Subprime Meltdown, the US Housing Market & the Direction of the US Economy in 2009 and 2010

[GeoffD]

To my mind, if improving the economy and unemployment is the goal, then its smarter to have the gov't spend money on needed infrastructure, energy, tech, medicine and other long term investments that actually might have some return beyond just selling a piece of paper to a bigger fool.

All the FED can do is control monetary policy.

What you're talking about is the fiscal stimulus that should have happened 3 years ago. Instead, most of the borrowed money was simply pissed away rather than used on infrastructure. The Republican house controls the budget. In an election year, there is no way they would vote for a sane fiscal stimulus package that focuses on infrastructure. After 8 years of crazy Dubya spending, they've all of a sudden turned into deficit hawks.

[a_riot]

All the FED can do is control monetary policy.

What you're talking about is the fiscal stimulus that should have happened 3 years ago. Instead, most of the borrowed money was simply pissed away rather than used on infrastructure. The Republican house controls the budget. In an election year, there is no way they would vote for a sane fiscal stimulus package that focuses on infrastructure. After 8 years of crazy Dubya spending, they've all of a sudden turned into deficit hawks.

So the Republican plan is to try and destroy the economy to provoke the American people to vote for them? How stupid do they think the voter is?

[GeoffD]

So the Republican plan is to try and destroy the economy to provoke the American people to vote for them? How stupid do they think the voter is?

If you look at Congress and the Senate over the last 4 years, they must think voters are incredibly stupid. Getting Obama out of office has been mission #1 the whole time. If, like me, you think that a US dollar collapse is the biggest risk to the economy, some blend of tax increase and budget cut compromise really needed to happen a couple of years ago.

[a_riot]

If you look at Congress and the Senate over the last 4 years, they must think voters are incredibly stupid. Getting Obama out of office has been mission #1 the whole time. If, like me, you think that a US dollar collapse is the biggest risk to the economy, some blend of tax increase and budget cut compromise really needed to happen a couple of years ago.

Is it possible to have a united, thriving country based on the sole philosophy of unfettered self interest? I know Ayn Rand thought so, but I have my doubts.

[vwconvert]

I think the Fed is trying to drive up inflation expectations and the stock market because both should theoretically stimulate demand, which then theoretically cause firms to hire more. I have my doubts as well but I think that is their plan. Inflation expectations reduce real interest rates (the returns from saving) and goosing the stock market creates a wealth effect that causes people to want to spend more. This is more a less a social experiment to see if it works. The risk is something that I think you alluded to which is that people will just chase yields in alternative investment vehicles causing bubbles rather than than stimulate the real economy.l

[a_riot]

I think the Fed is trying to drive up inflation expectations and the stock market because both should theoretically stimulate demand, which then theoretically cause firms to hire more. I have my doubts as well but I think that is their plan. Inflation expectations reduce real interest rates (the returns from saving) and goosing the stock market creates a wealth effect that causes people to want to spend more. This is more a less a social experiment to see if it works. The risk is something that I think you alluded to which is that people will just chase yields in alternative investment vehicles causing bubbles rather than than stimulate the real economy.l

The so-called "wealth effect" seems to be another farce like trickle-down economics. Why do we run economies on these completely unproven and bogus philosophies? People buy things when they want or need them and can afford them, not just because they perceive themselves to be wealthier. Its the same thing when I hear that somehow by cutting corporate taxes, companies will hire more. Companies only hire people when they need their services to make profits, not because the company simply has more money to spend. Conversely, companies who are losing out on profit due to inadequate staff levels, typically will hire more staff regardless of taxation levels.

[GeoffD]

The so-called "wealth effect" seems to be another farce like trickle-down economics. Why do we run economies on these completely unproven and bogus philosophies?

When we had the tax levels of the 1960's, it's pretty clear that Federal tax structure was a drag on the economy since there was a lot of disincentive to earn your next dollar if you were high income. (Though it was way easier to shelter income then).

The Clinton-era tax structure wasn't a drag on the economy. The Dubya tax reductions didn't help. The argument is that tax revenues grew every year during his administration but it's pretty clear that this was due to them pumping up the housing market to drive the economy into a bubble. We're paying for that dearly now.

I think the best thing we could do is let all those Dubya tax policies expire and have some simultaneous large budget cuts. To start, divide by two with the defense budget. The deficit problem really doesn't go away until health care gets fixed. 17+% of GDP totally destroys the budget. The medical cartel needs to take an enormous haircut to fix the problem.

This is all politically impossible so I see nothing but the status quo.

[ValveCoverGasket]

To start, divide by two with the defense budget.


This is all politically impossible so I see nothing but the status quo.

agreed 100%

more of the same ad infinitum

[AZGolf]

The Republican house controls the budget. In an election year, there is no way they would vote for a sane fiscal stimulus package that focuses on infrastructure. After 8 years of crazy Dubya spending, they've all of a sudden turned into deficit hawks.

Let's start by going over history:

2001-2003: House led by Republicans, Senate Led by Democrats
2003-2007: House led by Republicans, Senate led by Republicans
2007-2011: House led by Democrats, Senate led by Democrats
2011-2013: House led by Republicans, Senate led by Democrats

So let's be honest: Republicans only controlled the house for the first 6 years of the Bush II presidency and only had both chambers of congress for the middle 4 years, during which deficits came down from something like 5% of GDP to 3% or so, which isn't fantastic, but it isn't half bad considering how bad the one-two punch of the dot-com bubble was in combination with the September 11th recession. Second, I particularly like it when people talk about "roads and bridges" as America's infrastructure that we need to be spending more federal money on. Only a portion of those projects are even funded at the federal level and ALL of transportation only make up 3% of the federal budget. If you think that the US budget should be all about roads & bridges and that the rest is just fluff, then 97% of the spending is apparently fluff. If America's greatest need is more money spent on transportation, we could double transportation spending and only increase the total federal spending by another 3%. Maybe go write your congressperson a letter because I suspect that spending $40 billion a month on public works projects honestly would be more effective at turning the economy around for the lower and middle class than pumping it into buying up debt certificates.

[mbuxton]

I think the best thing we could do is let all those Dubya tax policies expire and have some simultaneous large budget cuts.

Sounds like the pending "fiscal cliff", which has been described as the worst thing we could do.

[a_riot]

Let's start by going over history:

2001-2003: House led by Republicans, Senate Led by Democrats
2003-2007: House led by Republicans, Senate led by Republicans
2007-2011: House led by Democrats, Senate led by Democrats
2011-2013: House led by Republicans, Senate led by Democrats

None of this ever matters. Its a farce, there is only one party in power but it has two faces.

If you think that the US budget should be all about roads & bridges and that the rest is just fluff, then 97% of the spending is apparently fluff. If America's greatest need is more money spent on transportation, we could double transportation spending and only increase the total federal spending by another 3%.

You missed my point but perhaps that suits you. I was using roads, bridges, schools, hospitals, etc as a means of describing things to fund that have real lasting value and actually employ people as opposed to swapping electrons around and shuffling numbers between ledgers.