Quote:
Originally Posted by Deckard
I'm really no economist, so I have to grasp at what little I can and make limited judgments on that. But these two points of Paul's just make me worried... (worried that he's right, not worried that he's wrong)
"You can't solve the problem of inflation - that is, money and credit out of thin air - with more money and credit out of thin air"
"The bubble has been blown up, it needs to deflate - but they won't allow it"
I've been reading similar comments to this elsewhere. Can the government/Fed/whoever* (*see, that's how ignorant I am about this) really have got it that wrong, or been that short-sighted?  |
Its both the Fed (federal reserve) and government. The federal reserve is a private entity that controls the money supply. They've been responsible for artificially extending the bubble by keeping down interest rates on loans between banks. If its down, then banks can loan more money to people for things like businesses and houses and stuff.
They've been printing money far past the net worth of the country's assets. Which is the *real* cause of the food and oil spikes. Its not that these things are more scarce, its that inflation has caused these things to be more expensive because the dollar is weakened. Which causes a feedback loop because investors that would normally be in the money are moving to commodities like gold and oil to hedge off inflation, which causes even more inflation! You see that exact thing happening in the bloomberg article I posted. The fed prints money like its the new york times sunday paper, the dollar falls, and everything goes up in cost.
This has been happening since just after WW1 in this country and we've seen the value of the dollar drop like this ever since.
The thing is we've always managed to create enough objective wealth through technology and innovation to shoulder up the economy later. So the american economy has been like an irresponsible uncle going through the earnings of the family business, so far so good, or at least that's the shit crazy optimism we console ourselves with. In other words we can afford to act irresponsibly because of the margins provided by innovation.
But there's a limit and so why not just act responsibly? this is the perspective that you just don't see these days.
Its like the housing market. Before, to get into a house you had to have 10% - 20% down for a fixed interest, conventional loan. And the value of the house would be well within the 2.5 times your annual salary ceiling. Which was easy because housing was a shit load cheaper than it is now. The majority of mortgage loans were conventional. Now the vast majority are exotic ARM, interest only jobs, and I don't think many people in the past 4 years bought houses valued less than 2.5 times their annual income. That's because nobody can afford a conventional loan anymore.
And this is my point. Its not like the 2.5 annual or 10% minimum down are arbitrary or political or subject to whim. They fall out of the reality of mortgates. If you have any chance of paying the fucker back, the math dictates the probabiliity of risk optimized around these margins.
So who the hell thought it was a good fucking idea to throw money at anyone with a 600 credit score to buy a mcmansion where a farm used to be? The same fuckers we're bailing out, watering down my savings that I've put aside for my conventional home loan so that responsible people like me get fucked both ends.