Obama to Create Deficit Panel as U.S. Debt Soars
This reminds me of someone who cannot stop eating going to a store to read about his or her overeating. You don’t need to think about, read about or study it. Just stop spending.
Like John Dewey, people with misguided ideas are, well, not that misguided and quite malicious:
The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
During the crash of the housing market, starting in 2006, when lots of people were having their houses foreclosed and, of course more drastically (sarcasm) several large financial institutions who were profiting from the interest on these mortgages started to lose the income/interest from those mortgages, *everyone* started blaming “loan shark” bankers.
Even Sarah Palin, during one of the VP debates, responded “Darn tootin’ it’s the bankers” when asked if it was consumers taking out loans they couldn’t bear or if it was overly aggressive bankers to blame for the housing crash.
Now, not but one year and a little later, I keep hearing that “banks need to lend more money.” In particular, I’ve heard it from the one, the only, President Obama. Isn’t this the exact same thing that they argued got us into the mess? Weren’t the bankers just scolded for being loan sharks?
Did anyone ever stop to think about how our financial system has become so unsound that bad loans are made on a national level, instead of just in pockets here or there by shyster bankers?
If I were Sarah Palin, and I got asked if it was the greedy consumers wanting to get a loan bigger than they could afford or shyster loaners, I would have said: neither, it was the government.
Bankers would not be able to become “loan sharks” if it weren’t for the implicit backing of taxpayer money that they get to cushion them from risky investments and the free money created from the Federal Reserves.
Fannie Mae and Freddie Mac, who both enjoy a special status as half private/half government-owned companies, do a lot to create this moral hazard. When a bank makes a loan, Fannie Mae and Freddie Mac will sometimes buy this loan from the bank. This then allows the bank to have more money to continue to lend out. Necessarily, the loans they will give out will be more risky.
Second, the Federals Reserves keeps the banks flush with money. If we were on some type of precious metal standard, the bank would have scarce resources and could not lend and lend and lend. But if you have the Federal Reserves essentially creating money out of thin air, the bank can continue to lend and lend. And in fact they had ample pressure on them to do so. Both President Clinton and President G W Bush put pressure on banks to get money in the hands of potential home owners. If they treat money as if it grows on trees, instead of being a precious, scarce commodity, of course it lends to “loan shark” behavior–on a nation-wide level.
It just completely blows my mind that in 2008, banks are scolded for lending too much and not one year later, our fearless leaders are pressuring them to do the same thing. Do they really think an endless cash spigot will fix the economy? Apparently. Did they ever wonder what that money can do or represents?
Mandeville on philosophers and industrialists:
They are very seldom the same sort of people, those that invent arts and improvement in them and those that inquire into the reason of things: this latter is most commonly practiced by such as are idle and indolent, that are fond of retirement, hate business and take delight in speculation; whereas none succeed oftener in the first than active, stirring and laborious men, such as will put their hand to the plough, try experiments and give all their attention to what they are about.” Fable of the Bees, 1729
I guess the more things change, the more they stay the same …
I was doing some research and discovered that the 2008 revenue of the Walt Disney Company, which encompasses the Disney Parks, Disney movies, Disney products, Disney media and Disney “interactive media” was nearly $38 billion dollars.
I then thought to myself, “surely the bailout was less than a year’s worth of revenue at Disney.” Then in about 3 seconds, I thought, nope it was $700 billion with a “b.” This is 18 times the annual revenue of Disney.
Think of the hundreds upon thousands of people coming to the parks everyday. Think of all of the stuff they spend just at the park. Now think of all of the movies, all of the merchandise, all of the media they own …. they are a huge cash cow! I just can’t even wrap my head around it.
Wowzers:
Section 19 of this country’s founding monetary legislation, the Coinage Act of 1792, prescribed the death penalty for any official who fraudulently debased the people’s money. Was the massive printing of dollar bills to lift Wall Street (and the rest of us, too) off the rocks last year a kind of fraud?
After Brief Uptick, Obama Approval Slips to 47%
This must be awful for the President, after all, he keeps explaining to us how he saved the economy–single-handedly, with one hand tied behind his back even. I mean, the unemployment rate went from 10.2 to 10%. Come one people … can’t you see …. things are better!
Hyperinflations transfer wealth from the general public, which holds money, to the government, which issues money.
I am finding this to be very true
Written in 1946, Henry Hazlitt, Economics in One Lesson, on what may as well have been the real estate crisis today:
“Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise… They encourage people to ‘buy’ houses they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody, and may mislead the building industry into an eventually costly overexpansion. In brief, in the long run they do not increase overall national production but encourage malinvestment.”
When will we learn?
If banks are reliant on people to put money in their bank in order to have money to lend out, it means they have to offer an incentive to get people to deposit their money. If they don’t have a lot of reserves, they must raise how much interest they are willing to pay to depositors.
Questions of the day: If the banks get money, nearly out of thin air, from the Federal Reserves, what incentive do they have to raise the savings interest rate to entice depositors to put their money in the bank?
As I type this, the average interest rate for a savings account is around 0.6%. I get more back, percentage-wise, from a cash back rewards card.