Who stole my cheesy economy? - Eric Janszen

[ASH]

Re: Who stole my cheesy economy? - Eric Janszen

I wonder who was the strongest military power before WW2. How about Germany? I think it's a scary comparison.

When before WWII? For most of the inter-war period after WWI, France was stronger in terms of manpower and equipment. (The fact that they got rolled by Germany had to do with the disposition of their forces and the doctrine of their employment, rather than numerical or technical weakness.)

[ASH]

Re: Who stole my cheesy economy? - Eric Janszen

We have all been drawn into an illusion of our own making. It was not the war that drove the engine of prosperity, it was the way the majority treated investment. if you look at the business of manufacturing, for example, B17 bombers, the bombers were in fact a very good example of what I have been trying to get across elsewhere. Take as an example, fly a hat as it were, and assume the US did not help in WW2 but instead sat it out with no involvement. The investments that resulted in the B17, and up did not happen, nor for that matter, into the nuclear bomb, aircraft carriers, everything that was produced involved investment for the creation of products that, in many circumstances were blown to bits within months of manufacture. All that investment is what created the prosperity, not the war per se.

So it was not the war as such, it was the investment.

If that is indeed the case, then the answer to EJ's question: How to halt debt deflation and induce demand creation in a world of over-capacity and over-indebtedness without war? is simple - to invest in anything.

The answer is to, instead of giving all the money to the banks, create a new institution, or use existing ones and say to everyone with an idea for the creation of..... whatever..... here, take the investment, go create prosperity.

I ask another question:

Are we so stupid that we can only think of a war to drive such investment?

I return to my assertion that the only thing that differentiates a big war from any other form of government "investment" or stimulus is the destruction of actual productive capacity (preferably overseas). If it were not for the aspect of destroying capacity in one place and building it in another, I would agree with your statements above. I also tend to agree with C1ue that the US can't realistically repeat the economic results of WWII today.

[stockman]

Re: Who stole my cheesy economy? - Eric Janszen

My time frame is pretty short and I've taken trades on both sides this year. But I don't want to be short right now. Not in the 'new bull market' camp but not in the 'straight to hell' camp either.

If the Fed/Treas really wants to take a stand on the asset price deflation now would be a good time to lend some support to the stock market. Lots of folks trading on charts.

Are we watching a bottoming process or are they just trying to suck us in? Per Rydex and AAII charts there is a lot of sideline money (in cash, gold/commodities, bonds and inverse ETFs) that could get sucked in if the rally continues.

Dont Be Short.jpg


AAII asset allocation.jpg

[ASH]

Re: Who stole my cheesy economy? - Eric Janszen

Will someone tell me the difference between someone dropping, say, a bomb and another arriving with a Bulldozer to do the same thing, destroy a building so that it will have to be rebuilt?

What I am trying to get across is that we do not need any form of war to create new prosperity, we only need to change our perception of what is possible. Right now, all we seem to be able to accept is that:

"we always did it that way, so we must always do it that way",

So, why not try something different?

That's a good point, but to get an effect equivalent to WWII, America would have to ask the rest of the world to knock down their factories with bulldozers. That would be an awkward discussion.

Mind you, I do not myself believe that war is to be wished for, or would prove especially helpful in these circumstances.

[FRED]

Re: Who stole my cheesy economy? - Eric Janszen

This article is not a war forecast but asks a question. Due WWII world leaders did not have to face the question of how to end a global debt deflation by negotiated agreement. Instead, war spending destroyed capacity, increased employment and demand, and inflated away the debt.

The question is, how will we do this without war? What kind of agreement might possibly come out of the April 2, 2009 G20 summit?

[ricket]

Re: Who stole my cheesy economy? - Eric Janszen

This article is not a war forecast but asks a question. Due WWII world leaders did not have to face the question of how to end a global debt deflation by negotiated agreement. Instead, war spending destroyed capacity, increased employment and demand, and inflated away the debt.

The question is, how will we do this without war? What kind of agreement might possibly come out of the April 2, 2009 G20 summit?

Why dont we just give all the excess homes created to homeless people? Homeless problem solved. People are so greedy it's not even funny. They would rather see a house sit there unoccupied for 2+ years (Ive seen it in my own neighborhood), than to let someone who truly needs it (not the freeloaders btw, but the truly deserving) move in. What a shame our society is.

Why is war all about destroying excess capacity, when, in reality, we have *plenty* of people that that "excess capacity" could go to? Let the prices fall to where they are affordable (or even practically free) if no one wants them. Then society as a whole will "prosper" and a previously homeless person will be able to maybe finally afford vehicles and flat screen TVs. There's no point in blowing it up or killing someone for it. Just let them have it. Sheesh. It's just a TV.

[bart]

Re: Who stole my cheesy economy? - Eric Janszen

The question is, how will we do this without war? What kind of agreement might possibly come out of the April 2, 2009 G20 summit?

Who knows, but one possibility could be backing off on Basel II or at least making noises about it.

After all, it was implemented almost date coincident with the stock market peak... and it sure would answer many cries to "Do something effective!".

[Raz]

Re: Who stole my cheesy economy? - Eric Janszen

Just an argument about historical context:

Avoiding foreign entanglements when you are a third-rate power, constantly in danger of being caught up in a world war between the two world superpowers, is more of a pragmatic survival strategy than a timeless philosophy.

Fear of the military-industrial complex when military spending accounted for around 50% of government spending made a lot of sense; does it still make sense when defense spending is more like 15% of total government expenditures? (Based on table 15.4 of the Historical Tables from OMB, comparing the Korean War years to 2007.) I think it turns out that AARP has better lobbyists than Lockheed Martin.

P.S. To be clear, this is not an argument against avoiding foreign entanglements or decreasing defense spending. I just wanted to point out that Washington's advice had more to do with practical diplomacy than the big ideas of the Revolution, and that the defense-industrial complex of the 50's was quite more dominant than it is today.

Excellent points, Ash. And while you are quite right in the relative, there remains an absolute as to "foreign entanglements".
I will try to explain.

If the only remaining Superpower allows defence treaties to stand unaltered when geopolitical realities have changed, said Superpower runs the risk of being dragged into wars by little powers that have NOTHING to do with the vital national interests of said Superpower. Such is the case with the insane expansion of NATO into Eastern Europe by Clinton and Bush. Should the Russians decide that they have had enough of Latvia and decide to invade it - on whatever pretext - the United States is obligated to go to war against a nuclear armed Russia. To my mind that is insane. If Latvia disappeared from the face of the earth tonight I don't see how it would have ANY bearing on the vital national interests of the United States. In The Guns of August Barbara Tuchman explained how World War I began in a similar fashion.
Another point: the European members of NATO have a combined population of over 400,000,000 (Russia's is 145,000,000) with a combined GDP many times that of Russia. Why do we need to defend them? If they are unwilling to defend themselves they deserve to be swallowed by a bear. Look at the Korean penninsula: South Korea has almost twice the population of North Korea (38 million to 21 million) and an economy that is twenty times that of the North. If they aren't concerned enough to build sufficient military forces to handle the situation without us, then why should we worry about North Korea, much less have troops on the ground there after 55 years? There is timeless wisdom in Washington's words.

As to the percentage of military spending v. other spending: you are absolutely correct. It's one reason Reagan cannot be the single source of blame for the past twenty-five years of large fiscal deficits. Almost 70% of the federal budget is made of of "Entitlements" which are politically untouchable. And who established these massive entitlements, expanded them continuously, and rendered them sacrosant and exempt from the budget ax? Why the Democrats did, under LBJ and right on through the 1980s when "Tip" O'Neil and Jim Wright pronounced every budget Reagan submitted to be "dead-on-arrival". But what we have seen over the past eight years under George W. Dumbass is the metamorphasis of former spending restraint by Republican members of Congress into the very same (or worse - until Pelosi) spendthrift insanity championed by Democrats!

EJ has a thread on Establishing a Third Political Party. I have believed since 1996 that we were doomed as a nation unless we have a viable and electable choice other than the vote-buying RepubliDems who have taken over our government.:mad:


P.S. I think we should move this particular discussion to EJ's new Thread. We don't want to hijack this one.

[ASH]

Re: Who stole my cheesy economy? - Eric Janszen

P.S. I think we should move this particular discussion to EJ's new Thread. We don't want to hijack this one.

No need to hijack further, because I agree wholeheartedly with everything you just said.

[wayiwalk]

Re: Who stole my cheesy economy? - Eric Janszen

A third political party? Sounds great.

I bet you'd get 80% of the independents, and 20% of the repubs and dems from either party.

This wouldn't be rocket science to come up with a platform that would include fixing the financial structure of the country that most could agree on. The bar set by the existing parties is so low.

An added benefit would be that success by a third party alone would be the magic needed to repair the confidence in the market worldwide.

There's a real need for serious people who don't have their own private agendas at work.

[orion]

Re: Who stole my cheesy economy? - Eric Janszen

This article is not a war forecast but asks a question.

The question is, how will we do this without war?

How about the plan from one of my favorite iTulip interviewee's (Steve Keen)?

This is why Japan is still mired in a Depression, 19 years after its bubble economy burst. You can’t solve a problem caused by too much debt by going into more debt. Ultimately, the only solution is to reduce debt.
There Australia is in a quandary. We don’t yet have insolvent banks–the USA on the other hand has nothing else. So drastic means of attacking the problem are possible in America, once the Yankees get over their usual pussy-footing about nationalisation. But we can’t follow that path while it still appears that our banks are solvent.
So all we can do is brace ourselves for a massive increase in unemployment, and do what we can to ameliorate the pain. Several policies are obvious there: remove the waiting period for receiving the dole, eliminate (or drastically prune) the requirements that unemployed persons exhaust their savings before they receive the dole, get rid of the punitive job application requirements, and take the stigma away from being a victim of a global financial crisis that is well beyond the control of those whose jobs will be destroyed by it.
That will necessitate a massive increase in the government deficit, but that is justified in making sure that the pain of a Depression is shared more equitably. It is also a far more sensible way of going into deficit than throwing a fistful of money at soon to be unemployed consumers.
We can also change the rules on mortgage defaults, so that a failed borrower becomes a renter from the bank or lender that extended the money, and pays a rent based on a proportion of their income. That might mean a lot less revenue for banks, but it will also mean a lot less mortgagee sales–and there will be a tsunami of those coming our way if the economy continues to shrink by 0.5% or more every quarter.

http://www.debtdeflation.com/blogs/2...nomic-dunkirk/

[WDCRob]

Re: Who stole my cheesy economy? - Eric Janszen

A third political party? Sounds great.

I bet you'd get 80% of the independents, and 20% of the repubs and dems from either party.

This wouldn't be rocket science to come up with a platform that would include fixing the financial structure of the country that most could agree on. The bar set by the existing parties is so low.

And the second such a 3rd-party platform actually started to attract voters you'd find both parties adopting portions of it and leveraging their structural/legal advantages against outsiders to eliminate the the new party.

[santafe2]

Re: Who stole my cheesy economy? - Eric Janszen

Why dont we just give all the excess homes created to homeless people? Homeless problem solved. People are so greedy it's not even funny. They would rather see a house sit there unoccupied for 2+ years (Ive seen it in my own neighborhood), than to let someone who truly needs it (not the freeloaders btw, but the truly deserving) move in. What a shame our society is.

Why is war all about destroying excess capacity, when, in reality, we have *plenty* of people that that "excess capacity" could go to? Let the prices fall to where they are affordable (or even practically free) if no one wants them. Then society as a whole will "prosper" and a previously homeless person will be able to maybe finally afford vehicles and flat screen TVs. There's no point in blowing it up or killing someone for it. Just let them have it. Sheesh. It's just a TV.

I'm not sure any of us understand how bad it's getting out there. I read this story in the NYT Magazine last weekend. To get a better feel for where we're going with the housing crisis, it's a good place to start.

The value of some housing in Cleveland is so low the bank will not foreclose. It sounds crazy but they're starting to leave homeowners in limbo because it's more expensive to foreclose than to walk away - Not the home owner, the bank.

Mayra Caraballo, a 39-year-old mother of two, appeared in court in response to code violations on her home. She explained to Pianka that she no longer owned the house. She had lost her job at a processing plant, and an adjustable rate had kicked in on her mortgage, boosting her monthly payments to $1,100, from $800. She had left after receiving a foreclosure notice. The house was quickly stripped of everything but the furnace. Pianka asked a clerk to check into the house’s ownership; he suspected that the lender had withdrawn the foreclosure at the last minute, as is becoming more common. The clerk tracked down the trustee on the mortgage, Deutsche Bank, and confirmed that the foreclosure had indeed been withdrawn. Pianka calls these situations “toxic titles.” “You’re in limbo,” Pianka told a shocked Caraballo. “There’s no hope in your getting out of this property as a result of foreclosure. We’re seeing this more and more.”

http://www.nytimes.com/2009/03/08/ma...ewanted=7&_r=1

If you have any trouble getting to the article you may have to register with the NYT. They've switched policies a few times so I'm not sure how it's working now.

[wayiwalk]

Re: Who stole my cheesy economy? - Eric Janszen

And the second such a 3rd-party platform actually started to attract voters you'd find both parties adopting portions of it and leveraging their structural/legal advantages against outsiders to eliminate the the new party.

True - but I'd take adoption of sound policies, such as many ideas expressed on this site any day over what we've been getting the last few decades.

As far as leveraging their structural/legal advantages, that just comes with the territory but an independent candidacy from local to federal levels may gain greater support as our present pols bumble their way through the next few years.

[santafe2]

Re: Who stole my cheesy economy? - Eric Janszen

Indeed they are strongly correlated.

From Aug 2008: Unemployment by industry: Brace for Impact

• Total Private Sector Employment: Employs 118 million
• Total US Government Employment: Employs 23 million
• Goods Producing: Employs 22 million
• Service: Employs 118 million

We cannot make an apples to apples comparison because the FIRE Economy didn't get going until the early 1980s to restructure the US economy, including the composition of its labor force.

Before the 1980s recessions there were 25 million Americans working in the Goods Producing sector or 32% of 77 million total Private Sector employment. Today the Goods Producing sector employs only 22 million out of 118 million Private Sector jobs, or 18%. Arguably, a large portion of those goods producing jobs are dependent on the FIRE Economy, especially real estate.

To answer your question, it's hard to say because while CAP-U and unemployment remain strongly inversely correlated, and a near 50% increase in unemployment from 6.5 million to 12.3 million occurred at the same time as a 16% decline in CAP-U, an additional 25% decline in CAP-U from 67 to 50 may produce another doubling of unemployment to 24 million, but that assumes the ratio remains proportionate.

Thanks Fred - and Bart for the additional charts and information. I just spent some time at lunch looking more deeply at the CAP-U components and there is a lot more there for us to understand. I'll find some time tonight to post a link from the Fed and some data we can drill into. There's some great trend analysis that can be done. Ha, ha...I just realized how far I just went out on the geek limb...that is, for anyone that might care about this stuff.

I've got to get back to work but here's one piece of information I've been able to gather. Our productive capacity is currently running at the same level as 1999. Since our CAP-U is ~67% today and was ~82% in 1999, we can extrapolate that ~20% capacity has been added to our system since 1999. Why it was added and where will take a lot more digging but I wouldn't be surprised to find that photovoltaic capacity in the US is way under utilized right now and that there was a lot of tax subsidized build out over the last five years.