Article

2009-08-04 Economy

Govt. Wasting Time & Money: "Deleveraging Is a Freight Train," Boockvar Says

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Posted by ed 2009-08-04 08:16|| || Front Page|| [6 views ] Top

#1 "We have to start making things the rest of the world wants,...

When the Great Depression took hold, America was an industrial and exporting nation. When the data doesn't fit the theory, throw out the data.

Posted by Procopius2k 2009-08-04 09:00|| 2009-08-04 09:00|| Front Page Top

#2 He's putting the cart before the horse. Right now, the US is so deeply in debt that we cannot make things the rest of the world wants, because they would demand it for free, in exchange for the US debt.

Instead, if the US followed in the footsteps of other nations and renounced its debt, it would help everyone, and faster, even those to whom we owed our debt.

That is, China's growth was based in underwriting US debt *with their profits*, not their core wealth. But now they are stuck with US paper they cannot cash in, trade, or otherwise dispose of, without sinking their own ship.

If the US renounces that paper, while the Chinese will bitterly protest, it will free them from the degenerate trade cycle with the US. Trade will halt, so China's growth will need to turn inward, to creating their own consumer society.

Since all import trade with the US will be over for a decade or more, except for cash on the barrel head, the US will have to rebuild its outsourced industries for its own needs. And this is the start of the US recovery.

And the US credit rating will be awful, so the US government cannot issue any more debt, and will have to have a balanced budget, which means scrapping largesse, such as Social Security and medical care, and recalling most US forces home, except for a few critical places.

So the US will no longer have to pay to be the world's policeman, except for the few really dangerous situations.

Posted by Anonymoose 2009-08-04 10:57|| 2009-08-04 10:57|| Front Page Top

#3 "and will have to have a balanced budget, which means scrapping largesse, such as Social Security and medical care"

Good luck with that one, 'moose. :-(

Posted by Barbara Skolaut">Barbara Skolaut 2009-08-04 11:22|| 2009-08-04 11:22|| Front Page Top

#4 'Moose, your remedy sounds most unlikely, however necessary it might be. The national debt cannot be repaid. I know, let's start a few more giga-enormous entitlement programs to go with the ones we can't fund now! That'll do the trick!

Posted by Anguper Hupomosing9418 2009-08-04 12:29|| 2009-08-04 12:29|| Front Page Top

#5 When the Great Depression took hold, America was an industrial and exporting nation. When the data doesn't fit the theory, throw out the data.

While those observations are true it's important to remember that correlation doesn't imply causation.

The recession of the late 20s was all about deleveraing of over-leveraged US equities markets and deflating the corresponding bubble in US industrial capacity that resulted from said excess leverage. It was little more than a rather normal, albeit sharp, business cycle correction that was the result of abnormal leverage utilized to build the most profitable enterprises of the day, namely the means to produce physical goods.

The fact that the US was a net exporter at the time speaks mostly to the utter economic cluelessness of the Hoover Administration's attempt to sheild US workers from the downturn by signing the disasterous Smoot-Hawley Tariff / Trade War Act. The takeaway lesson there isn't that we should avoid building businesses that intend to export goods or that it's inherently dangerous to our economy to do so, it's that if one's economy depends in large measure on exports one should probably avoid firing the first shot in any global trade war.

The fact that the recession of the late 20s degenerated into the Great Depression was also not directly due to the industrial / exporting character of the US in that era. It was due to a long series of misguided government attempts to shield the average American from economic reality, many of which acted to compound the mistakes of those that came before. There are takeaways there as well but they also have little to do directly with the character of the US economy at the time as industrial / exporting. E.g., the government should resist the urge to meddle during recessionary times; the government should resist the urge to attempt to shield citizens from economic realities; the government, if it acts in times of economic crisis, should act *only* to lower the cost of doing business in the US and to lower the cost of living for private citizens; etc.

Posted by AzCat 2009-08-04 16:18|| 2009-08-04 16:18|| Front Page Top

#6 There was also the gold standard which basically ensured deflation.

Posted by Bright Pebbles 2009-08-04 18:43|| 2009-08-04 18:43|| Front Page Top

#7 He's putting the cart before the horse. Right now, the US is so deeply in debt that we cannot make things the rest of the world wants, because they would demand it for free, in exchange for the US debt.

First you have to stop the bleed out ($700B/year) before the patient can recover. That means, as a first step, producing our own energy and consumer goods. That means a tariff policy to encourage domestic production instead of continuing as the world's goods and services dumping ground. Manufactured goods prices may double, but people will have high wage jobs to afford them instead of the $8/hr Walmart jobs that last until the remaining money runs out.

Same for energy. Drill the most likely oil/gas bearing formations. If the coasties don't want to drill then let them walk everywhere. Put in place a floating tariff so that middle eastern monopoly producers can't crash prices to bankrupt domestic producers. Oddly enough, energy prices ($450B of last year's 700B deficit) will likely drop as easily accessible fields are tapped and cheap domestic coal and gas is turned into gasoline.

Then the American economy can rationalize its production and invest in new technology for greater productively and wealth. In the long term, you only consume as much as you produce.

Posted by ed 2009-08-04 19:36|| 2009-08-04 19:36|| Front Page Top

#8 True and in addition the gold standard added to the extreme economic uncertainty of the 30s when, for a time, FDR lay in bed in the evening and decided at what price he would fix gold the next morning. That sort of wag-the-dog uncertainty is devastating to market economies.

Posted by AzCat 2009-08-04 19:45|| 2009-08-04 19:45|| Front Page Top

#9 Drill the most likely oil/gas bearing formations.

That will cut the flow of capital out and create jobs and lower the cost of doing business by the reduction of price of the common commodity. Not going to happen while the Obama-Reid-Pelosi triumvirate have power. Their objective is power, not really solving problems.

Posted by Procopius2k 2009-08-04 20:28|| 2009-08-04 20:28|| Front Page Top

#10 Their objective is power, not really solving problems. Posted by Procopius2k

The only 'problem' Obama and his regime intend to solve is that of the two party system in this country.

Posted by Besoeker 2009-08-04 20:31|| 2009-08-04 20:31|| Front Page Top

#11 ...and here all along I thought the Beltway Trunks(tm) were doing it themselves without much ~~assistance~~ interference by the Donks across the aisle.

Posted by Procopius2k 2009-08-04 22:44|| 2009-08-04 22:44|| Front Page Top

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