Need help in this argument

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  • Sat, Jan 23, 2010 - 07:15pm

    #1
    castlewp

    castlewp

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    Need help in this argument

Hi all. A friend of mine (who works for Deutsch Bank in NYC) and I are having quite a discussion about the Federal Reserve and Ben Bernake.  After going back and forth he sent me this email which I would like your feedback.

“We will start with the purchasing power they give is completely ridiculous, no form of inflation and 100% stable prices is laughable, and in itself naïve, and shows a lack of understanding of basic economics.  If you have workers making widgets, inevitably those workers are going to want raises, those higher wages increase the cost of the widgets. I.e. Inflation. For there to be nothing but stable pricing is impossible.  Don’t get me started on supply and demand and a growing global population, all striving to better themselves and live better lives but at the end of the day we only have so much natural resources.  Open page 1 of your econ 101 book, you will see a supply and demand curve.

The gov’ts only real source of income is interest on money it prints?  Interesting, pretty sure I pay a hell of a lot of income taxes.

As for banks,  I will make this simple.  By definition a BANK is a levered entity.  If 10 people each deposit $100 into a bank, that bank now has $1,000.  That bank will then lend, let’s call it 80% of that money to local businesses, people who want to buy homes.  That leaves $200 of reserves for people to pay their bills, take cash out, or whatever.  Sometimes they might have a 1 or 2 people too many pay bills at the same time, let’s say the 30th of every month, so the bank needs to borrow that $ on a short term basis.   That is what the federal reserve is there for, if it isn’t or some other type of organization, then the banking system doesn’t work, and the economy gets stuck in the mud, never moving us forward.  The industrialized nation as we know it would be non_existent.

Now sometimes, as it did in fall of 2008, a panic is caused because of an economic event, such as a housing bubble created by congress and the american consumer who took on too much debt and lived above their means. Don’t get me wrong, this was exacerbated by certain mortgage brokers, banks, the gov’t, and many others, and at least when it comes to the banks and the mortgage brokers, those people are long gone.  But make no mistake, the root of the problem was the american consumer, and the loosening credit standards put in place by our congress in the 1990’s that forced freddie and fannie to give mortgages to people that had no chance of paying it back. We love to come up with conspiracy theories and blame others, but we have nobody to blame but ourselves.  If we took more responsibility for our own actions, we wouldn’t be in this mess.

I got off course, I will finish up with my banking tutorial.  When a financial crisis occurs, everyone rushes to the bank to take out their money, well guess what. It’s not all there.  It was old fashion run on the banks (more complicated thank that but my thumbs are beginning to get tired).  The Fed and the FDIC, without their intervention, the financial system would have collapsed.  These entities have to exist to supply order in the system. Is it perfect, no.  But, remember, we are dealing with events that are unforeseen, there is no simple answer or easy plan in place. And for these gutless congress people (and video makers) to ask ridiculous questions only look tough and get reelected is a joke.  If they are so damn brilliant, where are their great ideas on how to better handle the situation?  Haven’t heard one yet.  It’s easy to criticize and pass around mistakes made by individuals like Bernanke, but at the end of they day, he had the Balls to do something, might not have been perfect but he did something. He knew he was stretching his reach, and would pay for it when I was over, but he still did it, not to get reelected but because somebody had to.  If it were up to our congress it would have been a tsunami of shit you could never have imagined.”

  • Sat, Jan 23, 2010 - 11:35pm

    #2
    Peak Prosperity Admin

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    Re: Need help in this argument

He just postponed things a bit.  Quite frankly, if you add the amount we “owe” ourselves as social security retirement, our new debt is now around 5 times our GNP.  Bernanke did stave off financial collapse, but the day to pay the piper is still coming.

  • Sat, Jan 23, 2010 - 11:52pm

    #3
    Peak Prosperity Admin

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    Re: Need help in this argument

If you have workers making widgets, inevitably those workers are going to want raises, those higher wages increase the cost of the widgets. I.e. Inflation

Mr. Banker fails to realize that as technology and efficiency improve, the cost of goods fall so workers purchasing power increases, thus eliminating the need for a raise. Also, if govs keep taxes low and keep gov spending/borrowing/printing low thus less inflation or even deflation real prices.

  • Sun, Jan 24, 2010 - 12:17am

    #5
    Peak Prosperity Admin

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    Send your friend this….

  1. Reinstate Glass Steagall
  2. Ban naked short selling
  3. Actually ENFORCE anti-fraud laws
  4. Investigate AND prosecute those shown to have broken laws
  5. Take back all taxpayer monies provided to Wall Street
  6. Take back all bonuses paid to those who were, at the time, recipients of taxpayer funds
  7. Dismantle the Federal Reserve
  8. Ban lobbyists
  9. Once a week broadcast a list of all political donations and the names of those who receive them on TV and radio along with which way they voted on bills
  10. Let the public stockholders of a company decide the renumeration of those who run it
  11. Put and end to ‘Too Big To Fail’ (Too Big To Fail means Too Big To Exist!)
  12. Remove the revolving door between big business and Washington

That’ will do for starters

  • Sun, Jan 24, 2010 - 12:18am

    #6
    Peak Prosperity Admin

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    Re: Send to friend this….

[quote=rowmat]

  1. Reinstate Glass Steagall
  2. Ban naked short selling
  3. Actually ENFORCE anti-fraud laws
  4. Investigate AND prosecute those shown to have broken laws
  5. Take back all taxpayer monies provided to Wall Street
  6. Take back all bonuses paid to those who were, at the time, recipients of taxpayer funds
  7. Dismantle the Federal Reserve
  8. Ban lobbyists
  9. Once a week broadcast a list of all political donations and the names of those who receive them on TV and radio

That’ will do for starters

[/quote]Re-denominate the dollar. Stop the fuzzy math. Stop the off balance sheet accounting. Apply the same rules to Social Security that you would have with pension funds – or get rid of it. Get rid of the Fed and FRB. Use GAAP accounting, with NO off balance sheet BS.

  • Sun, Jan 24, 2010 - 12:21am

    #4
    Peak Prosperity Admin

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    Re: Need help in this argument

I only went as far as paragraph 3. I have a veep of a bank on FB with me. I go back and forth with this cr*p every week.

First the leverage created by derivatives and the ability to not give a sh*t if the money would or wouldn’t be paid back created the ability to have a housing bubble. The rating also fueled the fire and allowed sh*t to be offed to pension funds. Everyone may want drugs but when you legalize crack dealing you are going to get addicts.

Keynesian 101 is a $60,000.00 waste of a false education. Want proof? How many Keynesian economists forsaw this train wreck?

Like Bernoulli’s Law doesn’t make lift on airplanes inflation is not high prices. Inflation is the amount of money. When our dollar is worthless because they they created trillions out of thin air he/she and the rest of the people who got duped by Keynesian will get it when they are out in streams pan handling for gold so they can buy grub.

One word: Zimbabwe.

The government is insolvent. They take in 2 trillion and blow 4 trillion. He/she and everyone else will be paying more in taxes, the average Joe/Jane already works from Jan 1 to Sep 1 and every cent goes to Uncle Sam who spends 2x that.

No offense, your friend hasn’t a clue, I can’t even bear to read the rest of it. Clueless. Absolutely clueless.

PS He/she makes it sound like the bank loans out it’s investments and doesn’t create money/loan out more than it has. That’s a novelty in my book.

 

  • Sun, Jan 24, 2010 - 12:27am

    #7
    Peak Prosperity Admin

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    Oh and get him to watch some Steve Keen lectures

n/t

  • Sun, Jan 24, 2010 - 12:54am

    #8
    Peak Prosperity Admin

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    Re: Oh and get him to watch some Steve Keen lectures

This was the original email he sent me that got me going.  He has obviously drank the DB Kool Aid.

“The market is down 400 points this week due to this presidents administration trying to distract citizens to the fact they are losing the battle against the current health care plan.  in their efforts to deflect blame and to try to not look anymore stupid than they already do, they have decided to go back to blaming the banks and Fed Reserve President Bernanke who worked around the clock and saved not only the financial system but life as we know it, we were headed for a disaster we may never have come out of if not for his multiple programs to get the economy and financial system to where we are today, not great but a heck of a lot better.  He implemented many programs, some never used before.  He repaired the commercial paper market which is the life blood to corporate lending as well the money market funds, and has gotten the credit and capital markets back into shape, or we would have seen a wave of corporate bankruptcies like you could not imagine.  I won’t get into interest rate stuff, but his programs are the reason mortgage rates are so low, and the housing market has fallen even further.  Not to mention the huge recover we have seen in the S&P 500.  I am sure you have all seen this reflected in your 401K statements in the past year.”

  • Sun, Jan 24, 2010 - 01:45am

    #9
    Peak Prosperity Admin

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    Re: Oh and get him to watch some Steve Keen lectures

[quote=castlewp]

This was the original email he sent me that got me going.  He has obviously drank the DB Kool Aid.

“The market is down 400 points this week due to this presidents administration trying to distract citizens to the fact they are losing the battle against the current health care plan.  in their efforts to deflect blame and to try to not look anymore stupid than they already do, they have decided to go back to blaming the banks and Fed Reserve President Bernanke who worked around the clock and saved not only the financial system but life as we know it, we were headed for a disaster we may never have come out of if not for his multiple programs to get the economy and financial system to where we are today, not great but a heck of a lot better.  He implemented many programs, some never used before.  He repaired the commercial paper market which is the life blood to corporate lending as well the money market funds, and has gotten the credit and capital markets back into shape, or we would have seen a wave of corporate bankruptcies like you could not imagine.  I won’t get into interest rate stuff, but his programs are the reason mortgage rates are so low, and the housing market has fallen even further.  Not to mention the huge recover we have seen in the S&P 500.  I am sure you have all seen this reflected in your 401K statements in the past year.”

[/quote]I’ll agree on a few points. I hate to get political but the fact of the matter is they are looking for a scape goat. Health care failed. Scott Brown delivered that message.

Message received at the White House.

Now they are taking the collective anger of those who are po’d about Health Care and funneling it towards the banks. Don’t know if there will be any bight. Like MachineHead pointed out, the banksters got 140 billion in one year and will likely negotiate out of the 90 billion in fines over 10 years.

Bernake is an utter and absolute moron and a failure. He prolonged the depression, doing so will only make it worse. We also now are trapped. Who the heck thinks we will get Volcker or some Volckerite who jacks up interest rates? I mean really! The interest on the deficit would be un-payable.

As for the 401k comment – who cares, if you still have one it will the governments they will take it and buy UST’s that no one else will want.

He/She is nice I’m sure, just like my FB Veep. But nice and without a clue are two different things. I’m going to stop bashing the banksters on my facebook because I could argue with my chickens and have a better time.

Good luck.

  • Sun, Jan 24, 2010 - 02:19am

    #10
    Peak Prosperity Admin

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    Re: Need help in this argument

I have the same issue with my friend, who is a financial advisor for one of the large banks that is a ward of state. He was complaining to me yesterday(and I’m sure that he was pitching the company line) that Obama was being anti-business, anti-banks with his bank plans.

Mish said this the other day…be careful what you wish for…which I happen to agree with. I’d rather have honest markets. I just don’t know that the sheep are ready for reality. Maybe Prechter will be right after all!

[quote] 

Be Careful What You Wish

Everyone is railing about banks not lending and the bonus pools at Goldman Sachs, JPMorgan, and Morgan Stanley. Well guess what?

  • Reduced leverage means reduced lending and reduced profit potential.
  • Marking loans to market would reduce lending and reported earnings.
  • Goldman Sachs going private would reduce S&P 500 earnings.
  • Bringing assets on to the balance sheets of banks would reduce S&P 500 earnings.
  • Reduced earnings (in the long run) means lower share prices

Everyone wants more small business lending and less risk. Sorry folks, that is physically and logically impossible. Reducing reckless risk, especially risk born by others (taxpayers) is a good idea, but it’s important to understand exactly what that will mean to earnings going forward.

Think of the affect lower share prices and reduced risk taking will have on pension plans and 401Ks. In the long run, less risk is a good thing, and I am in favor of it. I just doubt people are prepared for what it means.

The stock market is already insanely overvalued, and the regulatory actions everyone is clamoring for will make it even more so. Good luck with that.

[/quote]

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