Citizen's United II - the other foot

[Jester]

Here is the chart. Clearly, the period following 9/11 needed stimulus in the form of easing interest rates, but there was at least a one year delay before they were ratcheted up again. Only 2006 saw them anywhere near previous levels, and by then the bubbles were ripe and ready to pop. It was about this time I remember being pretty uneasy about an overheated global market, and oil price spikes were disrupting the overall economy. In response to the 2008 financial crisis, they unloaded all their guns (well almost -- they dropped the rate to 2%). But, by then they had little ammunition left to fight off the economic malaise. 2008 was payback for the prior 5 years, or more maybe of exuberant mal-investments. The housing derivatives were the weak link that broke it then, but that is hardly the only weakness in our economic system. The next crash will reveal a different "scam". The common denominator in all these interventions has always been obfuscated financial instruments with insufficient industry (or government) oversight.

I agree with most all of that. The problem was obfuscated financial instruments, which caused a massive, systemic underappraisal of risk, and the construction of colossal towers of leverage on top of assets that, while believed to be secure, were actually crap.

What I don't understand, is how a long period of easy money can lead to the ZLB. The only way to the ZLB is for investors to believe that the government is a really good credit risk. That comes in one of two flavours: Either people believe very strongly in central bank credibility in fighting inflation, or the risk of everything else goes through the roof.

If the problem was excessively easy money eroding confidence in the system, then inflation would go up, forcing bankers to increase rates to maintain positive real interest rates. The problem we have today is the opposite - bankers can't get nominal interest rates low enough.

-Jester

[kandrathe]

What I don't understand, is how a long period of easy money can lead to the ZLB. The only way to the ZLB is for investors to believe that the government is a really good credit risk. That comes in one of two flavours: Either people believe very strongly in central bank credibility in fighting inflation, or the risk of everything else goes through the roof.

If the problem was excessively easy money eroding confidence in the system, then inflation would go up, forcing bankers to increase rates to maintain positive real interest rates. The problem we have today is the opposite - bankers can't get nominal interest rates low enough.

The problem is most likely that the Fed (and all central banks really) have a credibility problem in helping to boost the economy. People are concerned that at the first sign of economic strength, the fed will undo it by tapering, or raising rates.

So then, t-bills are the best paying liquid instrument for holding cash value, on a risk/reward basis. There are large amounts (about 1/2) of t-bills held to be denominated in U.S. dollars to hedge foreign exchange exposure. With a sluggish economy, stock picking is a risky uncertain investment. With a lack of consumption, most commodity prices are falling or pretty flat and have a pretty high volatility (risk). With the exception of those commodities which are in short supply.

[Jester]

The problem is most likely that the Fed (and all central banks really) have a credibility problem in helping to boost the economy. People are concerned that at the first sign of economic strength, the fed will undo it by tapering, or raising rates.

Hooray! Now we're speaking the same language. How to commit to low interest rates even when inflation starts to kick in? Certainly not by talking about "tapering".

So then, t-bills are the best paying liquid instrument for holding cash value, on a risk/reward basis. There are large amounts (about 1/2) of t-bills held to be denominated in U.S. dollars to hedge foreign exchange exposure. With a sluggish economy, stock picking is a risky uncertain investment. With a lack of consumption, most commodity prices are falling or pretty flat and have a pretty high volatility (risk). With the exception of those commodities which are in short supply.

Yes! Again, we are in agreement. Not enough safe assets, too high prices for the ones out there. Needed to anchor balance sheets in a time of turmoil.

But if all this is true, then surely the problem isn't that they've gone too far, but that they haven't gone far enough? This is an excellent opportunity for the government to borrow, convert existing debt, build/repair infrastructure, and make big one-off investments in things like research. It will give firms low-risk collateral for hedging, and it will give the government cheap funds. Until inflation starts rising, this is as close to free money as it gets.

-Jester

[kandrathe]

But if all this is true, then surely the problem isn't that they've gone too far, but that they haven't gone far enough? This is an excellent opportunity for the government to borrow, convert existing debt, build/repair infrastructure, and make big one-off investments in things like research. It will give firms low-risk collateral for hedging, and it will give the government cheap funds. Until inflation starts rising, this is as close to free money as it gets.

If only it weren't the politicians picking the ways to spend the money. The track record is pretty spotty for politicians to fund the types of things that can encourage investment, and energize the economy.

This is why we need investors who can accumulate wealth. They analyze the return on investment, the risks of failure, and fund things accordingly. By wealth, I mean merely that a person has accumulated some wealth that is not needed for day to day survival. It might be in a savings account, or their kids college fund, or in their retirement fund, or in a health care saving account. The problem in the US is not the 1%. The problem is that the 99% cannot retain their wealth, and it is by and large that the costs of living are approximately equal to or greater than our ability to accumulate wealth. The people who are protesting the 1%, believe it is the 1% who have put them in that position. Maybe some of them have, but if you look at the examples set by the wealthiest (Gates, Buffet, etc.) they are not people who are dispassionate to the struggles of the poor. I would posit that it is the structure of our economic systems.

An anecdote to illustrate my point; My lower middle-class co-worker received a $100 award for good service last week. She got $61.35 of the award she had earned for her merit. The Feds got $25, the state got $6, and FICA was $7.65. If our employer were publicly held, they could have given her $100 of stock (or options), which would only have been taxed at 15% giving her $75. Or, had they gifted her $100 of property, including t-bills, or municipal bonds, there would have been no taxes at all. Only wages, or income is treated so severely, and it is the main way that the 99% accumulate wealth.

It doesn't matter if we are talking about loaning money to new venture, or loaning money to an art history major**. The investor/lender (which now is more often the federal government) needs to be frugal in allocating the money towards those endeavors which will pay off in the end. As it stands now, I see government being used as a means to funnel money from the peoples pockets into the pockets of politicians and their friends. Little regard is given either to the viability, or the eventual ROI. And, I'd say all parties are using every lever of government (and aided by Citizens United), to ensure this perpetual wealth siphon. This malinvestment leads to sector failures, and market corrections.

I fault this administration for underestimating the size of the impact of the financial crisis, and for not tamping down their partisan desires with regards to their effect on the economy. Certainly not by implementing detractors like;

• Strict Bank reforms and credit reforms and a new arm of the government to regulate consumer credit.
• impose uncertain partisan changes to to the costs of healthcare
• use executive power only to add new very strict controls on pollution (including now for the first time, CO2) and opposing things like Keystone

It is not that these are unworthy goals, but this administrations "humanitarianism" tended to also stagnate the already sluggish economy. I'm also not advocating rolling back any of the existing controls (which are numerous), just to hold off on disruptive change until the economy is back on track. I bet if they'd done a better job with stimulus in 2009, both in having more of it, and better targeting where it were applied, that the Democrats would have a) retained their seats in 2010*, and b) have gotten more of their agenda passed into law.

* but that is hard to say, because they'd probably have ticked off (even more) their hard liner progressive base. It would have been a repeat, and even more so of the Clinton about face.

** which is no way implying they are superfluous or maligning art history. I'm advocating consumer choice and good counseling for those "non vocational" liberal arts pursuits. Often the desired outcome for a person's educational pursuits would not be the most lucrative career. I'm not in favor of either bankers, or the Government in picking the winners or losers. Rather that investors, or consumers should be held accountable for the risks they take with their own money, or loans.

[DeeBye]

The people who are protesting the 1%, believe it is the 1% who have put them in that position. Maybe some of them have, but if you look at the examples set by the wealthiest (Gates, Buffet, etc.) they are not people who are dispassionate to the struggles of the poor.

Cherry picking Bill Gates and Warren Buffet as representative of the wealthiest is ridiculous. What about Charles and David Koch? The entire Walton family?

[kandrathe]

Cherry picking Bill Gates and Warren Buffet as representative of the wealthiest is ridiculous. What about Charles and David Koch? The entire Walton family?

The two Koch brothers are the flip side of Soros, but I think the Koch Family Foundation does more non-partisan work.

What have the Waltons done? Just wondering, because I know they give away much of their wealth, and sometimes anonymously.

[Jester]

These are not the 1%. These are the 0.00001%.

-Jester

[kandrathe]

These are not the 1%. These are the 0.00001%.-Jester

I was reading on a Indiana Univ. Philanthropy studies;

http://www.philanthropy.iupui.edu/news/a...g-usa-2013

88% of households contribute to charity. Nearly all households with income > $100,000 give to charity. The average annual household contribution is $2,213 while the mean is $870.

Or, the Wealth and Values Survey by PNC

"In addition, 83 percent believe that "those who have attained the kind of financial position I have" should continue to invest in private business and industry as the most efficient engine of societal improvement. At the same time, 70 percent believe they bear a special responsibility in society to help the less fortunate and 64 percent believe they should give substantial sums to charities to improve society."

[Jester]

[quote='kandrathe' pid='207577' dateline='1377886110']
88% of households contribute to charity. Nearly all households with income > $100,000 give to charity. The average annual household contribution is $2,213 while the mean is $870.

If (hypothetically) the 1% redirected a huge slice of income to themselves, and then gave a little bit of it back, this would not exonerate them. Even Feudalism had Noblesse Oblige.

Or, in macro perspective: $316 billion is about 2% of GDP. That's not chump change, but the top 1% earn about 20% of US GDP. Even if ALL charitable giving was due to the 1%, that would still only be 1/10th of their income, substantially less than the gap between them and the median family.

-Jester

(Edit: Dropped a zero! Oops.)

[kandrathe]

If (hypothetically) the 1% redirected a huge slice of income to themselves, and then gave a little bit of it back, this would not exonerate them. Even Feudalism had Noblesse Oblige.

The question would still be; have they done anything wrong in gaining their wealth? Most likely not. The inequity is in how wages are treated compared to other forms of earnings, and in how small businesses are treated more severely than large corporations.

Once you get big enough, then you can buy some government, and all is much easier. We might look at the current coal industry, and think that government is being hard on those capitalist coal interests. Not. Once the profit is gone, they will flee coal. the miners will be out and the economy in towns where they live will suffer. It's much like the turn of the century... Once the outrage mounted for clear cutting of virgin forests, the big timber interests moved on to iron mining, or steel, or railroads, or salt mining, etc.

[DeeBye]

The question would still be; have they done anything wrong in gaining their wealth? Most likely not.

Most people's definition of "wrong" can vary widely. There's the illegal kind of wrong, and the more subjective immoral kind of wrong. My subjective opinion is that the Koch brothers and the Waltons have done a lot of "wrong" things in acquiring and ensuring that they maintain their vast wealth at the expense of the poor.

[FireIceTalon]

Cold, hard fact: Their very position in society is the result of a particular existing social relationship, a social relationship that by default, requires exploitation of the labor of those who do not own capital - whether that exploitation is intentional or not is completely irrelevant (which it is intentional, anyways). They didn't "earn" their wealth - they got it by walking across the backs of others who did all the work yet were only paid pennies for their labor (probably barely enough to keep them alive, much less actually live a fulfilling life with dignity), even though it was said labor that produced all that wealth. In a bourgeois context, no, they haven't done anything wrong. But in any context outside of that, yes, they absolutely have: it's called legitimized THEFT, protected and maintained by an instrument called "the State". It is however, a bit silly to single out the Walton family or the Koch Brothers since all owners of private capital acquired their wealth in the same way - just that some are more blatant in their exploitation of the working class/poor than others are.

Always liked this pic, it sums up the capitalist system quite well:


In short, capitalism is robbery.

[kandrathe]

In short, capitalism is robbery.

Whereas, forcibly taking personal property by the state is just equitable redistribution.