Financial Markets

[Ibelieveinjesus]

I wish to be friends brother and we can agree to disagree ....

One of us, or both, will one day be hit up side the head with reality.

What do you think about my comments concerning price inflation between '52 and today and savings rate just 40 years ago vs. the negative rate today? All that while the standard of living has not actually changed. Charts are merely a graphical form of statistics. There is an interesting book available called "how to lie with statistics". :)

Issachar

My understanding of your analysis, of the savings rate, is that it has declined because people are saving less and less trying to maintain the same standard of living.

I would offer another alternative, and that is that people feel pretty good about the present, and about their future, and such, don't feel compelled to save as much as they did previously, but instead opt for current consumption.

I think there are many reasons for that... One is that the memory of the Great Depression has faded.. and people generally aren't concerned about the possibility of a Financial Maelstrom to that degree.. but another is that even with the large amounts of debt people are taking on, Household Net Worths, keep rising.. Sometimes more quickly than at other times.. but the trend is up, and when folks see their net worth going up, their incentive to save is reduced.

I also respectfully again disagree with your statement about the standard of living being worse than it was in the 50's.. I think it is much better.. just looking at advances in medical and other technology since that time, I think is indicative of that...

-Ted

Btw, we can of course disagree and still be friends.. I really enjoy discussions like this, and engage in them to offer an idea, or learn, and also to hone my own arguments, and reasoning.. I don't do so in order to be unnecessarily contentious or argumentative, so please take my posts in that spirit.:)

[ddg1263]

I am NOT picking on ddg1263 here ... but his statement, quoted here, is typical of many, so I used it. It is NEVER a right move for a central bank to pump liquidity into anything. It is not even a right move to have a central bank.

Their pumping in bucks is the reason the economy is so fragile in the first place. More wrong cannot fix anything.

Well I am not sure where to start my post, but I do think you are overlooking quite a bit. First of all let me state again, the fed made the right move. I called it when the market was still down in the triple digits and the markets stabilized and even over the weekend they still maintained their balanced. I do think this article went a long way for Mondays rally.

http://en.rian.ru/world/20070813/71136634.html

As I stated before I am not sure where to start because I am not sure how much you know about economics, I guess maybe start with history. Back in Andrew Jackson’s day he got upset with the central bank because the head of it was supporting the opposition. This upset Andy so he retaliated by not renewing its charter and effectively closed the national bank. He thought he could start a state run bank to handle monitory affairs. Well, it plunged the country into a depression in the next administration until they reestablished the national Bank. Liquidity was a big factor. One thing I think you are missing is that with out the proper expansion of M1, M2, and M3 any economic model can’t survive because you have to take into account a growing population. Things do get hyped up and over sold, and it goes with out saying that we do hit recessions and depressions. It is the job of the Federal Reserve to minimize the effects by pumping liquidly into markets at the appropriate time. Also they need economic stimulus such as a rate cut. I do consider cutting interest rates as pumping liquidly into the markets. Printing money is another way, and actually buying bonds as they did Friday is another. Also the private sector creates money by banks making loans. The 30’s depression would take a while to discuss and I am already getting winded here. It was not just a liquidity problem that caused it.

I Do think The Fed made the RIGHT decision Friday. If you look at the pie chart of how many of these skinny mortgages there are in light of the whole Fannie Mae, Ginnie Mae market it is very small. The problem can spread, and if it does, a rate cut would be necessary. However, I am more inclined to think that things will be contained.

Now as for the real problem, The US dollar is sliding and people can and do talk about the reasons. Some say it was NAFTA, and some say it is China. This is how I see things. In the early 1900, we started a labor movement to organize our current labor unions. At the time, it was so needed to protect workers rights because many companies abused workers beyond belief. Fast forward 50 years, workers saw how much power it gave them and they used it. Mainly in the 60’s and 70’s, organized labor unions went over board with benefit packages and wages which really hurt companies become less competitive in a world market. Remember in the 50’s we had 6% of the population and produced above 50% of the worlds goods. Manufacturing is the mainstay of ANY economy. Every one manufacturing job creates 7 others down the line. Now companies could not figure out a way to combat the out of control wage problems. Now insert added expense brought on by the environmentalists. Environmentalist complained about any and everything associated with smoke stack industry. Through the years it added great expense to operate in the USA. So corporate America hired lobbyist and paved the way for expanding free trade with NAFTA and other important legislation that allowed them to produce things over seas. Well it took care of escalating wages and escalating pollution control costs in one swoop. But as Corporate America, exported our factories, they lost control of their companies. They became the tail wagging the dog sort of. Take for example our auto industry. Ford Motor is selling for 8.50 a share now. However, it was once one of the cornerstones companies of our country. Everything is being produced in China, Japan, India or “some other lower wage nation” nowadays. Cheap labor is cleaning our clock; Wal-Mart successfully saw a niche and capitalized on it and became our largest retailer. Today we are faced with some real consequences. Our dollar is becoming weaker and weaker each passing year as our trade imbalances grow. We produce bullets and semiconductors very well. But the rest of our raw material is not being utilized as it should be. And businesses are being lost to foreign competition. I am not sold on protectionism because that was a major factor in the 30’s depression. However, we do need to bring our up manufacturing levels. Wars are won and lost on a countries ability to produce goods. And it takes time to implement tooling for effective machines.

I will close by just saying that all the talk about the collapse of financial markets is out lined above. People can not live above their means for a long time, and it is the same with economies. It is just that economies take a bit longer for the full effects to be noticed. It is not about weather we are on a fiat system or a gold system. It is all about a people’s ability to produce goods and services. We saw this past weekend how the Fed operated in concert with china to assure folks that they were not going to sell the dollar. Heck we are their best customer. But we got to pay the piper someday, and it is going to be interesting to see how the next administration views these issues ahead of us. My bet is on the lobbyist controlling all relevant activities in Washington, and big business getting bigger.

[Issachar]

Btw, we can of course disagree and still be friends.. I really enjoy discussions like this, and engage in them to offer an idea, or learn, and also to hone my own arguments, and reasoning.. I don't do so in order to be unnecessarily contentious or argumentative, so please take my posts in that spirit. Good and amen. :)

I also respectfully again disagree with your statement about the standard of living being worse than it was in the 50's.. I'm not sure why you said this ... because I said:

All that while the standard of living has not actually changed. What I mean by the same is that we all still have a house, a car or two, medical care, music, theatre, etc., albeit, the cars are more fuel efficient (but a BEAR to work on! :panic ) and the medical care is better in most cases, but nevertheless, available.

Issachar

[GodwithUS]

Just the fact we have a central bank that is accountable to no one is reason to be suspicious. We can discuss all about our current economic situation, the bottom line is that anytime the Fed injects money, its a bailout. And overtime, we all pay for it with a worthless dollar and more inflation.

If you really want to be fair about it, just let the market take care of itself. We don't need infusions of cash. Let those who took the risk take all the responsibility.

[Issachar]

Let those who took the risk take all the responsibility.
Hey! This is a serious discussion. What's with the "responsibility" comment??!! :pound

Seriously, that is what central banks are all about ... fiat --> Inflation ---> destroyed economy. Bailing is the antithesis of natural cycles within a healthy economy.

Issachar

[robinhoooood]

How do you figure that?

From: http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt

M2, As per March 2007 was 7,171.6, at the end of June it was 7248.. When I do the math on that (((7248-7171.6)/7171.6)/3)*12.. I get an annualized rate of 4.2%...

When I look at March of last year...(((7248-6782)/6782)/15)*12 I get a rate of 5.5%...

-Ted

Sorry I should have backed that up with. I listen to the financial newshour everyweek... on this website www.financialsense.com These guys are really good and call a lot of the stuff that happens weeks and months off... I recommend it to anyone interested in economics.

Anyway, they say we are at a 13% clip... mainly they are basing it at the rate central banks around the world are increasing money supply... we are actually lower than most right now... with a lot of other countries around 15-17%... I will try to find the info they are using... hope that satisfies for now.

[robinhoooood]

This article has a chart that might make what I was saying more clear...

http://www.financialsense.com/fsu/editorials/bart/2007/0123.html

It is at the bottom.