18 Mar 10
2 edits
Originally posted by no1marauderNobel Prize winner Joseph Steglitz estimates that with the multiplier effect a $700 billion investment in such an agency could have led to an $8.4 trillion increase in economic activity
Of course the banks wanted everyone to believe that the economy would collapse if they weren't handed over tons of money and relieved of trillions of dollars of bad investments. An orderly liquidation of the worst run banks in bankruptcy court would have been the responsible thing to do. If some big investors lost money BFD; the world economy shouldn't b , necessary changes in the banking system were avoided and the economy fall apart anyway.
is he really saying that if the federal government was to spend another $700Bill, it would cause the entire economy to grow by more than 50% - from the current $14.4 Trill to $22.8 Trill?
Given that the federal revenues are a bit more than 20% of the GDP, this extra $8.4 Trill would add an extra $1.7 Trill per year in revenues. So in addition to immediately ending the recession, it would also provide enough money to pay for healthcare reform, balance the budget, and even leave some room for tax cuts.
After we did all of that, we could then spend another $700Bill and grow the economy another 50%.
Strange that no one in either party has proposed doing this.
18 Mar 10
Originally posted by MelanerpesI read this wrong. Let me repeat exactly what Steglitz says on page 133 of his book Freefall:
[b]Nobel Prize winner Joseph Steglitz estimates that with the multiplier effect a $700 billion investment in such an agency could have led to an $8.4 trillion increase in economic activity
is he really saying that if the federal government was to spend another $700Bill, it would cause the entire economy to grow by more than 50% - from the current $ ...[text shortened]... d grow the economy another 50%.
Strange that no one in either party has proposed doing this.[/b]
"[t]he government could have given the $700 billion to a few healthy and well managed banks or even used it to establish a set of new banks. At a modest 12-to-1 leverage, that would have generated $8.4 trillion of new credit - more than enough for the economy's needs.
That's not quite as dramatic as I said before, but it would still have generated or saved millions of jobs by pumping credit into a economy credit starved because of the banks' speculative errors.
18 Mar 10
Originally posted by no1marauderI see.
I read this wrong. Let me repeat exactly what Steglitz says on page 133 of his book Freefall:
"[t]he government could have given the $700 billion to a few healthy and well managed banks [b]or even used it to establish a set of new banks. At a modest 12-to-1 leverage, that would have generated $8.4 trillion of new credit - more t ...[text shortened]... bs by pumping credit into a economy credit starved because of the banks' speculative errors.[/b]
But this assumes that the banks would have taken that new credit and made loans with it. If they just sat on that $700Bill, there'd be no multiplier effect at all. The main problem is that everyone believes "We Are In A Terrible Economy, So We Must All Tighten Our Belts"
So consumers are afraid to spend money. People are afraid to start new businesses. Existing businesses are afraid to expand. Banks are afraid to make loans (or they can't find anyone that wants to borrow from them). Everyone is afraid.
If you could hypnotize the entire population and make them believe that "We Are In A Strong Economy" - the economy's problems would end within a week or two.
18 Mar 10
1 edit
Originally posted by MelanerpesThe government creates a bank. It makes it lend money to those who apply who are creditworthy. What part of that didn't you understand?
I see.
But this assumes that the banks would have taken that new credit and made loans with it. If they just sat on that $700Bill, there'd be no multiplier effect at all. The main problem is that everyone believes "We Are In A Terrible Economy, So We Must All Tighten Our Belts"
So consumers are afraid to spend money. People are afraid to start new hat "We Are In A Strong Economy" - the economy's problems would end within a week or two.
No, the main problem wasn't everyone believed it was a terrible economy. The main problem was banks tightened up credit because they realized they had a bunch of assets that were worth far less than they thought. People and business still applied for credit, but ones who would have gotten loans easily before now didn't. So businesses couldn't expand, consumers couldn't spend and then we did have a terrible economy. Not because everyone thought so, but because it really, really was a terrible economy.
It's really not that hard to understand if you take off your blinders.
18 Mar 10
Originally posted by no1marauderokay - I see where you're going now.
The government creates a bank. It makes it lend money to those who apply who are creditworthy. What part of that didn't you understand?
No, the main problem wasn't everyone believed it was a terrible economy. The main problem was banks tightened up credit because they realized they had a bunch of assets that were worth far less than they th ...[text shortened]... conomy.
It's really not that hard to understand if you take off your blinders.
You could have the government directly lend $700Bill. Then, as the economy recovered, the government could auction off these loans to the private sector, and probably would end up making a profit on them. Those banks that were the healthiest would be in the best position to bid on these loans and would be able to expand their portfolios. But would such a plan be able to get enough votes to pass through Congress?
I have no idea how much better or worse this would have been than the TARP approach. Maybe Telerion could shed some light on this. Some sort of plan would probably still have been needed to stabilize the private banking sector.
I agree that the immediate recession was caused by real economic factors. But the reason economies tend to take so long to recover from them has a lot to do with the negative psychology that sets in once everyone in the media starts talking endlessly about how awful everything is. When everyone keeps telling you that you need to tighten your belt, you're apt to do precisely that.
19 Mar 10
Originally posted by MelanerpesMel finally gets it! 😵
... But the reason economies tend to take so long to recover from them has a lot to do with the negative psychology that sets in once everyone in the media starts talking endlessly about how awful everything is. When everyone keeps telling you that you need to tighten your belt, you're apt to do precisely that.
you can start with the Democratic Presidential Campaign.
19 Mar 10
Originally posted by zeeblebotits a strange dilemma.
Mel finally gets it! 😵
you can start with the Democratic Presidential Campaign.
the current economy really IS bad, so of course everyone's going to talk about it. But all the negative talk does have the effect of discouraging action by consumers and investors that is needed for the economy to quickly recover.
do you have any ideas for addressing this right now? - or must we wait a whole year until the presidential campaigns kick off?
19 Mar 10
Originally posted by zeeblebotits a strange dilemma.
Mel finally gets it! 😵
you can start with the Democratic Presidential Campaign.
the current economy really IS bad, so of course everyone's going to talk about it. But all the negative talk does have the effect of discouraging action by consumers and investors that is needed for the economy to quickly recover.
do you have any ideas for addressing this right now? - or must we wait a whole year until the presidential campaigns kick off?
19 Mar 10
Originally posted by zeeblebotits a strange dilemma.
Mel finally gets it! 😵
you can start with the Democratic Presidential Campaign.
the current economy really IS bad, so of course everyone's going to talk about it. But all the negative talk does have the effect of discouraging action by consumers and investors that is needed for the economy to quickly recover.
do you have any ideas for addressing this right now? - or must we wait a whole year until the presidential campaigns kick off?