not that fortunate.

Is deflation good since you would be able to buy more things with an already small pay check?

but why would you buy things today (other than essentials) if you expect them to cost less next week? it’s a recipe for more demand collapse than the economic contraction would suggest. negative feedback loop. before you know it your community can’t support your salary and you are laid off.

at least that’s my simplistic non-economist understanding. i throw it out here in order to be corrected if i’m getting it wrong.

Well I am familiar with Leontief. And the UN Model.

I’ve been trying to figure out if there is a way for the states that have been coming together on this (Ohio being one of seven working together) if there is a way just for those states to structure something with the UAW…But as I crunch, I find I am in way over my head…

My conclusion seems to come back to a Fed bailout. It seems any other choice is reverse economic stimulus.

The model I was trying to design on my own included citizens buying vouchers.
One number combo almost worked out. I just did not like the “participant” number. I came up with 10% population participation. I do not think that is realistic based on annual car sales. But…I keep trying to think outside the box…

Heh. R panel on future or R party. Speaker noticed that Obama didn’t win the election on the basis of ideas, but rather on “change.”

Good point. I forgot to make it in my 31.

Those Rs don’t miss a thing, do they? Of course, we have to ignore the fact the McCain chose to make it about ideas, and “spread the wealth” won, IIRC.

Thanks alot everybody for clearing that up. I am already waiting along time before i fill up my gas tank because the longer i wait the lower the price has been going. Thanks again.

Ok so i get the whole producing (farmer) analogy of deflation but what if you are a teacher or policeman who gets a salary. Is deflation good since you would be able to buy more things with an already small pay check?

The problem is that deflation results from a contraction in demand. As demand contracts, fewer workers are needed to meet demand so jobs are cut. This further increases the contraction in demand because now these people are unemployed and this leads to more job cuts. This is all that happens of course. In addition to job cuts, there can also be cuts in wages. Why pay someone as much if what they need to get by is less? You can either force them to take a pay cut or fire them and hire somebody from the burgeoning population of unemployed to do it at the lower wage. The truth is there aren’t many jobs in this country which aren’t susceptible to these kinds of pressures. So while it may seem like an attractive idea, for the vast majority it isn’t at all.

…and “spread the wealth” won, IIRC.

that’s what i thought too. but apparently it was really bipartisanship that won. or so i’m told by any number of Very Serious People.

This is actually one of the better panels on this subject that I’ve seen. The moderator is an Indiana pollster. She made the statement that drilling was not an energy policy. Sure, she said, when gasoline prices spiked and the Rs did “drill-baby, drill” the polls showed that rising in popularity, but, she went on to note, that is not where the voter is fundamentally.

Guy speaking now is laying out the evidence on how deeply imbedded the Ds are becoming all over the country except for a small region.

In other words, it’s the first panel on the subject I’ve heard that is not ideological.

Well, yes, but how does that get us out of the current problem short of another depression? Reforming the financial system is an important part of the overall solution, but we don’t need to have the rest of the economy go into depression waiting until this is done.

you’re going to have to start at the beginning and take baby steps if i’m going to be able to follow you. sorry!

So, you’re trying analyze the effects of restructuring scenarios?

Well, Paulson with the aid of Congress, made a deep hole deeper. I’m open to ideas that would reverse this trend, to be sure. However, it’s best to avoid what has been tried and failed. Basically, the cure being applied currently is what got us where we are now. It makes no sense.

Well, I gathered that he was saying one thing and then the opposite, based on your post. I have to admit, I haven’t yet followed your advice and read the thing yet. I was surmising from your post. There are some good articles at rge, tho.

Heh. Current speaker is pointing out that Rs have been completely incompetent about governing (at the federal level). Nice of him to notice.

thanks. i think roubini has been remarkably consistent, but perhaps not in line with your views (as i understand your comments @6 and @30).

Jane’s got more on the Mother Ship, uh, I mean her blog upstairs.

Thanks guys, good discussion.

Well, yes in a manner of speaking. But I will be honest with you. Despite my international relations degree, and required econ and the study of growth models, I am not an economist. (alank’s eyes grow big and fills the room with the snark, “Oh really? What a surprise!”). So, I know just enough to understand what I am reading but not quite enough to be the executor of models. I am use to small business models to be honest (after running non-profits with 10 mil budgets). I am simply motivated by the number of friends and family I know who will loose jobs. So I crunch…on excel.(Many chuckles out there.)

But I was inspired by this article and tried to crunch numbers in a three stage restructuring strategy. I do not know if I am making sense. I tried to develop a short term, mid term and long term restructure which would build on one another. Part of my restructure included buying vouchers/rebates for $200 each that were worth a few thousand. (I thought I had it working at $8000/voucher, but I need to go back and check my figures and make sure I entered everything correctly. Unfortunately, the 10% population participation is very unrealistic too.)

Anyway, I probably need to leave this work to the economists out there. Nonetheless, I figured what the heck do I have to lose by not trying?