New President's Policies

[fourthirtysix]

I'd be interested to hear thoughts on what a President Obama or a President McCain's economic plans would do to the overall economy given:

- consumers saddled with debt
- lack of confidence
- rising unemployment
- sinking dollar
- undercapitalized institutions
- etc...

if you were to raise taxes and cut spending, the economy would continue to sink. What would happen if the president began government spending to try and jumpstart the economy? wouldn't that push us further into debt and make the dollar sink more?

[GRG55]

Re: New President's Policies

I'd be interested to hear thoughts on what a President Obama or a President McCain's economic plans would do to the overall economy given:

- consumers saddled with debt
- lack of confidence
- rising unemployment
- sinking dollar
- undercapitalized institutions
- etc...

if you were to raise taxes and cut spending, the economy would continue to sink. What would happen if the president began government spending to try and jumpstart the economy? wouldn't that push us further into debt and make the dollar sink more?

The Fed is lender of last resort, and the Federal Govt is demand driver of last resort. I don't see any other alternative policy action that can be taken...

[c1ue]

Re: New President's Policies

The Fed is lender of last resort, and the Federal Govt is demand driver of last resort. I don't see any other alternative policy action that can be taken...

Well, there IS always the war card.

Not 'war on terrorism', but the real thing.

But who?

[GRG55]

Re: New President's Policies

Well, there IS always the war card.

Not 'war on terrorism', but the real thing.

But who?

Isn't war one card in the "demand driver of last resort" deck?

Didn't this administration already play that card during the deflation scare following the tech bubble burst?

Isn't the fear of a Pentagon spending contraction [which would make the recession worse] the real reason behind the debate about troop withdrawals from Iraq?

Didn't I hear Obama say something over this past weekend about increasing US troops in Afghanistan?

[c1ue]

Re: New President's Policies

GRG,

The War on Terror was a nice slogan, but I have yet to see mobilization of the populace.

The last multiple 'wars' the United States has fought have not required the population to make any sacrifices.

Sure, some of the cost was certainly borne by foreign holders of US Treasuries, but at the same time none of the conflicts were of the survival type.

In WWII - there were major sacrifices made on all sectors of society, on top of the already fairly empoverished nation coming out of the Great Depression.

That's what the real war card is - not dropping bombs somewhere a la Kosovo, Grenada, Iraq I & II, Afghanistan, etc.

[marvenger]

Re: New President's Policies

they'd better be spending on productive investment, increasing troop numbers in afghanistan is hardly productive.

The government should finance the investment in nationwide infrastructure eg transport and energy and own the infrastructure. Private ownership may run nationaly important infrastructure more efficiently in the short run but its too much power for commercial enterprise which will be corrupted and eventually lead to far greater inefficiency, ie the financial infrastructure if you can banks that. The people pay taxes for institutions and infrastructure that benefit the people as a whole and they should be run by the people. The government should be the altruistic part of the system and capitalism the competitive, efficiency generating part of the system. The virtues of capitalism have been idealised at the expense of the altruism of responsible government and government has increasingly believed this story itself.

So I hope the the US government funds and owns pervasive national infrastructure which will boost demand for productive outlets and restore some balance between altruism and self interest.

[GRG55]

Re: New President's Policies

GRG,

The War on Terror was a nice slogan, but I have yet to see mobilization of the populace.

The last multiple 'wars' the United States has fought have not required the population to make any sacrifices.

Sure, some of the cost was certainly borne by foreign holders of US Treasuries, but at the same time none of the conflicts were of the survival type.

In WWII - there were major sacrifices made on all sectors of society, on top of the already fairly empoverished nation coming out of the Great Depression.

That's what the real war card is - not dropping bombs somewhere a la Kosovo, Grenada, Iraq I & II, Afghanistan, etc.

Military spending as part of "demand driver of last resort" has absolutely nothing to do with the general population making sacrifices. On the contrary.

Under the present circumstances Obama, should he be elected, is probably going to find it near impossible to make any substantive reduction in the Pentagon budget or troop deployments. What's he going to do, bring them back to the USA and put them to work repairing decrepit levees before the next rain storm?

The Democrats have been in control of both houses since the mid-terms. See any change? Wonder why? Even granola-green California doesn't want to see [nor can it currently afford] any material reduction in defence industry spending.

Welcome to the zero degrees of freedom policy environment...

[c1ue]

Re: New President's Policies

GRG,

I agree military spending itself is difficult to drive an entire economy with, at least for long.

But the point was that in WWII, in the post French revolution Napoleonic wars, and in a number of 'war for survival' other examples, the population did make huge sacrifices in foregone luxuries as well as higher taxes/inflation tolerance/'war bond' subsidies.

We have not seen any of this yet: taxes have been lowered recently vs. 20 years ago. Inflation has been low, and even the relatively short duration of the recent bump up is already raising a commotion.

And subsidies? Americans aren't buying squat in terms of government bonds, etc - at least in comparison with foreigners and with the total amount of bonds needed to be sold to make up for even just the US government deficit.

The next logical progression in the Ponzi scheme is to tap into this dynamic.

[GRG55]

Re: New President's Policies

GRG,

I agree military spending itself is difficult to drive an entire economy with, at least for long.

But the point was that in WWII, in the post French revolution Napoleonic wars, and in a number of 'war for survival' other examples, the population did make huge sacrifices in foregone luxuries as well as higher taxes/inflation tolerance/'war bond' subsidies.

We have not seen any of this yet: taxes have been lowered recently vs. 20 years ago. Inflation has been low, and even the relatively short duration of the recent bump up is already raising a commotion.

And subsidies? Americans aren't buying squat in terms of government bonds, etc - at least in comparison with foreigners and with the total amount of bonds needed to be sold to make up for even just the US government deficit.

The next logical progression in the Ponzi scheme is to tap into this dynamic.

In the absence of foreign private purchases of US Treasuries and Agency paper, seems the foreign central banks stepped in a few years ago. If they cut back then would the Fed not have to step in?

• Treasury prints the bonds;
• Fed creates the money to buy the bonds;
• US Government spends the money on "infrastructure" (including defense spending );
• Fed ends up with more Tbonds to shore up its balance sheet, having wiped it out giving away Tbonds in exchange for garbage from the walking wounded financials.
• US citizens are once again spared any need to sacrifice, except at the grocery store where bread costs $5.00 a loaf and milk sells for $10 per gallon.
• Everybody lives happily ever after.
• What could be better??? :rolleyes:

[c1ue]

Re: New President's Policies

In the absence of foreign private purchases of US Treasuries and Agency paper, seems the foreign central banks stepped in a few years ago. If they cut back then would the Fed not have to step in?

• Treasury prints the bonds;
• Fed creates the money to buy the bonds;
• US Government spends the money on "infrastructure" (including defense spending );
• Fed ends up with more Tbonds to shore up its balance sheet, having wiped it out giving away Tbonds in exchange for garbage from the walking wounded financials.
• US citizens are once again spared any need to sacrifice, except at the grocery store where bread costs $5.00 a loaf and milk sells for $10 per gallon.
• Everybody lives happily ever after.
• What could be better??? :rolleyes:

I know you're pulling my leg, GRG.

But you know the answer as well as I: Zimbabwe

And the prices won't be $5/$10, more like $500000/$10000000

[Starving Steve]

Re: New President's Policies

[/list]I know you're pulling my leg, GRG.

But you know the answer as well as I: Zimbabwe

And the prices won't be $5/$10, more like $500000/$10000000

The biggest problem with hedging against the inflation is how does one pay the cost of living?

In an accelerating inflation, you might sit with gold, your house, perhaps another house which you keep as a rental. Then, how do you pay the increases in utilities, taxes, and upkeep on the rental house plus your own cost of living: gas, food, the costs on your own home, etc?

You can't keep increasing the rents on your rental house because your renter can't pay them. And your gold yields zero. Your own house is a dead loss except for the enjoyment and utility you get from it. So, the bottom-line is that you have to participate in the emporer's inflation game by either going to work (selling your labour) or by buying interest/dividend paying investments.

And when you inevitably go to work, you can't survive in the long run because your salary deflates in real terms. And when you buy investments that pay interest and dividends, the emporer wins again by devaluing the worth of your payment stream.

There is really no way out of this inflation unless somehow you leave the country. But since all of the world is inflating their currencies and keeping interest rates negative in real terms, there is really no escape--- except for death.

This co-ordinated worldwide inflation could really destroy everyone.

Yes, your gold hedge will buy more as everyone goes down-the-toilet, but who can afford to sit with bars of gold, decade after decade? Inevitably, you end-up selling some of your gold to pay the cost of living, and with each sale you go down-the-drain with everyone else.

No-one wins except for the emporer who owns the printing-press.

Peron won in Argentina. Mugabe wins now in Zimbabwe. No-one else wins.

[Jim Nickerson]

Re: New President's Policies

The biggest problem with hedging against the inflation is how does one pay the cost of living?

In an accelerating inflation, you might sit with gold, your house, perhaps another house which you keep as a rental. Then, how do you pay the increases in utilities, taxes, and upkeep on the rental house plus your own cost of living: gas, food, the costs on your own home, etc?

You can't keep increasing the rents on your rental house because your renter can't pay them. And your gold yields zero. Your own house is a dead loss except for the enjoyment and utility you get from it. So, the bottom-line is that you have to participate in the emporer's inflation game by either going to work (selling your labour) or by buying interest/dividend paying investments.

And when you inevitably go to work, you can't survive in the long run because your salary deflates in real terms. And when you buy investments that pay interest and dividends, the emporer wins again by devalueing the worth of your payment stream.

There is really no way out of this inflation unless somehow you leave the country. But since all of the world is inflating their currencies and keeping interest rates negative in real terms, there is really no escape--- except for death.

This co-ordinated worldwide inflation could really destroy everyone.

Yes, your gold hedge will buy more as everyone goes down-the-toilet, but who can afford to sit with bars of gold, decade after decade? Inevitably, you end-up selling some of your gold to pay the cost of living, and with each sale you go down-the-drain with everyone else.

No-one wins except for the emporer who owns the printing-press.

Peron won in Argentina. Mugabe, wins now in Zimbabwe. No-one else wins.

Eventually everyone dies, period. Those whose time has not arrived will develop survival skills or they won't.

[Guest]

Re: New President's Policies

Starving Steve - can't understand your reasoning. In any hyperinflation or even very high inflation, the rise in the premier inflation hedge assets far outstrips the deflation of that currencies' buying power. In the 1970's plain bullion rose 50% - 100% annualized over 15 years, no? That's far out ahead of the compound inflation rate in those years. Why do you surmise it is that owners of gold in a hyperinflation can go in during the aftermath and buy tons of real property with the proceeds?

Look up ounces of gold or silver to buy a home at the end of the inflationary 1970's for a glimpse of the elementary point. Your preoccupation with yield is a red herring. You overweight the premier inflation hedge (PM"s or Oil, this time around) and as they outrun the degradation of purchasing power you sell small portions for modest "interest income". If the "interest income" you would have been conservatively drawing from an interest bearing investment in a paper asset is only 5%-7%, you can most certainly draw down your gold holdings by that amount yearly while the remainder rises at a considerably faster clip than your withdrawals.

I have noticed this oversight on your part before with puzzlement, as it's probably the basis of your deep skepticism that gold is a good investment in just about any structurally inflationary environment. The proof is littered throughout history, and this community has already done all of the exhaustive spadework to evidence why inflation will be the order of the day for years to come - it's not just an oil embargo induced inflation this decade, it's global / structural, hence the inflation is baked into the pie in a way it never was in the 1970's. Hence the reluctance to accept the premise that "lack of income" is a fatal flaw in gold as a high-performance asset seems to me to evidence more prejudice than level headed reason.

Structural Global Inflation = gold outperformance = "annual interest income equivalent" within the degrading currency zone, which today is "everywhere". What's not to understand here?

[phirang]

Re: New President's Policies

The biggest problem with hedging against the inflation is how does one pay the cost of living?

In an accelerating inflation, you might sit with gold, your house, perhaps another house which you keep as a rental. Then, how do you pay the increases in utilities, taxes, and upkeep on the rental house plus your own cost of living: gas, food, the costs on your own home, etc?

You can't keep increasing the rents on your rental house because your renter can't pay them. And your gold yields zero. Your own house is a dead loss except for the enjoyment and utility you get from it. So, the bottom-line is that you have to participate in the emporer's inflation game by either going to work (selling your labour) or by buying interest/dividend paying investments.

And when you inevitably go to work, you can't survive in the long run because your salary deflates in real terms. And when you buy investments that pay interest and dividends, the emporer wins again by devalueing the worth of your payment stream.

There is really no way out of this inflation unless somehow you leave the country. But since all of the world is inflating their currencies and keeping interest rates negative in real terms, there is really no escape--- except for death.

This co-ordinated worldwide inflation could really destroy everyone.

Yes, your gold hedge will buy more as everyone goes down-the-toilet, but who can afford to sit with bars of gold, decade after decade? Inevitably, you end-up selling some of your gold to pay the cost of living, and with each sale you go down-the-drain with everyone else.

No-one wins except for the emporer who owns the printing-press.

Peron won in Argentina. Mugabe, wins now in Zimbabwe. No-one else wins.

Mortgage reits are great in this case.

Check out CMO, AGNC, etc.

[Brooks Gracie]

Re: New President's Policies

"But the point was that in WWII, in the post French revolution Napoleonic wars, and in a number of 'war for survival' other examples, the population did make huge sacrifices in foregone luxuries as well as higher taxes/inflation tolerance/'war bond' subsidies."

Why people think was is great for the economy is beyond me. It is the most wasteful spending possible--all wasting assets and wasted production (soldier pay and Dick Cheney's looting of the pentagon through contractors).

I think that this myth is caused by the unique prosperity that the U.S. reaped from WWII. Such prosperity was the direct result of the bombing and destruction of Europe's (our competitors then) levelled factories. We made everything for the developed world with a devastated infrastucture. Iran, Iraq, and Afghanistan ain't gonna generate such a windfall.

Also, on the gold issue, cheap gold rings for months of groceries would be a useful strategy. There was a website which described the Argentinian crises, and how people coped, which recommended the gold rings (low karat because your grocer will not pay a premium over cheap gold rings for better quality gold), one or two handguns (otherwise normal, but now angry and jobless people started engaging in robbery and kidnapping), deadbolted doors, non-perishable food sources, potable water and a generator. The author who went through the hyperinflationary period indicated that if he had prepared for the crisis, these are the first things he would have bought.