Now I Understand How Economic Crashes Occur

[Yavin4]

Before now, I never really, totally understood how an economic collapse actually happens, but now I do. It's pretty simple really. Crashes occur when people fail to delineate between debt and equity. There's a huge difference between buying something with a credit card and buying something with cash. Our parents and grandparents knew the difference, but today's generation does not.

I've been having knock-down, drag-out arguments with people over Bush's "roaring" economy. A quick look at this chart at the lower portion of this page will tell the story in a nutshell:

http://www.federalreserve.gov/fomc/fundsrate.htm

The Fed's monetary policy has kept interest rates at a historic low. Greenspan has been flooding our economy with cheaper and cheaper debt since day one of Bush II's presidency. All of that re-financing and lower-cost borrowing is one of the prime reasons why the market has returned to the 10,000+ level.

Also, add in Bush's increased spending of $441 billion (of borrowed money) in three years, compared to $454 billion (that was paid for) that Clinton spent over 8 years, and you can clearly see that we're borrowing and spending ourselves into this "boom".

Link:
http://www.sfgate.com/cgi-bin/article.cgi?file=/news/archive/2004/01/05/national1441EST0604.DTL&type=printable

Sure, today, everyone feels like a wealthy man as all of this borrowed money winds up in corporate coffers and profit statements, and no doubt that the economic indicators are off the chart. But, tell me this, wouldn't you feel like a rich man if you had maxed out 10 credit cards each with a $5,000 limit? How would your economic indicator look?

[KoKo]

1. All you can do is try to "hammer it home" here to those who might open

their minds to listen, Yavin. I get it...but it does seem some folks have it all confused. The ones who are doing well with life on credit as opposed to DU'ers who have been "downsized, outsized, merged" and don't know how they are going to get along.

It's possible we have many who aren't "maxed on credit" though who DO think this Faux Economy which is being Propped by Bush Pals is REAL and they are making money doing "Day Trading." You can't speak to them, they wouldn't listen. Just have to hope some of it sticks so that the Bush Hype doesn't mess up the Democratic Message in the 2004 Election.

[Yavin4]

3. I Just Had Another Horrible Thought

Outsourcing will become bigger and bigger. Companies are going to be forced into outsourcing because they're going to be under intense cost-cutting pressures when the debts have to be paid, let alone the foreign competition.

[KFC]

2. How would you feel rich with $50,000 in credit card debt?

Even with the low cost of money, I avoid debt.

But in a macroeconomic perspective, I think you are on target. That is why we need a Democratic president (and congress) now to soften the coming blow.

[Yavin4]

4. Because KFC You Can See The Difference Between

Debt and equity. Others can run up a credit card and not think twice about it.

[KFC]

7. I guess some people think that they are rich if they have alot of stuff

Debt notwithstanding.

Would you sell housing stocks short just before the next Fed rate announcement? I may take a stab at it.

[creativelcro]

5. credit is basically a Ponzi scheme...

[Tadah]

6. there will be a stock market bailout...

"Crashes occur when people fail to delineate between debt and equity."

ummmm.... a depression (if I remember right) means that money stops flowing and the economy comes to a halt.

I think that the stock market is going up because people are transfering their assets into the stock market because it promises a higher return than a savings account.

Of course, if everyone decided to cash out in a few months, the stock market would plummet.

I really believe that the Social Security system will be used to bail out the stock market to keep the stock market from crashing.

[Jen]

9. Economic Crashes

I think economic crashes happen because of people's opinions about the economy.

If you think things are getting better and your job is more secure, you will be more likely to spend. If everyone saves their money w/o investing it, a recession is bound to happen.

Personally I think Bush is throwing out tons of money to prop up the economy until November 2004. Then the belt will be tightened and a recession will start again.

[Deja Q]

13. Agreed. Here's how bush* will pull it off:

Bush was advertising the concept before the market crashed. Then he found other things to blow up on... He'll soon be hyping up the stock market gambit again, people will fall for it this time, and then they will be in the outhouse with no toilet paper and a hole too big to sit on so they fall in...

[YNGW]

8. Anyone who thinks the president of the US...

...runs the country, think again.

Read:

"Secrets of the Temple: How the Federal Reserve Runs the Country"
by William Greider

That book will provide for you the tip of the iceberg of beginning to understand who does what.

[Yavin4]

10. I'm Going To Get That Book

Meanwhile, look at this chart from the Fed. It clearly shows that Greenspan was trying to undermine Clinton's presidency with higher and higher rate hikes:

http://www.federalreserve.gov/fomc/fundsrate.htm

[YNGW]

14. Get the book. You'll be glad you did. It's a good start.

You'll quickly learn that Central Bankers could care less who's in the White House. Any book I've ever read and all related materials I have ever studied regarding the relationship between the Fed and the WH clearly showed that the Fed took it's orders from no one, they do not have a political agenda, and every WH was constantly at odds with what they hoped the Fed would do. Central Bankers have one objective in mind: The Stable Growth of Money.

[Deja Q]

11. Pretty dire.

If I'm suicidal because of my debt load, the US is truly in the shitter then.

[phaseolus]

12. Lloyd Bentsen, 10/5/88, debate with Quayle:

"You know, if you let me write $200 billion worth of hot checks every year, I could give you an illusion of prosperity, too."

[Yavin4]

15. Bentsen, Was Clinton's First Treasury Secretary

I saw him in person walking out the Treasury department one day.

[linazelle]

16. Greenspan kept rates low during Clinton's terms too

...while debt is buoying the economy, home equity is the source of a lot of the debt which seems to be a good thing. Deflation is the biggest threat to the economy and we have had hints of it during Bush's reign.

Allen Greenspan's fiscal policy really drives the economy.

When Clinton was in office, I knew very little about economics and I remember hearing media announcements about Greenspan's rate changes. I was suspcious and thought he might try to sabotage Clinton's economy but he did not.

When Bush took office, Bush distanced himself from Greenspan according to his buddies Hannity and Rush. Bush wanted to be the master of his own ship, so to speak. But through both the dem and repug adminstrations, Greenspan has acted consistently and I believe that he, more than anyone has been responsible for our economic stability over the last decade. It's late, I'm rambling...just my observation.

[Yavin4]

18. Greenspan Did Not Keep Rates Low Under Clinton

Look at the history of rate moves on this chart since 1990:

http://www.federalreserve.gov/fomc/fundsrate.htm


The lowest rates were under Clinton was 3.25% and that was only at the very beginning. Greenspan raised rates constantly under Clinton.

[rman]

17. governments have been "swindling futuriy" for ages

Spending deficit; buying with debt is not a new thing, it's older then credit cards.
Credit cards just make it easier.


1818 - President Thomas Jefferson
"I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."

1881 - President James Abram Garfield (assasinated)
"Whoever controls the volume of money in any country is absolute master of all industry and commerce."

1966 - Alan Greenspan, Chairman of the Federal Reserve
"Deficit spending is simply a scheme for confiscation of wealth."

1920 - Writer Maynard Keynes
"By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose." ("Economic Consequences of the Peace")