2002-2007 economic boom was fake

[Camarohusky]

The economic boom of the 2000s was a sham. The period should have been a stagnant decade, but somehow our GDP exploded, and stock soared higher than ever before. Many people saw the dot-com bust and the crashes of Enron and WorldCom as distant history and old news. A few saw something was amiss. The growth in the GDP stemmed from 2 areas, the housing bubble and consumer spending, both funded largely on credit. We all know what happened after the party ended.

So, enough with the history, the point I make here is that much of our trouble, especially that involving the debt stems from the government's inability (or unwillingess) to see this truth during that period. At a time when we should have been beginning to cut and trim the fat, we saw some short term income gains resulting from these false booms and decided to party like it was 1999 again. We massively cut revenue and then followed that up by increasing spending, all at a time when we could have actually afforded to dramatically cut spending. The entire government was in on this part from the President, to Congress, to the bueraucrats, the military complex, to Alan "made off like a bandit" Greenspan. Those who should have seen this coming, like Jim Cramer and the aforementioned Greenspan, urged both the government and the people on, as if they just forgot how to do their jobs.

We had our chance to nip the debt crisis in the bud, but we blew it and now we're faced with the possibility of further stalling our economy which is slowly chugging back into true growth, or having the debt grow to a number that may not ever be achievable.

[Note: this is a carryover from a tangent discussion in another thread. I added a thesis just so it could stand alone as well. If you want to see how that tangent started look here.]

[Camarohusky]

At 5/23/12 10:40 AM, CaptainCornhole wrote: Oh please, the housing bubble was hardly responsible for the economic collapse.

That's not how the bubble caused the crash. The housing bubble was creating loans for homes way mor than the homes were worth. The bubble had ballooned to an average of 30% above actual value. Once demand finally stopped, the buble could no longer sustain the 30% inflation, and housing prices quickly snapped back to the pre-bubble levels. This took some hundreds of thousands, if not millions of loans and dunked them all underwater. The craze of investment property (I remember the craze pretty clearly) had left many "investors" with extra property and no return. Short sellers began to bleed money. They started to default on their mortgages, followed by others who otherwise might have been able to sell their extra property to help themselves out. This hit regular home owners and refinancers who could not longer refinance their home for it would not cover the remainder of their mortgage. This crunch and the inability to pay for it led to thousands of defaults in an extremely short period. While the housing sector was hurt dramatically, it was not how the bubble caused the recession.

What we have now are the continued effects of the 2008 collapse. That said Mr. Obama's policies have done nothing to improve our GDP or unemployment rate. In all reality Obama is prolonging the recession through wasteful spending, the extension of unemployment benefits, stimulus packages, various tax hikes, increased regulation, and bailouts. Even Obama himself admitted "there is no such thing as a shovel ready job." Sad thing is Romney probably won't be any different in term s of handling the economy.

Actually, Obama's wasteful spending is doing good for the economy. It's just not enough to provide the kickstart the economy could truly use. With the debt so large, no one is willing to throw that kind of money at the problem.

Look at the Great Depression. It took a close to 7 fold jump in government spending to get the GDP to start growing at a meaningful pace again. While the Great Depression was much worse than our current Great Recession, a massive (I'd conjecture in the over 2 trillion range, and possibly much much more) injection into the economy could get the economy running again. Most economics have said the 2009 stimulus was a resounding success to the extent 800 billion dollars could be. (I do agree it could have been managed better, but it did its job quite well). It is commonly agreed that had it been larger it would have had much more of a positive effect and may have actually started the growth 3 years early.

The only negative effect the spending has had on the economy is largely inflated (stupid Greeks, fucking nitwits). Again our debt is largely where it is because when we had the opportunity to do the right thing, we did the worst possible combo, lowering revenue and increasing spending.

But by the tone of things, I'm beginning to think your a flaming socialist. You seem so hell bent on insisting that capitalism is what got us into this mess. Your probably content with the current state of things.

If you don't think that capitalism was responsible for this, well, I think you need to step back and take a long hard look at whether you're letting politics cloud your judgment.

My bitter tone is more of a result of studying the party in the financial sector and how their short term profit fetish ended up having a severe negative effect on future growth. ("Hell, I can raise a few hundred million by insuring 20 times the value of GM! What happens when we need to pay out? Who cares? $200 million!!) I now see much of the same nearsightedness within the government. The government sacrificed long term growth by encouraging the housing frenzy that led to the bubble and by encouraging consumers to prop up the economy by spending money (they largely did not have).

My general philosophy on economic governance is more of a "Free market on a leash" thoery. A pragmatic attempt to harness the potential of pure capitalism whilst trying to protect against the strong harms of unfettered capitalism.

[bismuthfeldspar]

Keynesians love cheap credit, they believe 100% of economic downturns are due to lack of aggregate demand.

[MOSFET]

At 5/23/12 02:46 PM, bismuthfeldspar wrote: Keynesians love cheap credit, they believe 100% of economic downturns are due to lack of aggregate demand.

Well yes, if no one spending, then no one is buying. I can see that leading to an economic downturn. What other ways are there for an economic downturn to happen.

[TheMason]

At 5/23/12 03:21 PM, MOSFET wrote:

At 5/23/12 02:46 PM, bismuthfeldspar wrote: Keynesians love cheap credit, they believe 100% of economic downturns are due to lack of aggregate demand.

Well yes, if no one spending, then no one is buying. I can see that leading to an economic downturn. What other ways are there for an economic downturn to happen.

It's called a financial collapse. A major bank, Bear-Sterns, in the course of a day saw its stock (ie: operating capital) disintegrate based upon the rumor that its bundles of sub-prime mortgages was going to drag it into bankruptcy. This turned into a pygmalion effect where the prophecy came true because the plummeting stock price led to a drain on the bank's operating funds.

At this point we had the fear of contagion, where other "too-big-to-fail" banks had heavily invested in these junk products and were threatened by collapse as well. This helped lead to inflation and a constriction on credit which in turn led to a decrease of aggregate demand. So the 2008 crisis (as well as the Great Depression) did not have such as decrease as a root cause but rather as a symptom of the disease.

[Warforger]

It wasn't a boom like the 90's though, it was more forced than anything, because during the 90's IIRC it was around 8% the entire time, during the 2000's though it was around 1%.

At 5/23/12 06:50 PM, TheMason wrote: So the 2008 crisis (as well as the Great Depression) did not have such as decrease as a root cause but rather as a symptom of the disease.

Yah it's also necessary to point out one of the main reasons the Great Depression happened was because the US economy was not very diversified, so when the stock market crashed and the automobile and housing industries receded there was nothing to save it.

[EKublai]

At 5/23/12 12:42 PM, Camarohusky wrote:

My general philosophy on economic governance is more of a "Free market on a leash" thoery. A pragmatic attempt to harness the potential of pure capitalism whilst trying to protect against the strong harms of unfettered capitalism.

Keynesian practices are largely inapplicable in today's (post-1970s actually) economy because the country is/has been going through a period of both high unemployment and high inflation, which under Keynes' theory was impossible. This isn't his ignorance talking, its the fact that no economist of the right mind ever dreamed of a day where the macroeconomic policies of a government could be so abysmal that they would fail to balance their own budget.

At this point, something's gotta give before we can practically return to this way of thinking. People need to start saving again and become better consumers or else every up in the economy is just going to be another bubble.

[MOSFET]

At 5/23/12 07:38 PM, EKublai wrote:

At 5/23/12 12:42 PM, Camarohusky wrote:

My general philosophy on economic governance is more of a "Free market on a leash" thoery. A pragmatic attempt to harness the potential of pure capitalism whilst trying to protect against the strong harms of unfettered capitalism.

Keynesian practices are largely inapplicable in today's (post-1970s actually) economy because the country is/has been going through a period of both high unemployment and high inflation, which under Keynes' theory was impossible. This isn't his ignorance talking, its the fact that no economist of the right mind ever dreamed of a day where the macroeconomic policies of a government could be so abysmal that they would fail to balance their own budget.

I don't see the link between a government failing to balance their budget and high unemployment / high inflation. Could you clarify this point?

At this point, something's gotta give before we can practically return to this way of thinking. People need to start saving again and become better consumers or else every up in the economy is just going to be another bubble.

I agree, but that would mean paying paying blue collar workers more than they are getting, most live paycheck to paycheck.

[MOSFET]

At 5/23/12 06:50 PM, TheMason wrote: At this point we had the fear of contagion, where other "too-big-to-fail" banks had heavily invested in these junk products and were threatened by collapse as well. This helped lead to inflation and a constriction on credit which in turn led to a decrease of aggregate demand. So the 2008 crisis (as well as the Great Depression) did not have such as decrease as a root cause but rather as a symptom of the disease.

So basically, what you are saying, metaphorically, that blood loss is just a symptom of the real cause of getting stabbed. So we shouldn't do anything to mend the wounds but instead just stop the stabbing.

I think it important that we go after root causes, but that doesn't mean that symptoms should be left untreated.

[TheMason]

At 5/24/12 12:58 PM, MOSFET wrote:

At 5/23/12 06:50 PM, TheMason wrote: At this point we had the fear of contagion, where other "too-big-to-fail" banks had heavily invested in these junk products and were threatened by collapse as well. This helped lead to inflation and a constriction on credit which in turn led to a decrease of aggregate demand. So the 2008 crisis (as well as the Great Depression) did not have such as decrease as a root cause but rather as a symptom of the disease.

So basically, what you are saying, metaphorically, that blood loss is just a symptom of the real cause of getting stabbed. So we shouldn't do anything to mend the wounds but instead just stop the stabbing.

Not at all. What you are trying to do is:

1) Move the discussion away from my answer to your statement/question that all depressions/recessions are caused by a drop in aggregate demand. I showed that there is at least more than one root cause of down economies.

2) You are trying to take my argument and build a strawman from it which you can then turn around and burn down using nothing more than an emotional analogy.

I think it important that we go after root causes, but that doesn't mean that symptoms should be left untreated.

It is important to not treat the symptoms with "cures" that are just as bad as the symptom we're trying to stop. We've been trying stimulus...Bush tried stimulus. It didn't work, people just retired debt. Clinton wanted to tinker with minority home ownership so the community organizers and wall street 1%ers got their wish and got FannieMae/FreddieMac approval for sub-prime mortgages.

When we get the government involved with the market it causes distortions in the economy that the government is ill-equiped to address.

Especially when you consider that for 80+ years we've been following the Keynsian model of priming the pump...in good times as well as the bad. We're just doing the spending and none of Maynard's saving for the bad times. Instead politicians (of both parties) are using government spending as a way of keeping their bases fat, dumb and happy. BUT someday we will have to pay bill for our stupidity and greed.

[MOSFET]

At 5/24/12 06:20 PM, TheMason wrote:

Not at all. What you are trying to do is:

1) Move the discussion away from my answer to your statement/question that all depressions/recessions are caused by a drop in aggregate demand. I showed that there is at least more than one root cause of down economies.

2) You are trying to take my argument and build a strawman from it which you can then turn around and burn down using nothing more than an emotional analogy.

I felt it was an apt analogy. I'm not particularly emotional about it.

I think it important that we go after root causes, but that doesn't mean that symptoms should be left untreated.

It is important to not treat the symptoms with "cures" that are just as bad as the symptom we're trying to stop. We've been trying stimulus...Bush tried stimulus. It didn't work, people just retired debt. Clinton wanted to tinker with minority home ownership so the community organizers and wall street 1%ers got their wish and got FannieMae/FreddieMac approval for sub-prime mortgages.

When we get the government involved with the market it causes distortions in the economy that the government is ill-equiped to address.

Especially when you consider that for 80+ years we've been following the Keynsian model of priming the pump...in good times as well as the bad. We're just doing the spending and none of Maynard's saving for the bad times. Instead politicians (of both parties) are using government spending as a way of keeping their bases fat, dumb and happy. BUT someday we will have to pay bill for our stupidity and greed.

I agree, you did find another cause. And admittedly, I'm twisting your intent, but it is just an opening for you to clarify and advance discussion. However, I still stand by my statement. In medicine, it's important to treat the symptoms (pain, swelling) when necessary as well as the root causes. Sometimes root causes are out of a doctors hands like what the patient does outside of their homes. Likewise, the solution to root causes are out of reach for the government and all they can do is treat the symptoms. As you say, government is ill-equipped to handle it, and that is usually by design.

I find your examples of Bush's stimulus(and how it went toward paying off debt) and the Freddie Mac/Fannie Mae versions of stimulus interesting. In both cases, the money gets funneled back to the banks. So an even more apt analogy is that these financial institutions are like giant mosquitoes, randomly stabbing at places where the money is and they just sucking up wealth from people, and stimulus doesn't work because these mosquitoes run straight over there and have a feeding frenzy. So this stimulus stops bouncing around the entire economy like it should.

This ties into the statement that 2002-2007 economic boom was fake, not because people started spending more freely with extra cash on hand, but because everyone basically took on more debt. Is that right?

[TheMason]

At 5/24/12 08:46 PM, MOSFET wrote: I agree, you did find another cause. And admittedly, I'm twisting your intent, but it is just an opening for you to clarify and advance discussion. However, I still stand by my statement. In medicine, it's important to treat the symptoms (pain, swelling) when necessary as well as the root causes. Sometimes root causes are out of a doctors hands like what the patient does outside of their homes. Likewise, the solution to root causes are out of reach for the government and all they can do is treat the symptoms. As you say, government is ill-equipped to handle it, and that is usually by design.

1) Be careful when you twist another's intent...even though you may be thinking it's for a good cause (ie: expanding discussion) it is a very intellectually dishonest thing to do.

2) Medical analogy: Often you have to isolate the patient from the root cause of the disease and treat the disease first or else treating the symptoms is just masturbation. To use your analogy: yes your first priority has to be to stop the stabbing even before attempting to staunch the bleeding. Furthermore, a Doctor realizes that he cannot repair ALL the damage or return the patient back to 100% the way things were before. So there are some blood vessels that cannot be healed and you cannot put all the blood back into the patient. At some point the body will have to grow new blood vessels and create new blood on its own. It is tough and painful...but it has to be in order for the patient to return to a healthy state.

So...an economic recovery may be painful. But in every other recovery (minus this one and arguably the Great Depression) the economy came roaring back.

3) Government inefficiency: In the US the government is designed to be more inefficient than other Western "democracies" in order to keep the various parts of the polity in check (the legislative, executive, judicial, state, federal and even the people) so one does not run amok over the others. However, it is not only a design feature but a limitation of all government models. Even in social democracies like in Europe, governments simply cannot go through the process of legislating, interpruting and litigating new laws in response to new market trends or even problems in a timely matter.

And do you really want the government having that big of a say in your economic life? I mean all the 'free' shit may be cool for awhile...but eventually we ALL will have to pay that credit card bill.

I find your examples of Bush's stimulus(and how it went toward paying off debt) and the Freddie Mac/Fannie Mae versions of stimulus interesting. In both cases, the money gets funneled back to the banks. So an even more apt analogy is that these financial institutions are like giant mosquitoes, randomly stabbing at places where the money is and they just sucking up wealth from people, and stimulus doesn't work because these mosquitoes run straight over there and have a feeding frenzy. So this stimulus stops bouncing around the entire economy like it should.

1) Just to clarify: the Bush stimulus and the Clinton sub-prime executive order to Fannie and Freddie actually either gave money directly to people or made loans available to them...not the banks.

2) As a society we've moved towards a credit mentality when it comes to economic life. When I was younger I got into credit card trouble. So when I've received stimulus from the government (either by one-time checks or by tax return gimmees)...I've typically used it to retire debt that I took on in order to consume like a meth addict stumbling upon an overturned sudaphed truck. So the problem isn't big banks...it's the irresponsibility of the people. There is no conspiracy here. Furthermore, the banks don't want people retiring debt. What they want is to keep the credit system alive and functioning so people are remaining shackled to them through their credit cards. Banks don't make money when people pay off their debts...only when they're paying interest through periodic payment plans.

This ties into the statement that 2002-2007 economic boom was fake, not because people started spending more freely with extra cash on hand, but because everyone basically took on more debt. Is that right?

I'm not arguing that Camaro is wrong with his assessment. I'm arguing that:

1) The cause of the 2008 financial crisis/meltdown was because of 80+ years of irresponsible spending and monetary policies from Washington (ie: social engineering projects like the sub-prime timebomb Clinton made) finally started catching up.

2) As a society we are becoming evermore a debtor nation...from Washington to Wall Street to Main Street. The problem is with all three and fixing one or two won't cut it. Maybe we need the pain of a Great Depression to wake us up to reality.