Help me out economic gurus

BarryP · April 3, 2008, 5:25pm

Tell me if I got this right.

Carter administration - bad
Reagan administration - charge it! Things are looking good.
Bush I administration - charge it! Things aren’t too bad.
Clinton administration - over inflated tech economy. Illusion of good economy (didn’t need to charge it).
Bush II administration - over inflated realestate market…oh…and charge it!!! Things look good.

This kind of reminds me of how my parents ran things. We were poor, and then all of the sudden the discovered credit cards. The next thing I know, we are driving nice cars, have fancy furniture, and a big screen TV.

Several years later after Mom died, dad sold the house (luckily it had an overinflated price) and paid off all the debt. He was 55 with less than a couple $100 to his name.

I’m just trying to figure out at what point America will have to pay back all of this fake wealth and start from scratch.

I’m certainly not an economic expert, but I’m having a hard time seing how borrowing to cover 15% of our budget every year isn’t going to bite us in the ass at some point. Teach me geniuses.

steveperx · April 3, 2008, 5:27pm

I’ll teach you for five easy payments of $19.99. Charge it. Things look good.

Actually, I’d like to be taught, too.

vitus979 · April 3, 2008, 5:30pm

The silver lining in this recession is that some financial/economic authorities are being forced to admit, out loud and in public, that our current economic practices are unsustainable.

There is no secret that you’re missing. We have gotten ourselves into real trouble, and if we don’t stop digging, we’re going to bury ourselves. I am not yet convinced that we’re going to stop digging.

steveperx · April 3, 2008, 5:35pm

What incentive do we have to stop digging? It seems clear that the government is ready to bail people/industries out when they make bad investments. I guess the only real incentive will be when people realize that at some point, the government won’t be able to do that anymore. Good luck with that, though.

BarryP · April 3, 2008, 5:36pm

I am not yet convinced that we’re going to stop digging.

Ahhh…you too have noticed that not a single politician is really addressing this issue. ; ^ )

Thanks for the input.

Fleck · April 3, 2008, 5:38pm

**I am not yet convinced that we’re going to stop digging. **

Tom,

On a recent business trip to the U.S. I was surprised to read that many Americans are now buying gas for their cars with credit cards - these same cradit cards that are already carrying big balances. The credit card companies had been tracking gas purchases and they had made a significant jump in the last six months to a year. So indeed, it would appear that many are still digging - without making the substantial and significant changes to their lives and lifestyles to get things back on an even keel.

Al_P_Duez · April 3, 2008, 5:51pm

We are still digging by bailing out bad lenders and looking to bail out those who can’t pay their mortgages through price controls. Japan bailed out its banks in the '80s and prolonged their financial woes through the '90s.

OT, but if 94% of home owners are paying their mortgage, with a good percentage of those barely scraping by to make that monthly payment, why are we looking to reward the 6% who have said f%$k it?

last_tri_in_83 · April 3, 2008, 6:04pm

What we have is a personal problem. I’m not sure why you have tied it to presidential regimes.

trio_jeepy · April 3, 2008, 6:21pm

I think that hundreds of years of microeconomic theory and research were summed up and dispelled by noted economist Dick Cheney, who noted seven years ago that “Reagan proved that deficits don’t matter.”

Of course they don’t matter. They really don’t matter because its easier just to push the ball down the road and let somebody else deal with it, and perhaps devalue the currency while you’re at it.

I think that as a matter of politics, its always easier to criticize government, offer tax cuts to then aggrieved taxpayers, and then run up gigantic deficits because you know that between the stupidity of the American people, paid partisans, and passage of time, your financial profligacy which likely results in short-term prosperity, will result in a problem for somebody else who can be conveniently blamed. You add in a certain amount of murkiness regarding cause and effect with regards to the economy, and you can both avoid blame for shit you’ve done, while taking credit for the decisions of past forebears, regardless of the amount of the time that has passed.

MJuric · April 3, 2008, 6:31pm

On a recent business trip to the U.S. I was surprised to read that many Americans are now buying gas for their cars with credit cards - these same cradit cards that are already carrying big balances. The credit card companies had been tracking gas purchases and they had made a significant jump in the last six months to a year. So indeed, it would appear that many are still digging - without making the substantial and significant changes to their lives and lifestyles to get things back on an even keel.

Hasn’t everyone always paid for gas on their credit cards? Pretty much every station around here is pay at the pump or go in and pay first. I rarely see people go inside. Sure most of these could have switched from debit to credit…but I’d have a hard time believing that.

I’m certain CCC’s have seen a jump in gas prices, but I would suspect that is more do to increasing prices than folks switching to credit cards rather than debit cards or cash.

On average in the US a person drives 12K miles a year. Figure at 25GPM (PFA’d) that’s around 480gallon a year. Say gas prices went from 2.50 to 3.30 that’s .80C a gal or 384$ a year. I doubt that “on average” 7.38$ a week is going to drive a person to switch from debit to credit. Sure if you’re putting in 50K miles a year it’s a much bigger bite, but more than likely those folks were already on CC’s

~Matt

blueraider_mike · April 3, 2008, 6:43pm

The goverment is a reflection of the people…so once individual families clean up their own messes and make better decisions then the goverment will clean up its decision making. The problem I have with your post is it looks like the Presidents or the goverment is at fault.

BarryP · April 3, 2008, 6:52pm

What we have is a personal problem. I’m not sure why you have tied it to presidential regimes.

The national debt is a result of government. I only brought up the “residents” to denote the time period, but do understand that congress is largely to blame as well.

You can’t keep running up deficits forever.

Mito_Chondria · April 3, 2008, 6:54pm

you have to think of the US as a public company and the USD is its stock. This company has major overspending habits and the third party (Fed) in charge of the creation of more shares has no problem diluting the share supply and making profit/interest for that “work”.

You’re right that there must/will come a point in time that Americans will have to pay for all this fake wealth. And they will do this with inflation. A change in living standard will come with this as foreigners (e.g. China) that used to finance our overspending will start putting their savings into their economy and begin to enjoy the reward of consuming themselves.

(not so long ago the USD Index was at over 115…)

You also have to take the role of the Federal Reserve into account here. And that “Beast” has done more harm than good to this Country. Greenspan shouldn’t be considered the Maestro or be considered as some heroic financial figure. He should be remembered as the guy that debased our currency (just like so many before him) and created one of the biggest financial bubble in US History.

Mito_Chondria · April 3, 2008, 7:01pm

"Ahhh…you too have noticed that not a single politician is really addressing this issue. ; ^ ) "

There is. Ron Paul has been addressing the issue of overspending and devaluing the USD for over thirty years. It’s for that reason that he is a supporter of the Gold Standard or any other mechanism in place that would limit the creation of new money (debasing the currency/inflation) and put a hold on government overspending.

Of course he has been marginalized by the mainstream media which is controlled by the major financial institutions. And there is a strong connection between the quasi-private Federal Reserve System and the major Financial Institutions. Not only did Rockefeller, JP Morgan, Warburg, etc. start the Federal Reserve system but the recent Bear Stearns bailout and other questionable transactions are further indication of their agenda.

Check out the following videos:

House of Cards - http://youtube.com/watch?v=XaxdUPNYj2s
Ron Paul confronts Ben Bernanke (2/27/2008): http://youtube.com/watch?v=gldETRlhiXk

I wouldn’t say that there is not a single politician addressing the issue. It’s just that the media marginalizes those politicians and that Americans just don’t care. Yet.

Tyrius · April 3, 2008, 7:16pm

There is. Ron Paul has been addressing the issue of overspending and devaluing the USD for over thirty years. It’s for that reason that he is a supporter of the Gold Standard

And for that Ron Paul is an absolute moron. He’s got a ton of great ideas, but this one is just dead wrong. Going back to a gold standard would wreak havoc on our economy, our monetary policy, basically anything that is related to the transfer of money.

First off, the US only has about $11 billion worth of gold. With about $1 trillion in paper currency we’d either have to buy a shitload of gold or eliminate about 99% of our paper currency. Sound like a good idea? What happens then when the price of gold rises to a new record? Do we print more money? Then in the subsquent fall in value what happens then? Do we take more cash out of circulation? Sounds like a GREAT economy to work in.

Mito_Chondria · April 3, 2008, 7:42pm

First of all, how do you know how much Gold the US has left? Those numbers are not available to the public thanks to the secretive quasi-private Federal Reserve System. I don’t argue against that there is not much left though…

Second, you can be on a “semi gold-standard”. “x” number of USD to one oz of gold. Or you could back the currency by silver.

Third; while Ron Paul is for the gold standard he is very open to any other mechanism set in place that would limit the government and Fed to create more USD. We need some mechanism in place to limit the creation of new money. Otherwise we continue to debase our currency and we’ll have much inflation as a result.

**“What happens then when the price of gold rises to a new record?” **
Relative to what? Another currency? A USD backed by Gold would have a backing that has a strong financial history to keeping its purchasing power. So our currency would be desirable because there is a mechanism in place (of value) that keeps inflating the currency “in check”. At least that’s the idea behind it. You have to ask yourself the question as to why the price of Gold rose in USD to the extent it did over the past several, more so than many other currencies.

Greenspan on USD, Gold Standard, mechanism that prevents inflating the currency: http://youtube.com/watch?v=z5MVsm2cpc0

Greenspan had some wise words, both before and after he was head of the Federal Reserve System.

Edit: So since a Gold standard or any other mechanism that would limit the creation of new money is such a bad idea, what solution do you have to offer? Simply continue inflating our money supply?

last_tri_in_83 · April 3, 2008, 7:52pm

I thought you were discussing personal debt in your OP.

BarryP · April 3, 2008, 7:57pm

Sorry for the confusion.

fred_h · April 3, 2008, 8:05pm

I can’t think of a single time I bought gas WITHOUT using a credit card (& my credit cardS are paid in full each month).

Fred.

Tyrius · April 3, 2008, 8:12pm

**First of all, how do you know how much Gold the US has left? Those numbers are not available to the public thanks to the secretive quasi-private Federal Reserve System. I don’t argue against that there is not much left though… **

The federal reserve is not that secret for those willing to question things and not swallow conspiracy theories whole.

http://www.federalreserve.gov/releases/h41/Current/

As of March 27, 2008:

Gold stock 11,041 0 0 11,041

That’s in millions by the way.

**Second, you can be on a “semi gold-standard”. “x” number of USD to one oz of gold. Or you could back the currency by silver. **

What’s the benefit of doing such a thing?

**We need some mechanism in place to limit the creation of new money. Otherwise we continue to debase our currency and we’ll have much inflation as a result. **

We’ve had the current process for decades and it has worked well so far. Why would we now “debase our currency” and “have much inflation”?
**Relative to what? Another currency? A USD backed by Gold would have a backing that has a strong financial history to keeping its purchasing power. So our currency would be desirable because there is a mechanism in place (of value) that keeps inflating the currency “in check”. **

I don’t mean relative to anything. Gold is a seperately traded commodity. As such it’s price will rise and fall based upon demand for gold, supply of gold, and a myriad of other reasons. If our currency is tied to gold then our currency must fluctuate at the same levels.

You have to ask yourself the question as to why the price of Gold rose in USD to the extent it did over the past several, more so than many other currencies.

That question is fairly easy to answer. The US is experiencing a slowing economy. As such, the price of gold will rise in comparison. When the US experiences an economic resurgence then the price of gold will fall in comparison to the dollar.

Greenspan had some wise words, both before and after he was head of the Federal Reserve System.

Greenspan’s words are just wind. You’ll note that he (or the fed that he led) should bear a significant portion of the blame for the current housing problems that the country faces. He could have done much to attempt to slow the growth of the bubble, but instead he rode the wave as long as he could and then dumped the problem into someone else’s lap.

So since a Gold standard or any other mechanism that would limit the creation of new money is such a bad idea, what solution do you have to offer? Simply continue inflating our money supply?

I actually don’t see much of an issue with the way that our money supply works. I don’t really like that the fed is currently loaning all of this newly created money, but I see the reasoning for it and understand that these loans are typically very short and when paid back the money is taken back out of the market. That is unless the Fed turns around and loans more.