The U.S. Economy: Stand by for more worse news

[Michael]

This is an interesting, albeit anecdotal I read:

There are diametrically opposing views between old and young Greeks when it comes to Grexit. According to O'Connell, "the old people want to vote for Europe cause they have a lot to lose, they have their pensions, but the younger population - they are already poor, they are already unemployed - and they don't have much to lose. Their attitude is it's going to be tough, it's already tough, and so why not just move on go back to the Drachma, and they're ok with that. Their attitude is in 5 to 10 years I'll be better off. They believe there's a lot of misinformation. They believe they're being pressured by European countries particularly Germany that are holding them to very difficult terms."

I only mention this here as the USA is pretty much a carbon-copy of Greece, minus the good food By that I mean Greece is going through what all nations go through, the collapse of idiocracy. To imagine, a few years ago they were hosting the Olympics. To imagine, a few generations ago, Americans could afford their own homes, and to raise a family in one.

Oh well, a story as old as time. One generation stealing from the next.

 

[joepistole]

This is an interesting, albeit anecdotal I read:
There are diametrically opposing views between old and young Greeks when it comes to Grexit. According to O'Connell, "the old people want to vote for Europe cause they have a lot to lose, they have their pensions, but the younger population - they are already poor, they are already unemployed - and they don't have much to lose. Their attitude is it's going to be tough, it's already tough, and so why not just move on go back to the Drachma, and they're ok with that. Their attitude is in 5 to 10 years I'll be better off. They believe there's a lot of misinformation. They believe they're being pressured by European countries particularly Germany that are holding them to very difficult terms."
I only mention this here as the USA is pretty much a carbon-copy of Greece, minus the good food By that I mean Greece is going through what all nations go through, the collapse of idiocracy. To imagine, a few years ago they were hosting the Olympics. To imagine, a few generations ago, Americans could afford their own homes, and to raise a family in one.
Oh well, a story as old as time. One generation stealing from the next.

LOL, I see you are back to pushing your nonsense again. As people in Greece are now finding out, every Greek has a lot to lose regardless of age. As I explained in another thread, and as we now see in Greece, banks will not have enough money to return deposits much less make loans. Businesses will not be able to get the money they need to pay salaries or purchase goods. Consumers will not have the money needed to purchase goods and services produced by businesses, so businesses close, soup lines form and people regardless of age, become homeless and destitute. People lose their jobs.

Ironically, this is exactly what you advocated for the US a few years ago. Had the US not “bailed out” its banks (i.e. loaned them money), Americans would have been in the same boat in which the Greeks now find themselves. American banks would have closed. American businesses would have been unable to pay their bills. Americans would have been unable to pay their bills and Americans would have lost their jobs.

Two, as has been endlessly pointed out to you the US is not like Greece. Greece’s problem is a debt problem. The US doesn’t have a debt problem. The US spends 2% of GDP servicing its debt. The US owns its currency, Greece does not. So the US can never be a “carbon copy” of Greece as you have asserted. The US Dollar is the world reserve currency; Greece has no currency of its own much less a reserve currency. Greek uses the Euro as a currency, hence its dependency on the Eurogroup.

Yes this is the same old story, you making up nonsense in order to push your ideological nonsense. This is just more of your demagoguery and your politics of division and tribalism.

PS: Polling indicates most Greeks want to stay in the EU.

 

[Billy T]

Banking all over the world now operates on a “fractional reserve” system. In our earlier example, our sound banker kept a 100% reserve against demand deposits: he held one ounce of gold in his vault for every one-ounce banknote he issued. And he could only lend the proceeds of time deposits*, not demand deposits. A “fractional reserve” system can’t work in a free market; it has to be legislated. And it can’t work where banknotes are redeemable in a commodity, such as gold; the banknotes have to be “legal tender” or strictly paper money that can be created by fiat.

In the US (and actually most everywhere in the world), protection against runs on banks isn’t provided by sound practices, but by laws. In 1934, to restore confidence in commercial banks, the US government instituted the Federal Deposit Insurance Corporation (FDIC) deposit insurance in the amount of $2,500 per depositor per bank, eventually raising coverage to today’s $250,000. In Europe, €100,000 is the amount guaranteed by the state.

FDIC insurance covers about $9.3 trillion of deposits, but the institution has assets of only $25 billion. That’s less than one cent on the dollar. I’ll be surprised if the FDIC doesn’t go bust and need to be recapitalized by the government. That money—many billions—will likely be created out of thin air by selling Treasury debt to the Fed.

The fractional reserve banking system, with all of its unfortunate attributes, is critical to the world’s financial system as it is currently structured. You can plan your life around the fact the world’s governments and central banks will do everything they can to maintain confidence in the financial system. To do so, they must prevent a deflation at all costs. And to do that, they will continue printing up more dollars, pounds, euros, yen, and what-have-you.

* An economy which is long term "sound" (not living beyond its means) finances expansion, improvements in production facilities, public capital investments (roads, dams, etc.) by issue of bonds or bank loans based on time deposits (CDs etc.) or issues stock to investors. None of theses lenders can wake up one day and realizing how over extended banks and governments are via fiat money and fractional reserves - with backing now for their their demand deposits being < 1%, Extreme and unsustainable leverage. They will start a run on the banks - try to get their "demand deposit" funds out before others do. This is what that looks like:

As per capital debt / fiat creation grows, it is not a question of "if" but "when" people will realize the borrowers are dangerously over extended. - That governments can only pay back the loans with ever worthless paper. Many already believe this is true of US fiat system. Greece is a early warning. Governments, US included, will simply close the banks to stem the run as it has done in the past.

 

[joepistole]

* An economy which is long term "sound" (not living beyond its means) finances expansion, improvements in production facilities, public capital investments (roads, dams, etc.) by issue of bonds or bank loans based on time deposits (CDs etc.) or issues stock to investors. None of theses lenders can wake up one day and realizing how over extended banks and governments are via fiat money and fractional reserves - with backing now for their their demand deposits being < 1%, Extreme and unsustainable leverage. They will start a run on the banks - try to get their "demand deposit" funds out before others do. This is what that looks like:

Well, this has been explained to you and Michael numerous times over the years, there is a difference between microeconomics and macroeconomics. You cannot apply kitchen table economics to the macroeconomics of a nation and remain credible or reliable. That’s why your much vaunted prediction of a “run on the dollar failed” to materialize as you have predicted for many years now.

There is nothing wrong with fiat currencies, every currency is a fiat currency even if the currency is backed by gold or some other commodity and none are. And the problems with commodity backed currencies have been discussed ad nauseum in this forum over the years and are why no nation on the face of the planet uses a commodity to back its currency today. There is no magic in commodity backed currencies as you and others seem to believe.

Two, there is nothing wrong with the fractional banking system. It’s how banks have always worked. Fractional banking predates the founding of the US. There is nothing wrong with a well regulated fractional banking system, which is what we have. In fact, a fractional banking system is integral to a well-functioning modern economy where capital is efficiently redeployed from surplus to where it is needed. It creates jobs and products.

Three, there is no evidence to even suspect banks or the US government are overleveraged, absolutely none. As has been pointed out to you instead of falling in value as you predicted for years now, the dollar is rising in value and is stronger than it has been in many decades.

Four, Greece isn’t a clarion call warning the world of the evils of debt. It isn’t even an alarm bell. It is a failure of the Greek government to effectively govern and to some degree with the European Union. Debt is the symptom, it isn’t the cause. Greece’s debt problems could be easily solved, its governance problems which caused its debt are an entirely different matter.

The world and macroeconomics are a bit more complicated than you and Michael seem willing to or able to understand BillyT. Money supply management isn’t kitchen table economics and running a country isn’t anything like family budgeting. And the US debt service which is less than 6% of GDP isn’t in any way overextended. US debt is very manageable. But that isn’t justification for fiscal profligacy (e.g. Baby Bush spending).

 

[Billy T]

Joe you have at least partially missed the main point (mine and my quoted source). I know that there are problems is commodity back currencies - was not advocating them. The problem with fiat currencies is that governments like Greece or the US to an even greater extent abuse their power. If you require proof that issuing currency with more than 100 fold leverage is unstable, as US has done, then I will not try to convence you.

Yes, I predicted a run on the dollar - and still do but it will be part of a global collapse. At present the dollar is strong wrt other currencies as it is the "least ugly whore in the currency group" but it can not be printed in ever increasing volume without the day coming when too many people realize ever increasing PER CAPITA debt will collapse.

I don't bother now to get an accurate value but now at birth each new born US baby is more than $50,000 in debt (his share of just the federal debt - need to add state and local government debts too). I got the timing of the coming collapse wrong, but not the fact that it is coming so long as the per capita debt keeps increasing. (The global per capita debt is more important and just the US's - It is all one sinking ship.)

Also the 6% cost of servicing the debt is due to interest rates at less than 1/3 of the historic value, and will soon be increasing - Fed can not stop the "bond vigilantes." Already, for more than two years, US's main buyer of bonds, China, has cease to buy in net. (not rolling the bonds that mature, as it once did.)

 

[joepistole]

Joe you have at least partially missed the main point (mine and my quoted source). I know that there are problems is commodity back currencies - was not advocating them. The problem with fiat currencies is that governments like Greece or the US to an even greater extent abuse their power. If you require proof that issuing currency with more than 100 fold leverage is unstable, as US has done, then I will not try to convence you.

No, I got your point. As previously pointed out to you any national currency, commodity backed or not, would be a fiat currency. The only alternative would be going back to barter and barter is tremendously inefficient. That is why fiat currencies were created eons ago.

Two, you have no evidence the US has abused its currency, because there is no evidence the US has abused its currency. And Greece no longer has its own currency as it uses the Euro, so to say as you have that Greece has abused its currency is a bit disconnected. As previously explained, Greece’s woes were caused by its ineffective governance, not its debt. Its debt is just a symptom of its dysfunctional government. In any world, in any time, in any currency, there is no substitute for effective and rational decision making.

Yes, I predicted a run on the dollar - and still do but it will be part of a global collapse. At present the dollar is strong wrt other currencies as it is the "least ugly whore in the currency group" but it can not be printed in ever increasing volume without the day coming when too many people realize ever increasing PER CAPITA debt will collapse.

Yes for many years now you have been predicting a run on the dollar (i.e. the collapse of the dollar). You predicted the dollar would collapse on October 31 of last year. Instead, the dollar has been and remains incredibly strong. This gets back to my point, you cannot apply kitchen table economic (i.e. microeconomics) to macroeconomic events as you have and continue to do and expect to be correct.

As has been pointed out to you numerous times over the years, your beliefs are based on some very simplistic assumptions. A growing economy requires a growing money supply, a growing population requires a growing money supply and the US has both and being a reserve currency, the demand for the US Dollar extends far beyond its national borders.

Further The Federal Reserve is charged with monitoring controlling the nation’s money supply and can expand and contract the money supply as it deems appropriate with monetary policies. The US government can control its debt indirectly or directly, something Greece cannot do because as a EU member state is has surrendered monetary policy to the EU. So your comparing the US to Greece, while having some demagogic appeal, it just isn’t appropriate or reasonable.

And has been repeatedly brought to your attention over the years, a weakened currency is not a bad thing, a weaker currency is good for an economy because it makes the goods and services produced in that economy cheaper when they are sold abroad. That is one reason China has for decades manipulated its currency to keep it weak/cheap relative to the US Dollar. It gave China a trade advantage. The strong US Dollar has been a drag on the US economy since 2014 and has slowed US economic growth - especially this year.

I don't bother now to get an accurate value but now at birth each new born US baby is more than $50,000 in debt (his share of just the federal debt - need to add state and local government debts too). I got the timing of the coming collapse wrong, but not the fact that it is coming so long as the per capita debt keeps increasing. (The global per capita debt is more important and just the US's - It is all one sinking ship.)
Also the 6% cost of servicing the debt is due to interest rates at less than 1/3 of the historic value, and will soon be increasing - Fed can not stop the "bond vigilantes." Already, for more than two years, US's main buyer of bonds, China, has cease to buy in net. (not rolling the bonds that mature, as it once did.)

Well you got more than the timing of your prediction wrong. The actual per capita federal debt is about $40,000 but the average per capita income is about $55,000. And the national debt doesn’t need to paid-off in one year or ever for that matter because unlike humans governments are not constrained by the human life span. The national debt just needs to be serviced and the current per capita debt service is $992. That is hardly devastating and far from the $40,000 per capita debt. So even if interest rates double or triple or quadruple, it will not be devastating to the currency or the nation. Current debt service is about 2% of GDP. So when you make the comparisons you have, you mislead yourself and others. The US government has had debt through most of its existence. The US government was born indebted.

It has also been explained to you numerous times over the years that China has little choice but to buy US debt with its trade dollars. If China wanted the US trade, it needed and continues to need US Dollars. China has currency reserves of 3 trillion dollars a good portion of which is held in US debt and given China’s debt and liquidity problems; I expect China will begin to draw down those reserves. But that has everything to do with internal Chinese problems and nothing to do with US debt or overall global debt.

Here is the bottom line BillyT, you keep applying kitchen table economic principles to global macroeconomic events and as long as you continue to do that your macroeconomic predictions will continue to be wrong.

 

[iceaura]

As previously explained, Greece’s woes were caused by its ineffective governance, not its debt.

Although I agree that the US is not Greece, it is still true that the "ineffectiveness" of the Greek government substantially consisted in its making deals and arrangements with predatory international financial interests, in particular Goldman Sachs. That should bring a pause to any American, looking at the American government's relationship with predatory international financial interests, in particular Goldman Sachs.

 

[Billy T]

No, I got your point. As previously pointed out to you any national currency, commodity backed or not, would be a fiat currency. The only alternative would be going back to barter and barter is tremendously inefficient. That is why fiat currencies were created eons ago.

Not true. For most of man's history, not only was the currency 100% backed, it was gold and silver coin.

Your history is also wrong. During middle ages in Europe at least (I don't know about Asia) people stored wealth it gold (or property, if the king allowed them, the nobles, to.). Most let their gold be held in a more secure way than they could afford, often by Jews and received certificates stating the amount being held for them. These certificates were usually transferable / could be used as money, as gold itself was. It did not take the holders of the gold long to realize that they could issue more certificates than they had gold. I. e. create the first "fiat currency" and use it to buy things. Governments did the same - issued more gold notes than they had gold, but the leverage was modest compared to the > 100 fold most governments have today.

Two, you have no evidence the US has abused its currency, because there is no evidence the US has abused its currency.

That "evidence" is provided only in the runs when confidence in the government's promises to pay (in currency with value comparable to the value of the currency lent to the government or the labor used to earn salaries, etc.) begins to fade. To a large extent, the strength of the dollar is reflecting the fact that many are losing confidence in their own currencies. Part of the reason why the Greeks are being "bailed out" again is the fear that if the creditors are not paid, their losses weaken the currency more.

And Greece no longer has its own currency as it uses the Euro, so to say as you have that Greece has abused its currency* is a bit disconnected.

I would agree, if I had said that, but this is your standard tactic of putting words in other's mouth.

As previously explained, Greece’s woes were caused by its ineffective governance, not its debt. Its debt is just a symptom of its dysfunctional government. In any world, in any time, in any currency, there is no substitute for effective and rational decision making.

I agree; but note that ever since GWB gave large tax relief for the rich, the US, like Greece, has been living on borrowed money. Budgets were at times less than the tax (and other incomes, like import duties, license fees etc.) When Clinton was PoUS. Yes, growing per capital debt (except in time of war) as is true of the US, since GWB, is a direct result of "dysfunctional government."

Hell, the US has come within a day or two of defaulting as for political reason the dysfunctional US government refused to raise the debt limit.

* My only mention of Greece was about the causes of runs on banks, as Greece has recently had:
"That {when too many fear that} governments can only pay back the loans with ever worthless paper. Many already believe this is true of US fiat system. Greece is a early warning. Governments, US included, will simply close the banks to stem the run as it has done in the past."

Your claim that I said: "Greece has abused its currency." is just your fabrication, stuffed in my mouth.

 

[joepistole]

Not true. For most of man's history, not only was the currency 100% backed, it was gold and silver coin.

Yeah it is true. Even though this has been previously explained to you BillyT, apparently you still do not understand what a fiat currency is and what it is not. Let me refresh your memory. Below is the definition.

Fiat money is currency which derives its value from government regulation or law. http://www.bing.com/search?q=fiat%20currency&qs=n&form=QBRE&pq=fiat%20currency&sc=8-13&sp=-1&sk=&cvid=97A294CB4131478FB33528F1B841DB79

It doesn’t matter what the coinage is, if it is gold, silver, or anything else. If a government stamps a value on it, it is “fiat currency”.

Your history is also wrong. During middle ages in Europe at least (I don't know about Asia) people stored wealth it gold (or property, if the king allowed them, the nobles, to.). Most let their gold be held in a more secure way than they could afford, often by Jews and received certificates stating the amount being held for them. These certificates were usually transferable / could be used as money, as gold itself was. It did not take the holders of the gold long to realize that they could issue more certificates than they had gold. I. e. create the first "fiat currency" and use it to buy things. Governments did the same - issued more gold notes than they had gold, but the leverage was modest compared to the > 100 fold most governments have today.That "evidence" is provided only in the runs when confidence in the government's promises to pay (in currency with value comparable to the value of the currency lent to the government or the labor used to earn salaries, etc.) begins to fade. To a large extent, the strength of the dollar is reflecting the fact that many are losing confidence in their own currencies. Part of the reason why the Greeks are being "bailed out" again is the fear that if the creditors are not paid, their losses weaken the currency more.I would agree, if I had said that, but this is your standard tactic of putting words in other's mouth. I agree; but note that ever since GWB gave large tax relief for the rich, the US, like Greece, has been living on borrowed money. Budgets were at times less than the tax (and other incomes, like import duties, license fees etc.) When Clinton was PoUS. Yes, growing per capital debt (except in time of war) as is true of the US, since GWB, is a direct result of "dysfunctional government."

Well that is a hot mess of stuff. I think part of that gets to your ignorance of what fiat money is and is not. Where is the evidence to support your assertion of greater than 100 to 1 leverage which you believe exists in banking and government? That is quite simply nonsense. US banks are required by law to maintain a minimum level of reserves as are most banks around the world. They cannot give out more money than they have as that would violate their reserve requirements and the reserve requirement varies by bank and the risks associated with the bank.

Yes the dollar is strengthening because of weakness in other currencies. That isn’t a new phenomenon. When world markets are disturbed or uncertain money flees to safe harbors like the US and Switzerland. That isn’t new. But that goes against your belief in the weakness of the dollar.

Additionally, the reason the Greeks were bailed out (i.e. provided additional cash) wasn’t because of any desire to protect creditors, but rather to keep the EU united. The fear was if Greece left the EU it could set a precedent which could lead to the ultimate demise of the EU. It wasn’t about paying creditors or to manipulate currency valuations. Forcing Greece out of the EU would strengthen the EU, not weaken it.
And this fiction of me “stuffing” words in your mouth is getting a little old, don’t you think?

Hell, the US has come within a day or two of defaulting as for political reason the dysfunctional US government refused to raise the debt limit.
* My only mention of Greece was about the causes of runs on banks, as Greece has recently had:
"That {when too many fear that} governments can only pay back the loans with ever worthless paper. Many already believe this is true of US fiat system. Greece is a early warning. Governments, US included, will simply close the banks to stem the run as it has done in the past."
Your claim that I said: "Greece has abused its currency." is just your fabrication, stuffed in my mouth.

Yes the US has come within hours of defaulting on its debt, not because any inherent need to default, but because Republicans in Congress threatened to not raise the debt ceiling thereby causing a default. It was as you correctly assert, political dysfunction and it would have sent a very nasty message to the world that the US was no longer capable of effective governance. But that has little to do with Greece. Greece certainly isn’t an early warning of anything. Greece is Greece; it isn’t like the US in any way. Republicans eventually caved and did raise the debt ceiling.

Greece’s economy is a nit and isn’t well diversified and heavily dependent on imports, including its currency. The US economy is massive and well diversified. Greece doesn’t use or control its own currency, the US does. US debt is denominated in US Dollars; Greek debt is denominated in Euros and dollars. Greece can’t just print more money to pay its debt.

Yeah, “many believe”, but those many are crackpots and have little to no credibility with folks who actually know what they are talking about. And the many people who have followed those crackpots have lost a lot of money and will continue to lose money.

 

[iceaura]

Additionally, the reason the Greeks were bailed out (i.e. provided additional cash) wasn’t because of any desire to protect creditors, but rather to keep the EU united.

Regardless of "desire", the bailouts so far have been of the creditors, not the Greeks. In this it resembles the US bailouts, which were of the banks rather than the citizens.

Greece certainly isn’t an early warning of anything.

It's a warning to anyone whose government has been dealing heavily with Goldman Sachs, to check their books very carefully.

 

[joepistole]

Regardless of "desire", the bailouts so far have been of the creditors, not the Greeks. In this it resembles the US bailouts, which were of the banks rather than the citizens.

It's a warning to anyone whose government has been dealing heavily with Goldman Sachs, to check their books very carefully.

Such a shame to be born without a brain, it has already been explained to you Goldman Sachs did exactly what the Geek government hired it to do, which was to get Greece into the EU, and that occurred some 15 years ago. And as previously explained the Greek government is being bailed out, not banks, and not creditors. Greek creditors are loaning more money (i.e. bailing out) to the Greek government so the Greek government can pay its bills, pay its pensions, and government workers, and conduct all the other functions and programs funded by the Greek government. In Greece's case, its creditors are giving/loaning Greece more money. Greece's creditors are not bailing themselves out by giving/loaning Greece more money at low interest and sometimes no interest knowing that they will never collect some portion of that money. Frankly, your belief, while it strokes your ideology, is just plain stupid.

During the Great Recession the US government "bailed out" US financial institutions by providing secured loans and buying assets held by those institutions. No one bailed out the US government a la Greece. What happened in the US during the Great Recession isn't even remotely similar to Greece.

Creditors were not bailed out during the Great Recession. Financial institutions were bailed out...oops. Financial institutions had assets, but lacked the money they needed to conduct day to day business. Conventional funding sources (e.g. Wall Street) had dried up, and as a result financial institutions became illiquid. It was what is referred to as a liquidity crisis, it was not a debt crisis. The US government intervened and provided financial institutions with secured loans and equity funding, in effect replacing functions normally provided by conventional funding sources (e.g.Wall Street). Greece has little in the way of assets and a hell of a lot of debt. What is happening in Greece is a hell of a lot of debt and little else. Greece's economy is uncompetitive, that was and remains Greece's problem and that isn't even remotely similar to the US. Ice you remind be of the scarecrow in the Wizard of Oz. You are just as impervious to evidence and reason and just as zealous as our nutty right wing friends whose political ideology trumps evidence and reason all the time.

 

[iceaura]

Such a shame to be born without a brain, it has already been explained to you Goldman Sachs did exactly what the Geek government hired it to do, which was to get Greece into the EU, and that occurred some 15 years ago.

In Joe world, the anonymous and incorruptible "Greek government" asked to be buried in long term bankrupting debt so that Goldman Sachs could make hundreds of millions of dollars. In my world, when entities like Goldman Sachs or Enron or Countrywide Financial or JP Morgan walk out the door with huge profits and the taxpayers of Greece or Italy or California or the Eurozone get stuck with the bill for some secret deal they had nothing to do with and were lied to about, I sort of presume the profiteers were not really asked to do that by their victims. I find other explanations more plausible.

btw: The last official deal was either 2005 or 2009, depending on criteria - right around the moneylender engineered global crash that blew down the house of cards Goldman had made out of the Greek economy. Which Goldman had shorted, no surprise given that they knew what they'd done. So ten years, max, not fifteen, and that's if you assume hands off by Goldman in the intervening years of profit taking and international financial dealing.

And as previously explained the Greek government is being bailed out, not banks, and not creditors.

? Where, in Joe world, did that money go? Who's got it now?

In Greece's case, its creditors are giving/loaning Greece more money

Its new creditors, you mean. The ones who did the bailing out, largely by providing money to pay off the old creditors, who would otherwise have had to eat large losses. In the long run, the taxpayers of the Eurozone, including Greece.

Creditors were not bailed out during the Great Recession. Financial institutions were bailed out...oops

The financial institutions who own mortgage debt, consumer debt, and the derivatives of them, are normally called "creditors". It's not an unusual term for those to whom others owe money.

Financial institutions had assets, but lacked the money they needed to conduct day to day business

A bank's assets are loans. The bank is the creditor. The bailout was of these creditors, and it was accomplished by the US taxpayer buying their loans (thereby agreeing to take the loss when they were not paid). That's way over simplified, but not wrong.

Greece's economy is uncompetitive, that was and remains Greece's problem and that isn't even remotely similar to the US.

The other problem Greece had was having been buried in debt by Goldman Sachs 's highly profitable (to Goldman) financial arrangements. Other people who have been dealing with Goldman Sachs should therefore review their dealings, of course - don't you agree?

Can you think of any other government that, like Greece, has had significant and complex financial dealings with Goldman Sachs?

 

[joepistole]

In Joe world, the anonymous and incorruptible "Greek government" asked to be buried in long term bankrupting debt so that Goldman Sachs could make hundreds of millions of dollars.

No, in Joe’s world evidence and reason trump political ideology every time, every day. And where exactly did I say the “anonymous and incorruptible Greek government asked to be buried in debt”? I never said the Greek government was anonymous or incorruptible because it is neither. If you have been paying attention you know one of the problems I have identified with the Greek government is corruption.

Two, Greece was buried in debt long before it hired Goldman Sachs to disguise its debt so Greece could gain entry into the Euro. The unfortunate fact for you is Goldman Sachs didn’t cause Greece’s debt. Greece’s debt problem long preceded Goldman Sachs’s involvement. If Greece didn’t’ have a debt problem, Greece would not have needed to hire Goldman Sachs to disguise its debt.

In my world, when entities like Goldman Sachs or Enron or Countrywide Financial or JP Morgan walk out the door with huge profits and the taxpayers of Greece or Italy or California or the Eurozone get stuck with the bill for some secret deal they had nothing to do with and were lied to about, I sort of presume the profiteers were not really asked to do that by their victims. I find other explanations more plausible.

In your world facts, evidence and reason don’t matter. In your world it’s all about ideology and facts don’t matter, just as it is with our nutty right winger neighbors. There is absolutely no evidence Goldman Sachs abused Greece or that it did anything illegal. Enron went bankrupt and its officers were prosecuted and jailed. Countrywide avoided bankruptcy by being bought out by Bank of America and it was the Bank of America shareholders who paid for Countrywide’s transgressions, not taxpayers of any ilk…oops it those pesky details again.

btw: The last official deal was either 2005 or 2009, depending on criteria - right around the moneylender engineered global crash that blew down the house of cards Goldman had made out of the Greek economy. Which Goldman had shorted, no surprise given that they knew what they'd done. So ten years, max, not fifteen, and that's if you assume hands off by Goldman in the intervening years of profit taking and international financial dealing.

Hmm, seriously, do you think these debt swaps which Goldman Sachs was hired to create go away simply because Greece gained admission to the EU? These debt instruments Goldman Sachs created for Greece and help it disguise its debt have terms associated with them. They don’t vanish overnight. They require maintenance.

And here is the unpleasant bottom line for you, if Greece didn’t have a debt problem, it wouldn’t have needed to hire Goldman Sachs to disguise its debt. There would have been no debt to restructure. And it was 2oo5, and that is nowhere near 2008, and the Greek debt restructuring had nothing to do with Greece’s debt debacle a decade later.

Goldman Sachs definitely profited from Greece’s debt woes, but there is nothing wrong or illegal in that. Goldman Sachs didn’t create Greece’s debt. That is the unfortunate truth you don’t want to admit.

? Where, in Joe world, did that money go? Who's got it now?

As previously explained to you it was spent by the Greek government. It went to pensioners and to fund all the other programs funded by the Greek government. Unfortunately for you and those of your political ilk, at some point people and governments must be held accountable for the decisions they make. The Greek government has been incompetent and fiscally reckless and it is the responsibility of the Greek citizen to fix that problem.

Its new creditors, you mean. The ones who did the bailing out, largely by providing money to pay off the old creditors, who would otherwise have had to eat large losses. In the long run, the taxpayers of the Eurozone, including Greece.
The financial institutions who own mortgage debt, consumer debt, and the derivatives of them, are normally called "creditors". It's not an unusual term for those to whom others owe money.
A bank's assets are loans. The bank is the creditor. The bailout was of these creditors, and it was accomplished by the US taxpayer buying their loans (thereby agreeing to take the loss when they were not paid). That's way over simplified, but not wrong.

No, I mean its existing creditors. The unfortunate fact for you more than 78% of Greek debt is held by other governments and that has been the case for some time now. This is the third time since 2010 that Greece has been bailed out by other governments and every time Greece has failed to implement the changes it agreed to, changes which were intended to restore fiscal integrity to the nation, and changes which the Greek state never implemented.

The money being loaned to the Greek government is being used to fund the Greek government, to help it become a stable modern responsible member of the EU. I don’t know why that is so difficult for you to understand. It really isn’t that difficult to understand if you don’t have a bias threatened by that simple truth. The money is being spent to keep the buses, trains, ports, running and the pensions coming. That has absolutely nothing to do with mortgage debt, consumer debt, or derivatives, or any of your many other machinations. The unfortunate fact for you is as previously pointed out, the same entities/governments loaning Greece money now are the same entities/governments which own 78% of Greece’s debt.

As for bank assets, yes bank assets are debts. But that has nothing to do with the issue at hand and the issue you are avoiding. You equated the Great Depression with what is occurring in Greece. Per my previous post during the Great Recession assets were exchanged for assets. As pointed out in my last post, assets are not being exchanged in Greece. Greece is getting unsecured loans. That wasn’t the case when the US bailed out financial institutions during the Great Recession.

Additionally, it’s quite apparent you don’t understand how financial assets are priced. Apparently you have never purchased debt or anything more sophisticated than a savings bond. Because if you had, you would understand default risk is incorporated in the pricing of the asset. So when the US government purchased bank assets, those assets were discounted based on anticipated default risk. That is one of the reasons it took so long to sell those assets, they needed to be discounted for default risk. And the US government made a nice return on those investments. Taxpayers didn’t lose money as on the bailouts. It made a tidy profit. So the unfortunate bottom line for you is Greece is nothing like the US.

The other problem Greece had was having been buried in debt by Goldman Sachs 's highly profitable (to Goldman) financial arrangements. Other people who have been dealing with Goldman Sachs should therefore review their dealings, of course - don't you agree?

Except as previously pointed out, Goldman Sachs didn’t cause Greek’s debt woes. Goldman Sachs was an enabler but it wasn’t the driver or the cause of Greek debt. It helped Greece borrow money and disguise its debt, but Goldman Sachs didn’t do anything illegal.
You act as if these “other people”(i.e. Greek government) were innocent victims. They weren’t. The Greek government knew what Goldman Sachs did, it’s why Greece hired them. Goldman Sachs did what it was hired to do, nothing more, nothing less. Try as you will you cannot absolve the Greek government of its culpability. As much as you want to paint Greece to be an innocent victim of the big bad investment bank, it isn't. Greece is a victim of its own malfeasance.

Can you think of any other government that, like Greece, has had significant and complex financial dealings with Goldman Sachs?

Sure, Italy. Goldman Sachs did the same thing for Italy.

 

[Schmelzer]

Well, this has been explained to you and Michael numerous times over the years, there is a difference between microeconomics and macroeconomics.

Yes, there are some differences. But usually these differences are not important.

There is an exception. For nonsensical economic theories, which make claims about macroeconomics, it is extremely important to emphasize that there is a difference between microeconomics and macroeconomics because this allows to sell the sheeple nonsensical things, which even the sheeple would be able to identify as complete nonsense if there would be no excuse that macroeconomics is something completely different.

You cannot apply kitchen table economics to the macroeconomics of a nation and remain credible or reliable.

Of course, for most problems you can. Of course, because the conclusions are usually different from Keynesian pseudoscience and uncomfortable for politicians, you will be faced with the usual reaction of losers in discussions - you will be attacked ad hominem. This will be named you will not "remain credible or reliable".

There is nothing wrong with fiat currencies, every currency is a fiat currency even if the currency is backed by gold or some other commodity and none are. And the problems with commodity backed currencies have been discussed ad nauseum in this forum over the years and are why no nation on the face of the planet uses a commodity to back its currency today. There is no magic in commodity backed currencies as you and others seem to believe.

There is something wrong with fiat currencies, namely that it needs force to obtain a value. Commodity-backed currencies do not have this problem, so that they appear on free markets in a natural way.

There is, of course, a simple reason why no state on this planet is using today a commodity-backed currency. First of all, because using the printing press to obtain money is very comfortable for the politicians.

There is a second one - US leadership. Any reliable commodity-backed currency would be preferable as a reserve currency in comparison with any fiat currency, simply because it does not loose value by inflation. So, the development of a gold-backed currency would endanger the dollar, thus, to do this you have to face the danger of having the US as an enemy. This would be fatal for almost every state on Earth, except the largest ones, Russia and China. Above have avoided, as far as possible, open confrontations with the US. But if the situation becomes more serious, and it does no longer matter for them to have the US as an open enemy, they can start to use a commodity-backed currency.

Above states increase during the last years the gold part of their reserves, which can be considered as a preparation for this. Other states, like Germany, try to get back their gold reserves from the US, but get only small parts of it. Looks like above are preparing themself for this, as well as for a future where they are no longer good friends. So, there are reasons to think that gold has a future as a backing of some future currencies.

Two, there is nothing wrong with the fractional banking system. It’s how banks have always worked. Fractional banking predates the founding of the US.

Fractional banking is a variant of cheating which usually works, if one does not exeggerate. It is the danger of using a commodity-backed currency instead of the commodity itself, which makes this cheating possible.

There is nothing wrong with a well regulated fractional banking system, which is what we have. In fact, a fractional banking system is integral to a well-functioning modern economy where capital is efficiently redeployed from surplus to where it is needed. It creates jobs and products.

No. Cheating does not create anything, it is a redistribution. It "creates" income for the cheater, taking it away from others.

There may be some special situations where printing money is useful. The particular example is an economic crisis in a state where trade unions have reached a lot of power so that they can forbid a decrease of wages in the whole industry - and not only in particular firms which have signed a contract with the particular trade union. Now, it may be necessary to decrease wages, but the trade union may be not interested and block this. The result would be that a lot of small firms go bancrypt, while the big firms, where the trade unions are strong, survive - an outcome the trade unions are interested.

In this scenario, printing money causes inflation and effectively decreases wages. Which prevents the worst outcomes of this situation.

Similarly, printing money can prevent the worst outcomes of minimal wages - to decrease them would be impossible in a democratic state, but to print money, so that they effectively decrease, and selling this to the sheeple as you do, is possible.

Three, there is no evidence to even suspect banks or the US government are overleveraged, absolutely none. As has been pointed out to you instead of falling in value as you predicted for years now, the dollar is rising in value and is stronger than it has been in many decades.

This is only a relative point. We live in a world where this method of cheating is used in all states. The states who print more money will have higher inflation. The states who are trusted to cheat less can print more money without causing too much inflation. So, for example, other states may hold some Swiss francs as part of its reserve currencies, but hardly Simbabwe dollars. But above things are cheap paper, and this difference in trust gives the Swiss central bank an income.

And, of course, in a world very close to a big war people will tend to consider the currencies of the most powerful military powers - the likely winners of the war - as more reliable. This is part of the explanation why the US becomes more and more aggressive and spends a lot of money in wars which lead only to destabilization.

But if the world switches from the unipolar to the multipolar world order, the role of the dollar as the world reserve currency will be lost. And this means, a lot of dollars now used by the central banks around the world go back to the US. If this would happen at one day, this would cause a heavy economic crisis for the US. But nor Russia nor China are interested in such a crisis, because it would hurt them too. They prefer to do this slowly. The way is to allow in bilateral trade to use the currencies of above states, so that above states can hold some reserves not in dollar, but in the currency of this other state. Economically meaningful for above sides, because it is diversification of the own reserves, and because it is what one needs to support these trades. But certainly not optimal for the US. If this becomes the rule, dollar reserves will be hold only by the trade partners of the US, and only to support this trade. For everything else, gold, silver, and other commodities will be preferred.

Greece’s debt problems could be easily solved, its governance problems which caused its debt are an entirely different matter.

No, there is no easy solution for debt problems - except for states with an own fiat currency, and with debts nominated in this currency. In this case, the state can simply print the money to pay the debt. This leads to inflation, but so what? This is a problem of those who have to use the currency - thus, for the citizens of the state - but not for the state.

But Greece has no own currecy, thus, the cheap solution is not available. Or you have to print a lot of Euro, with inflation in the whole Euroland, which is nothing Germany is interested in, or the debt remains big.

The other point is that Germany want to have Greece with a big debt. This allows it to rule over Greece.

 

[joepistole]

Yes, there are some differences. But usually these differences are not important.
There is an exception. For nonsensical economic theories, which make claims about macroeconomics, it is extremely important to emphasize that there is a difference between microeconomics and macroeconomics because this allows to sell the sheeple nonsensical things, which even the sheeple would be able to identify as complete nonsense if there would be no excuse that macroeconomics is something completely different.

LOL, and what do you know of economics? Obviously nothing, where is the evidence to support your assertions? Let me guess, it is with the rest of with the rest of the assertions you have been repeatedly challenged to justify with evidence and reason. You cannot support your assertions with evidence and reason, because none exist.

If you had ever read an economic text or taken a basic Economics 101 class you would know the stupidity of your assertion. I suggest you google macroeconomics and learn what it is and what it is not. It has nothing to do with “sheeple” and it certainly isn’t nonsense.
The fact remains you cannot apply kitchen table economics to macroeconomic events and expect. That’s kind of why they are two distinct areas of study, because they are two separate subjects. In fact your denial goes against the tenets of the libertarian ideology to which you claim to subscribe.

The difference to print money is not unimportant. The savings paradox is not unimportant. You are just another clueless uneducated ideologue my friend.

Of course, for most problems you can. Of course, because the conclusions are usually different from Keynesian pseudoscience and uncomfortable for politicians, you will be faced with the usual reaction of losers in discussions - you will be attacked ad hominem. This will be named you will not "remain credible or reliable".
There is something wrong with fiat currencies, namely that it needs force to obtain a value. Commodity-backed currencies do not have this problem, so that they appear on free markets in a natural way.
There is, of course, a simple reason why no state on this planet is using today a commodity-backed currency. First of all, because using the printing press to obtain money is very comfortable for the politicians.
There is a second one - US leadership. Any reliable commodity-backed currency would be preferable as a reserve currency in comparison with any fiat currency, simply because it does not loose value by inflation. So, the development of a gold-backed currency would endanger the dollar, thus, to do this you have to face the danger of having the US as an enemy. This would be fatal for almost every state on Earth, except the largest ones, Russia and China. Above have avoided, as far as possible, open confrontations with the US. But if the situation becomes more serious, and it does no longer matter for them to have the US as an open enemy, they can start to use a commodity-backed currency.
Above states increase during the last years the gold part of their reserves, which can be considered as a preparation for this. Other states, like Germany, try to get back their gold reserves from the US, but get only small parts of it. Looks like above are preparing themself for this, as well as for a future where they are no longer good friends. So, there are reasons to think that gold has a future as a backing of some future currencies.

Except, like your many other beliefs, that crap runs counter to centuries of data. I suggest you do some basic research before you make statements like these which can be easily disproved with a few google searches. Gold has no intrinsic value, nor does any other commodity have "intrinsic" unchanging value. Commodities are no guarantee of constant value, just ask any farmer.

The US case in point, in the first decades of the last century inflation in the US reached a zenith of more than 20% while the US currency was backed by gold and silver. The US went off the gold standard in 1972 and we have never seen that kind of inflation since, even with the advent of Keynesian economics (circa 1936) or the oil shocks of the 70's.

So as usual, your beliefs are just not consistent with reality. A commodity backed currency offers virtually no protection from inflation or depression. Keynesian economics moderates the extremes of the business cycle. It does what you claim commodity currencies do. If you had taken a macroeconomics course or opened an economics text, you would know that. Basically you are preaching about something you know very little about.

Fractional banking is a variant of cheating which usually works, if one does not exeggerate. It is the danger of using a commodity-backed currency instead of the commodity itself, which makes this cheating possible.
No. Cheating does not create anything, it is a redistribution. It "creates" income for the cheater, taking it away from others.

Hmm, funny, you don’t have a problem with Putin and his cronies cheating. Two, every time you buy something you are redistributing capital. That isn’t any different from what banks do every day. Banks take money surpluses and funnel into portions of the economy is scarce. It’s called the efficient allocation of capital. It’s how businesses get the money they need to grow. It’s how people buy homes, educations, and the things they need to be productive members of society. That’s why we see banks in every advanced and most developing countries of the world. Banks are integral to economic growth.

 

[joepistole]

There may be some special situations where printing money is useful. The particular example is an economic crisis in a state where trade unions have reached a lot of power so that they can forbid a decrease of wages in the whole industry - and not only in particular firms which have signed a contract with the particular trade union. Now, it may be necessary to decrease wages, but the trade union may be not interested and block this. The result would be that a lot of small firms go bancrypt, while the big firms, where the trade unions are strong, survive - an outcome the trade unions are interested.
In this scenario, printing money causes inflation and effectively decreases wages. Which prevents the worst outcomes of this situation.

If you had taken that basic macroeconomics course or read previous posts in this thread you would know it takes more than just printing money to cause inflation. Case in point, since the Great Recession the US has greatly expanded its money supply. For years now the US Federal Reserve has been expanding the US monetary supply to the tunes of trillions and yet virtually no inflation.

Similarly, printing money can prevent the worst outcomes of minimal wages - to decrease them would be impossible in a democratic state, but to print money, so that they effectively decrease, and selling this to the sheeple as you do, is possible.
This is only a relative point. We live in a world where this method of cheating is used in all states. The states who print more money will have higher inflation. The states who are trusted to cheat less can print more money without causing too much inflation. So, for example, other states may hold some Swiss francs as part of its reserve currencies, but hardly Simbabwe dollars. But above things are cheap paper, and this difference in trust gives the Swiss central bank an income.
And, of course, in a world very close to a big war people will tend to consider the currencies of the most powerful military powers - the likely winners of the war - as more reliable. This is part of the explanation why the US becomes more and more aggressive and spends a lot of money in wars which lead only to destabilization.
But if the world switches from the unipolar to the multipolar world order, the role of the dollar as the world reserve currency will be lost. And this means, a lot of dollars now used by the central banks around the world go back to the US. If this would happen at one day, this would cause a heavy economic crisis for the US. But nor Russia nor China are interested in such a crisis, because it would hurt them too. They prefer to do this slowly. The way is to allow in bilateral trade to use the currencies of above states, so that above states can hold some reserves not in dollar, but in the currency of this other state. Economically meaningful for above sides, because it is diversification of the own reserves, and because it is what one needs to support these trades. But certainly not optimal for the US. If this becomes the rule, dollar reserves will be hold only by the trade partners of the US, and only to support this trade. For everything else, gold, silver, and other commodities will be preferred.
No, there is no easy solution for debt problems - except for states with an own fiat currency, and with debts nominated in this currency. In this case, the state can simply print the money to pay the debt. This leads to inflation, but so what? This is a problem of those who have to use the currency - thus, for the citizens of the state - but not for the state.
But Greece has no own currecy, thus, the cheap solution is not available. Or you have to print a lot of Euro, with inflation in the whole Euroland, which is nothing Germany is interested in, or the debt remains big.
The other point is that Germany want to have Greece with a big debt. This allows it to rule over Greece.

That is basically another load of chicken shit. It’s basically a dump of your beliefs which are not grounded in evidence and reason and rooted in a gross and profound ignorance of the subject matter. I suggest you take an economics class before you begin preaching about it. It’s pretty obvious you have zero knowledge of economics.

 

[Michael]

 

[joepistole]

Yeah, we have been down this road before Michael. You are citing a specious source who counts employed people as unemployed. By definition Michael, unemployed people are unemployed, but your source counts employed people as unemployed...oops. Now this has all been explained to you numerous times over the years so you are either incredibly dense or are being dishonest.

Two, there was this little thing called the Great Recession which was caused by deregulation which allowed banks and others to gamble with depositor money, something that had been illegal since the Great Depression. The fact that deregulation of financial markets led to a crash of potentially monumental proportions clearly runs contrary to your libertarian notions of a deregulated nirvana. And the fact that Keynesian stimulus and monetary solutions quickly reversed the economic decline clearly demonstrates their effectiveness. They reversed an economy that was shrinking at a double digit rate and more with each passing month and created an economy that has been growing modestly for sometime now in a matter of months.

 

[iceaura]

And where exactly did I say the “anonymous and incorruptible Greek government asked to be buried in debt”?

When you repeated several times that Goldman Sachs simply did what "the Greek government" wanted it to do. You named nobody, denied the role of Goldman and related international financiers in corrupting as well as deceiving individuals within the Greek government, etc.

Follow the money, look at the bottom line: do you really believe Goldman was unaware and naive? That their profits from the losses of others were accidental, coincidental?

Except as previously pointed out, Goldman Sachs didn’t cause Greek’s debt woes. Goldman Sachs was an enabler but it wasn’t the driver or the cause of Greek debt. It helped Greece borrow money and disguise its debt, but Goldman Sachs didn’t do anything illegal.

Goldman Sachs's arrangements multiplied the existing Greek debt to bankrupting levels, to the huge profit of Goldman Sachs. Before Goldman et al, Greek debt was merely too large for Eurozone comfort - a political problem. After Goldman's arrangements it was inevitably bankrupting, unpayable, and a structural economic problem for the entire Eurozone.

Additionally, it’s quite apparent you don’t understand how financial assets are priced. Apparently you have never purchased debt or anything more sophisticated than a savings bond. Because if you had, you would understand default risk is incorporated in the pricing of the asset

Hence the damage done by lying about default risk, concealing default risk, and deceiving people into taking much greater default risks than they are aware of, for the profit of oneself and one's financial institution.

No, I mean its existing creditors. The unfortunate fact for you more than 78% of Greek debt is held by other governments and that has been the case for some time now.

The taxpayers of the Eurozone are the new creditors, yes, and will be absorbing most of the inevitable losses. By "some time" you mean of course since the onset of the Eurozone financial crisis and bailout regime, which has featured among other notable developments the transfer of default risk from the original arrangers and instigators and profiteers of the bad deals to various taxpayers and other suckers, and the consequent ballooning of the size of that default.

Can you think of any other government that, like Greece, has had significant and complex financial dealings with Goldman Sachs?
Sure, Italy. Goldman Sachs did the same thing for Italy.

You mean "to Italy". Using the same guy who is now wringing out the Greek citizenry and the Eurozone taxpayer ( from here: http://www.ft.com/cms/s/0/440007a8-dd9a-11e2-a756-00144feab7de.html#axzz3ggyYlwsj )

Mario Draghi, now head of the European Central Bank, was Director General of the Italian Treasury at the time - -
- - -
An ECB spokesman declined to comment on the bank's knowledge of Italy's potential exposure to derivatives losses or on Mr Draghi's role in approving derivatives contracts in the 1990s before he joined Goldman Sachs in 2002

We should of course note that despite the significant contributions of Goldman Sachs, probably the heavyweight profiteer from the fleecing of the Italian citizenry was JP Morgan Stanley.

In the private sector in the US, it would be clawback time. And Goldman Sachs is based in the US, as is JP Morgan Stanley and a couple of the other central players. Odd that this hasn't come up in the official debate, eh?

But there is at least one more country whose intimate involvement with Goldman Sachs has featured dubious decision making, blatant conflicts of interest at the policy setting level, large profits for Goldman and its executives, and serious financial trouble for the regular citizenry. Still drawing a blank?

 

[Schmelzer]

If you had taken that basic macroeconomics course or read previous posts in this thread you would know it takes more than just printing money to cause inflation.

I know. So what?

Case in point, since the Great Recession the US has greatly expanded its money supply. For years now the US Federal Reserve has been expanding the US monetary supply to the tunes of trillions and yet virtually no inflation.

Indeed an interesting phenomenon. But money printing is, of course, also redistribution. If all the money ends up in the hands of the 1%, this will cause some inflation of what the 1% like to buy. What do they like to buy? Stocks, equities around the world? This will probably not lead to an increase of bread prices in the US.

But, ok, I have not read all those 50 pages, so what do you think is the explanation?

That is basically another load of chicken shit. It’s basically a dump of your beliefs which are not grounded in evidence and reason and rooted in a gross and profound ignorance of the subject matter. I suggest you take an economics class before you begin preaching about it. It’s pretty obvious you have zero knowledge of economics.

So, translated into civilized language, you don't think my theory is correct. Unfortunately, you have not explained why, so this is not very helpful.