The ongoing financial turmoil and financial discussion thread

[macker]

http://finance.yahoo.com/news/EU-pre...-14737788.html

BRUSSELS (AP) -- The head of the European Union slammed President Barack Obama's plan to spend nearly $2 trillion to push the U.S. economy out of recession as "the road to hell" that EU governments must avoid.



What was this guy listening to in his "head phones" http://www.youtube.com/watch?v=PqwFfGgLPzM

[Flame Of Liberty]

Spain bails out its first bank:

The Spanish government has launched a €9bn (£8.4bn) bailout to rescue the first financial institution that is on the brink of collapse since the beginning of the credit crunch.

Savings bank Caja Castilla La Mancha (CCM) had "liquidity problems" that forced the intervention from the Bank of Spain, Finance Minister Pedro Solbes said. The action was an "isolated incident" among the country's financial sector, he said. The country's Treasury will provide guarantees whilst CCM continues to function normally, he said.

http://www.guardian.co.uk/business/2...illa-la-mancha

[Azure]

March 31 (Bloomberg) -- The U.S. government and the Federal Reserve have spent, lent or guaranteed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

http://www.bloomberg.com/apps/news?p...CA4&refer=home

[Flame Of Liberty]

Originally Posted by Azure

March 31 (Bloomberg) -- The U.S. government and the Federal Reserve have spent, lent or guaranteed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

I wonder what's the number for the whole world. Crazy times we live in, when we spend money we don't have to increase consumption we can't afford and sustain.

[Azure]

Originally Posted by Flame Of Liberty

I wonder what's the number for the whole world. Crazy times we live in, when we spend money we don't have to increase consumption we can't afford and sustain.

Yeah, no kidding.

How fast will inflation set in once everyone starts lending again?

[Azure]

Also, what will the Feds do if their plan doesn't work? Spend more?

$13 trillion in 6 months is a little over $2 trillion per month. Thats $32 trillion in 1 year. $64 trillion in 2 years.

The US debt clock will burn out from running too fast.

Even the website on the internet that keeps track will crash because it couldn't process the numbers fast enough.

[Phanuthier]

Originally Posted by Azure

Also, what will the Feds do if their plan doesn't work? Spend more?

$13 trillion in 6 months is a little over $2 trillion per month. Thats $32 trillion in 1 year. $64 trillion in 2 years.

The US debt clock will burn out from running too fast.

Even the website on the internet that keeps track will crash because it couldn't process the numbers fast enough.

I think you're confused (or maybe I am). That was $12.8T in the past 80 years, not the past year. Since the bailouts, I think we're at about $2T. I honestly thought that number was a little low - I don't think it includes Obamas $0.8T yet.

[Jedi Ninja]

The total debt is about 13 trillion. What is scary is that, even without the stimulus package, the debt would grow like crazy as the various entitlement programmes will gradually swallow up the whole US budget over the next 20 years.

I *highly* recommend the PBS Frontline show "Ten Trillion and Counting" which you can watch online here:

http://www.pbs.org/wgbh/pages/frontline/tentrillion/

[Ronald Pagan]

People are mistaking debt as being an innately 'bad' thing.

Debt is only bad so long as you don't have anyone that will lend to you and where you aren't growing at a rate that outpaces the debt payments.

As of right now, there is no risk that lending to the U.S. will cease. Even though the U.S. economy is contracting right now, it is still the most robust economy in the world and will likely grow again at a rate that outpaces the debt payments.

Provided that loaned monies are used to even further economic growth, deficit financing is an attractive option.

Take this example. Your country has a $100 surplus and decides to invest it in education. In 20 years, the students from your education system are well educated enough that they grew your economy by $1000. Pretty good return on your investment. Now, say you borrow $10,000 to put into education and you receive 100,000 from the educated students. Meanwhile your debt payments are $5000. You still come out on top. The only catch is that those educated students do some good work. It's the government's responsibility then to make sure the economic scenario is condusive to growth and stable.

What the U.S. is doing is leveraging now with more loans to ensure they keep up the foundations of an economy that is condusive to growth. Letting AIG fail, the toxic assets to be eaten by banks, homeownership and employment to decline will likely have much higher long-term costs than the interest payments on the debt. That's the hedge. It's worked up to now.

[Phanuthier]

^ Very well said RP... but, I'm not sure about "always having loaners" as I thought I read an article about how the USA would be running low on loaners soon (or something of that effect.)

What you said is a little detailed here in a old article, some comments from Hilary Clinton:
http://www.washingtonpost.com/wp-dyn...022200468.html

I think the problem/perception of debt is why people think its such a bad thing. To the average schmuck like you and me, debt is bad, bailouts is us paying for the rich and stuff like that. The reality is that every schmuck has their investment in all of this (and alot of it was caused by house-trader schmucks) so its in our best interests to keep on borrowing to get ourselves out of this mess. We just don't know it, so thats why we hire better people then us to make those decisions.

As for "paying off debt" ... I don't think there was ever the intention of paying it off.

[Flame Of Liberty]

Originally Posted by Ronald Pagan

People are mistaking debt as being an innately 'bad' thing.

Debt is only bad so long as you don't have anyone that will lend to you and where you aren't growing at a rate that outpaces the debt payments.

As of right now, there is no risk that lending to the U.S. will cease. Even though the U.S. economy is contracting right now, it is still the most robust economy in the world and will likely grow again at a rate that outpaces the debt payments.

Provided that loaned monies are used to even further economic growth, deficit financing is an attractive option.

Take this example. Your country has a $100 surplus and decides to invest it in education. In 20 years, the students from your education system are well educated enough that they grew your economy by $1000. Pretty good return on your investment. Now, say you borrow $10,000 to put into education and you receive 100,000 from the educated students. Meanwhile your debt payments are $5000. You still come out on top. The only catch is that those educated students do some good work. It's the government's responsibility then to make sure the economic scenario is condusive to growth and stable.

What the U.S. is doing is leveraging now with more loans to ensure they keep up the foundations of an economy that is condusive to growth. Letting AIG fail, the toxic assets to be eaten by banks, homeownership and employment to decline will likely have much higher long-term costs than the interest payments on the debt. That's the hedge. It's worked up to now.

That's one of things I see as problematic. You are loaning money to businesses that were hoarding losses for years. Normally, firms losing money (wasting resources, slowing down growth of the whole economy) would be wiped away and resources would be shifted to profitable, wealth generating organizations. That's how markets work.

Now you have the omnipotent government stepping in, handing cash left right and center and you are telling us they can distinguish between sound investments and waste? I am sorry but that is socialist thinking that the government can somehow collect the massive amount of market information in order to make the right decisions and "foresee" the future.

On the market you play with your own money, and when you lose, you (should) eat the loss. When the government starts to play the roulette, losing money is not a concern because you can always shrug it off (hey at least we're tryin'!) and throw more money at the problem. Actually, from reading some comments here it seems like the more money the government spends, the more it will look like they are doing the right thing to battle the recession.

[Azure]

Originally Posted by Phanuthier

I think you're confused (or maybe I am). That was $12.8T in the past 80 years, not the past year. Since the bailouts, I think we're at about $2T. I honestly thought that number was a little low - I don't think it includes Obamas $0.8T yet.

I'm not talking about the overall debt right now. I'm talking about how much money the Feds are spending to fix this 'crisis.'

$12.8trillion and counting.

From the article....

The U.S. government and the Federal Reserve have spent, lent or guaranteed $12.8 trillion,

[Azure]

Originally Posted by Phanuthier

^ Very well said RP... but, I'm not sure about "always having loaners" as I thought I read an article about how the USA would be running low on loaners soon (or something of that effect.)

You did read an article, because I remember it too.

Talked about China and Japan, along with numerous Middle Eastern countries not being as willing to loan money to the US anymore.

And I don't care if debt financing is a good thing. The US is running into a HUGE risk of inflation. How much longer do you think the US can just print money to pay for their stupid spending before the dollar drops in value?

[Ronald Pagan]

Quite the opposite is true actually. There was a huge risk of deflation in this current economic crisis because credit/currency was being taken out wholesale from the economy raising the value of the dollar earlier this year. Deflation is a much more severe problem to any recession than inflation would be.

Right now the U.S. is printing so much money for the exact purposes of creating inflation. The market is so illiquid that it's absorbing the new supply. Down the road if money issuances continue at this rate inflation may be a problem. However, there are specific levers the treasury that pull to reign in inflation. There is little to nothing you can do about deflation once it has started. The Fed was wise to print and lend so much money when it did. A deflationary spiral would have been catastrophic.

[Sylvanfan]

Originally Posted by Azure

And I don't care if debt financing is a good thing. The US is running into a HUGE risk of inflation. How much longer do you think the US can just print money to pay for their stupid spending before the dollar drops in value?

You don't think the US is maybe trying to get the value of their dollar down to make themselves a bit more competitive and reduce the value of their debt? The US is dirt cheap compared to pretty much any country in Western Europe in terms of the basic cost of living. Even with 20% inflation, things would still be cheap there. The people who'll bear the brunt of that is those who actually have savings in the form of cash. Which in turn would probably get people sitting on cash to spend it or put it in things like equities or real estate that they hope would appreciate.

[Azure]

Originally Posted by Sylvanfan

You don't think the US is maybe trying to get the value of their dollar down to make themselves a bit more competitive and reduce the value of their debt? The US is dirt cheap compared to pretty much any country in Western Europe in terms of the basic cost of living. Even with 20% inflation, things would still be cheap there. The people who'll bear the brunt of that is those who actually have savings in the form of cash. Which in turn would probably get people sitting on cash to spend it or put it in things like equities or real estate that they hope would appreciate.

And as a result, China and other countries are being more cautious about loaning money to the US.

If that well dries up, what then? Without China, the US would be screwed.

I don't think governments should be trying to stimulate the economy by trying to create levels of inflation/deflation no matter what.

[Phanuthier]

Originally Posted by Azure

I'm not talking about the overall debt right now. I'm talking about how much money the Feds are spending to fix this 'crisis.'

$12.8trillion and counting.

From the article....

Again, I think you are confused. The total debt 2 years ago was approx $10T. If they would have spent $12.8T, then everything in the USA would have doubled in price. A loaf of bread would be $5, 2L jug of milk would be $8, and everyone would have lost half their life savings if they held cash/debt. The stock market would have doubled and the Dow would be at 14000. If Obama would have spent $12.8T in the past 12 months, that would have been hyperinflation and the USA would be Germany in the 1930's.

When they say the feds have spent $12.8T, thats the total debt they have spent, not what Obama has spent.

I believe Obama has spent, or will spend, $2T right now.

[Phanuthier]

Originally Posted by Ronald Pagan

Quite the opposite is true actually. There was a huge risk of deflation in this current economic crisis because credit/currency was being taken out wholesale from the economy raising the value of the dollar earlier this year. Deflation is a much more severe problem to any recession than inflation would be.

I think the big worry is inflation in a recession, or cost-pulled inflation (versus demand-pull inflation). Cowboy or someone else can probably correct me if I'm wrong here, but even in a recession, the government can control the economy by either interest rates or government spending. In a simutaneous situation where you have inflation in a recession, thats termed "stagflation" and the government has no control over the economy. Thats when you trade in you sell gold and buy guns and ammo.

If the government does nothing and lets the banks die and (as Cowperson said) didn't control the death of GM, they will lose control of the economy. The economy would be in shambles for tens of years, and probably never recover as too much would be lost to China/India.

[Azure]

Originally Posted by Ronald Pagan

Quite the opposite is true actually. There was a huge risk of deflation in this current economic crisis because credit/currency was being taken out wholesale from the economy raising the value of the dollar earlier this year. Deflation is a much more severe problem to any recession than inflation would be.

I realize that.

I also realize that some people are already saying that the US is showing minor signs of deflation. Until the 1930s, most economists believed that the problem would fix itself over time, but the last 60 some years, lots of people say that the government has to counteract deflation by increasing spending.

Well, it has....so the results should speak for themselves.

[Azure]

Originally Posted by Phanuthier

Again, I think you are confused. The total debt 2 years ago was approx $10T. If they would have spent $12.8T, then everything in the USA would have doubled in price. A loaf of bread would be $5, 2L jug of milk would be $8, and everyone would have lost half their life savings if they held cash/debt. The stock market would have doubled and the Dow would be at 14000. If Obama would have spent $12.8T in the past 12 months, that would have been hyperinflation and the USA would be Germany in the 1930's.

When they say the feds have spent $12.8T, thats the total debt they have spent, not what Obama has spent.

I believe Obama has spent, or will spend, $2T right now.

Now I'm really confused. Pretty sure the article isn't talking about Federal Debt, rather the funding, loans and guarantees to fix the financial crisis.

Again, from the article....

The combined commitment has increased by 73 percent since November, when Bloomberg first estimated the funding, loans and guarantees at $7.4 trillion.

I think you're confused. Or the article is misleading.

Which I don't think it is. From the NYT.

Beyond the $700 billion bailout known as TARP, which has been used to prop up banks and car companies, the government has created an array of other programs to provide support to the struggling financial system. Through March 23, the government has made commitments of about $9.8 trillion and spent $2.4 trillion. Here is an overview, organized by the role the government has assumed in each case.

http://www.nytimes.com/interactive/2...s-graphic.html

Pretty sure my original comment about $2 trillion per month was spot on.