Negative interest rates
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Originally Posted By: PandaBear
The money was already made, spent, and borrowed during the boom time, so you can only do so much in the bust time without filing for bankruptcy or going communist.
Nicely written.
Of course none of that will happen because the folks being kicked out of cars or losing their jobs with an automaker are easily identified voters
Voters have this nasty habit of avoiding accepting blame for their own choices and blaming government.
That is the other side of the coin where everyone looks to uncle sam to resolve problems, they also tend to avoid accepting blame, instead looking to government solutions.
It's a game of political musical chairs, and the ones in power regardless of party affiliation are looking for the short term fix that ensures the music doesn't stop while they are in power.
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Originally Posted By: javacontour
That is the other side of the coin where everyone looks to uncle sam to resolve problems, they also tend to avoid accepting blame, instead looking to government solutions.
It's a game of political musical chairs, and the ones in power regardless of party affiliation are looking for the short term fix that ensures the music doesn't stop while they are in power.
Originally Posted By: Win
But that's how capitalism is supposed to work - bad businesses go bankrupt, and their assets get sold for whatever they are worth to somebody who thinks they can do a better job with them. People who made bad investments in them get pennies on their dollars (if they are lucky).
Our choices are limited now, because of the bad choices heretofore made - more cheap money, when it should have been made much tighter. 0 or 1 or 2% interest to encourage more debt when most people are up to their eyeballs in it was crazy. More spending when we need to be saving. An economy that is premised on widespread debt is unsustainable. You cannot inflate your way out of debt, or borrow your way out of debt, the only way to get out of debt is to repay it.
If history is any guide, the current approach of propping everything up will only delay the inveitable. If they had guaranteed the car companies debtor in possession financing, instead of throwing good money after bad at them, they would be one fourth to one third of the way through the bankruptcy process by now. As it now stands, billions have been lost in the interim, the govt is still going to have to provide debtor in possession financing, and six months have been lost.
An entirely new banking system could have been capitalized for what was thrown away on bad banks that were too big to fail, but clearly needed to fail.
Boom and bust are cyclical and will always occur. The only difference now is that this affects more people. The last real estate and liquidity crisis in the Carter administration was solved rather easily. Liquidity was addressed by making money cost 20-22% - that had a real clarifying effect on whether or not you really wanted to borrow money. The commercial real estate glut was solved by cleaning up the appraisal and commercial lending proceess to stop the overlending from reoccurring, and the property was recycled through the RTC. The S&L's were folded into commercial banks and the variable rate mortgage was more extensively appllied to long term loans to put the risk on the borrower and stop lenders from getting upside down on their outstanding loans.
The current debacle is not materially different from the last one - except that where before it was only fat cats living too large on borrowed money, today people farther down the ladder were living too large on borrowed money, because the only place to scam loans was on residential real estate - commercial was fixed last time around. The creation of the car lease and six and seven years loans for something that ought to be bought in cash sure did not help either. All that excess capacity, worldwide, in the auto industry, came from this easy credit.
The difference now is in the approach to the solution, and the current approach is a very bad one, which is to simply reenable the bad behavior that has broken so many people. The current "crisis" has gone so deep into the middle class that the pols are afraid to make the hard decisions that need to be made, because so many voters are affected now, where it was only a handful before.
This glut of houses needs to be recycled - kick the people in them to the streets, round them up, sell them to private investors, who can then responsibly lend the money to people to repurchase them or people can rent them while they save for a downpayment. It may take awhile and will be hard on a lot of people ( and a lot of politicians ), but that is the best solution.
Equity, not debt, is your friend. The people and companies that remembered this simple rule, which always works, are not having the hard times that so many others sadly are.
Originally Posted By: Gary Allan
Pretty much ..but let us not leave out the profiteers who nudge such remedies in given directions. This has been done for a very long time. We were just too comfortable to bother doing anything about it.
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If the profiteer lose out just like the ones that got kicked to the curb this time around, they would be more careful too.
Vaccinate against toxic memes. It's better in the long run than isolation or antibiotics. There should be an official government department who's job it is to scam people out of a bit of their money, using all the scams in the book. It'll keep people on their toes without doing too much damage.
Originally Posted By: oilyriser
There should be an official government department who's job it is to scam people out of a bit of their money, using all the scams in the book. It'll keep people on their toes without doing too much damage.
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If we want to prop up aggregate demand to promote full employment, what is the alternative to monetary policy aimed at producing negative real interest rates? Fiscal policy. Essentially, the private sector is saying it wants to save. Fiscal policy can say, "No you don't. If you try to save, we will dissave on your behalf via budget deficits." That fiscal dissaving would push equilibrium interest rates upward. But is that policy really welfare-improving compared to allowing interest rates to fall into the negative region? If people are feeling poorer and want to save for the future, why should we stop them? Unless we think their additional saving is irrational, it seems best to try to funnel that saving into investment with the appropriate interest rate. And given the available investment opportunities, that interest rate might well be negative.
Originally Posted By: Drew99GT
It's rearranging the chairs on the deck of the titanic.
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