Why is The American Stock Market going to crash?

[amanda more]

 

Well, to me it's called reality, not defeatist. I'm not sure of your point here, but political influence in the economy, more so recently with regulations, has everything to do with the economy, not separable....

 

 

Jackson, this is the most lucid discussion I have ever experienced regarding our current state of affairs. You have articulated quite well a point of view that has a lot of good company. Previously, I have been totally lost trying to see this point of view.

 

The responses you have engendered have then been very colorful and exacting. Too bad this couldn't be a bigger platform. I see so few who step up to scrutinize ideas the way you have.

 

And now- drumroll the Stock Market:

NEW YORK (CNNMoney) -- Wall Street got socked on Thursday as renewed concerns about the U.S. and global economies sent major indexes plunging, pushed gold to a new high and bond yields to a record low.

 

Stocks were hit with bad news on multiple fronts. Morgan Stanley put out a dismal forecast for global economic growth. A key reading on U.S. housing came in worse than expected. And a report showed a significant slowdown in the domestic manufacturing sector.Investors rushed to move their money into safe U.S. government bonds -- and the yield on the benchmark 10-year Treasury briefly fell below 2%.

 

"We had a couple days to stabilize and breathe, but you forget that it's a war zone out there and there's just too much uncertainty about the economy," said Frank Davis, director of sales and trading at LEK securities.

 

At the preliminary close, the Dow Jones industrial average (INDU) dropped 418 points, or 3.7%, to close at 10,991. The blue chips fell as much as 528 points.

 

The S&P 500 (SPX) lost 53 points, or 4.5%, to 1,141; and the Nasdaq Composite (COMP) lost 131 points, or 5.2%, to 2,380.

 

At the center of Thursday's sell-off were renewed macroeconomic fears about a possibly slowing global economy.

 

In a gloomy report from Morgan Stanley, the investment bank slashed its global growth outlook for 2011 and 2012, adding that the U.S. and Europe are "hovering dangerously close to a recession."

 

"The fact that Morgan Stanley has downgraded its global growth forecast really highlights the concerns and problems facing the global economy," said Michael Hewson, market analyst at CMC Markets in London. "It begs investors to question where future growth will come from."

 

 

 

 

 

[swansont]

all I'm telling you is demand has not fallen near the degree of the markets.

I think that almost everyone who has posted here, except amanda, thinks the markets are overreacting.

[amanda more]

Yes Amanda , I think like that reading Swansont , he affects my thinking , forgive me .

 

Amanda , what's wrong with having a 50 % corporate tax rate ?

 

Currently,corporations remind me of a run at the bank. Individually being the front of the line makes eminent sense- you get your money. But "runs on banks" are so illogical - destructive.

 

Each corporation couldn't help itself. It pays for elections and pays for legislation and judicial rulings to make it legal to pay for elections.

 

For corporation ABC everyone pats each other on the back.

 

But collectively, they strangled the golden goose. We let them. This kind of self-interest thing just like in life is such a short term strategy. Considering your environment, the world, others, reason helps in the long run and is then in your true self-interest.

 

One bright spot: The national dining chains have tanked around me helping in the bringing back of the humanity of the Mom and Pop cafe.

 

Reason: Corporations have had legislation for so long preventing taxation (taxrate doesnt matter if you never collect) that they don't feel vested in the country they are in which leads to a kind of lack of responsibility and extreme shortsighted thinking.

 

 

 

 

I think that almost everyone who has posted here, except amanda, thinks the markets are overreacting.

 

Reasons? Optimistic data? Your grandmother's advice?

 

So wouldn't then your definition of a crash be the markets overreacted?

 

Reason: Pundits have marketed such weird Orwellian speech that those who invest parrot nonsensical things having to do with emotional responses of the market. Said "emotional responses" even if true are still not essentially relevant because one still loses cash. Reason for crash? You can't fool all the people all the time.

[jackson33]

I think that almost everyone who has posted here, except amanda, thinks the markets are overreacting. [/Quote]

 

swansont; Markets are driven by people or people representing others, we're talking hundreds of millions that have or are taking risk with their money. To even infer their general sentiment is somehow an overreaction seems a bit ludicrous to me.

 

Not trying to change the "goal post", we are a World Economy and what effects one can have a devastating chain reaction around the World, the most vital chain being the US. We effectually now have a 16.8T$ debt, just to get by fiscal year 2012, with estimates up to 24T$ by 2024, total unfunded liabilities about 115T$ TODAY, with a National Revenue that will possibly hit 2.4T$ this FY and your discussing or advocating, there is no problem, WE NEED TO SPEND MORE. I'm sorry this just won't calculate, in my mind.

 

http://www.usdebtclock.org/

 

We have an actual unemployed of 24M, major problems/obligations in the Middle East and on our Southern Border and at any moment one or more of four to six major EU members could default, where dozens of US Financial Institutions can be badly hurt, while Congress is out of session and a President just off a three day campaign tour, now on Vacation.

Edited August 18, 2011 by jackson33

[amanda more]

swansont; Markets are driven by people or people representing others, we're talking hundreds of millions that have or are taking risk with their money. To even infer their general sentiment is somehow an overreaction seems a bit ludicrous to me.

 

Not trying to change the "goal post", we are a World Economy and what effects one can have a devastating chain reaction around the World, the most vital chain being the US. We effectually now have a 16.8T$ debt, just to get by fiscal year 2012, with estimates up to 24T$ by 2024, total unfunded liabilities about 115T$ TODAY, with a National Revenue that will possibly hit 2.4T$ this FY and your discussing or advocating, there is no problem, WE NEED TO SPEND MORE. I'm sorry this just won't calculate, in my mind.

 

http://www.usdebtclock.org/

 

We have an actual unemployed of 24M, major problems/obligations in the Middle East and on our Southern Border and at any moment one or more of four to six major EU members could default, where dozens of US Financial Institutions can be badly hurt, while Congress is out of session and a President just off a three day campaign tour, now on Vacation.

 

So Jackson, you may be the most rational here. Exactly how much are you getting paid for your "social media" strategy?

[iNow]

WE NEED TO SPEND MORE. I'm sorry this just won't calculate, in my mind.

It's called the "paradox of thrift," and it's a really simple and well evidenced concept. I'm sorry you dismiss it so readily, or struggle with it so much. Here are some very accessible explanations to help:

 

 

http://www.time.com/time/magazine/article/0,9171,1879195,00.html

 

Don't spend more than you make. Don't buy things you don't need. Save for a rainy day. If Americans had followed these simple rules over the past decade, there would be no financial crisis, no worst-since-the-1930s recession, no acrimonious Washington debate over what to do about it.

 

Now we seem to be starting to rediscover thrift. Debt levels are falling. Consumer spending is down. The savings rate is on the rise. Great, right? Not exactly. The sudden sobering up of the American consumer happens to be the No. 1 force driving the U.S. and global economies downward. We're saving more, yet we're all getting poorer.

 

<...>

 

Paul McCulley, an economist and portfolio manager at bond giant Pimco, defines it like this: "If we all individually cut our spending in an attempt to increase individual savings, then our collective savings will paradoxically fall because one person's spending is another's income--the fountain from which savings flow."

 

<...>

 

And so government indebtedness and spending are being substituted for consumer indebtedness and spending. The federal deficit is projected to hit $1.2 trillion this year, and that's not counting the close to $1 trillion in further stimulus being contemplated by Congress.

 

This kind of behavior, contends McCulley, is what the paradox of thrift demands. "Uncle Sam has got to go the other direction and lever up his balance sheet and actually spend money," he says. Simply standing by and letting the downward economic spiral worsen strikes him as "inconsistent with a civilized society."

 

Still, the approach remains paradoxical. Our profligacy has gotten us into trouble, and so the response is ... more profligacy? There is no shortage of critics who contend that today's massive government spending is simply laying the foundation of another financial crisis, this one centering on a loss of confidence in Treasuries and the dollar.

 

For now, we're betting that it won't.

 

<...>

 

Virtually all economists agree that there is no paradox of thrift in the long run. Saving stimulates investment. Careful stewardship of resources brings prosperity. Frugality is its own reward. Just not right this second.

 

 

http://en.wikipedia.org/wiki/Paradox_of_thrift

 

The paradox states that if everyone tries to save more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population because of the decrease in consumption and economic growth. The paradox is, narrowly speaking, that total savings may fall even when individual savings attempt to rise, and, broadly speaking, that increases in savings may be harmful to an economy.

 

Both the narrow and broad claims are paradoxical within the assumption underlying the fallacy of composition, namely that what is true of the parts must be true of the whole. The narrow claim transparently contradicts this assumption, and the broad one does so by implication, because while individual thrift is generally averred to be good for the economy, the paradox of thrift holds that collective thrift may be bad for the economy.

 

 

http://krugman.blogs.nytimes.com/2009/07/07/the-paradox-of-thrift-for-real/

 

The story behind the paradox of thrift goes like this. Suppose a large group of people decides to save more. You might think that this would necessarily mean a rise in national savings. But if falling consumption causes the economy to fall into a recession, incomes will fall, and so will savings, other things equal. This induced fall in savings can largely or completely offset the initial rise.

 

Which way it goes depends on what happens to investment, since savings are always equal to investment. If the central bank can cut interest rates, investment and hence savings may rise. But if the central bank can’t cut rates — say, because they’re already zero — investment is likely to fall, not rise, because of lower capacity utilization. And this means that GDP and hence incomes have to fall so much that when people try to save more, the nation actually ends up saving less.

 

The theoretical picture looks like this:

 

 

 

The line labeled I shows how investment spending depends on GDP. S1 is the original savings-GDP relationship; it shifts up to S2. The effect of this upward shift in desired savings at any given level of GDP is, paradoxically, a fall in actual savings and investment.

 

<...>

 

One key implication of the fact that we’re living in a paradox of thrift world is the folly of demands that we reduce budget deficits in the near term. Slashing spending or raising taxes right now wouldn’t just deepen the slump — it would actually make us poorer in the future, too, because it would lead to lower overall saving and investment.

 

Now, we won’t always face the paradox of thrift. But right now it’s very, very real.

 

 

You can slam Krugman all you want, but you haven't touched his arguments, and he's been right more often than the crowd with whom you seem to agree.

 

 

http://krugman.blogs.nytimes.com/2009/01/30/damnification/

 

The paradox of thrift is the best-known example: when everyone tries to save more in an economy in which interest rates are up against the zero bound, everyone’s income falls, and we’re worse off than before. The paradox of deleveraging has gotten currency, too: everyone tries to shrink their balance sheet, and the result is plunging asset prices, which leave everyone worse capitalized than before.

 

But there’s at least one more form of damnification that has me really worried: the paradox of deflation. An individual company or worker can preserve a business or a job by accepting a lower price; but when everyone does it, we get debt deflation — a rising real burden of debt, which weighs on the economy — and also start to have deflationary expectations built into lending and investment decisions, which further depresses the economy. And once you’re in a deflationary trap, it’s very hard to get out.

 

<...>

 

Yes, the effects of fiscal policy are uncertain; yes, running up large debts is risky; but doing nothing is even riskier, because there’s a high probability that if we don’t act strongly deflation will get embedded in the economy.

 

 

 

http://krugman.blogs.nytimes.com/2010/08/26/were-still-in-a-paradox-of-thrift-world/

 

In normal times, we believe that more saving, private or public, leads to more investment, because it frees up funds. But for that story to work, you have to have some channel through which higher savings increase the incentive to invest. And the way it works in practice, in good times, is that higher savings allow the Fed to cut interest rates, making capital cheaper, and hence on to investment.

 

But right now we’re up against the zero lower bound — yes, I’ll get the usual complaints about how long-term rates aren’t zero, but the Fed doesn’t have direct control over those rates — so this normal channel doesn’t work.

 

And what that means is that if people — or the government — try to save more, they only end up depressing the economy. And the weaker economy leads to lower, not higher investment. And this in turn means that attempts to save more don’t help our future prospects. On the contrary, they reduce the economy’s future growth.

 

That’s why fiscal austerity is such a terrible idea: no only does it raise unemployment, it actually makes us poorer in the long run.

Edited August 18, 2011 by iNow

[jackson33]

From the Justin Fox article;

 

Don't spend more than you make. Don't buy things you don't need. Save for a rainy day. If Americans had followed these simple rules over the past decade, there would be no financial crisis, no worst-since-the-1930s recession, no acrimonious Washington debate over what to do about it.

 

Now we seem to be starting to rediscover thrift. Debt levels are falling. Consumer spending is down. The savings rate is on the rise. Great, right? Not exactly. The sudden sobering up of the American consumer happens to be the No. 1 force driving the U.S. and global economies downward. We're saving more, yet we're all getting poorer.[/Quote]

 

 

 

Trying to blame the consumers, for Government failures, doesn't explain either. Tens of thousands of American that do over spend, run up credit cards, are irresponsible citizens, file bankruptcy or end up dependent on Government for subsistence, does not give those the right to charge others for their errors, period. For those for reason are unable to achieve or have suffered circumstances, outside their control, there has always been and always will be, in modern societies charitable entities to assist, the Government is simply not one.

 

We're no longer talking about a society of 140M people, tightly knit groups with individual objectives, but a Nation of people already dependent or people that have achieved to whatever degree, then blaming them for that success. Get Government out of taking care of every aspect of human behavior and we can go back to individual responsibility and meaningful failure, will keep many from failure.

 

Paul McCulley, an economist and portfolio manager at bond giant Pimco, defines it like this: "If we all individually cut our spending in an attempt to increase individual savings, then our collective savings will paradoxically fall because one person's spending is another's income--the fountain from which savings flow". [/Quote]

 

I don't understand where Paul, an economist gets his facts, but money saved, means it's some place. Unless it's in the mattress, say in a bank, a saving account or whatever, the firm handling that money will invest the money, creating returns far more than buying a 6$ cup of coffee.

 

Do you want me to continue???

 

iNow, there is not one thing Krugman or anyone else says under economics, that is immune to argument, more importantly, has been argued for years. Maybe I can't touch his arguments, to your satisfaction and frankly I'm not trying to, but your a faithful follower, articulating Keynesian Economics and Krugman and why I bother. I'm not sure what this has to do with the markets, but maybe amanda won't mind....

[iNow]

From the Justin Fox article;

 

Trying to blame the consumers, for Government failures, doesn't explain either.

He didn't "try to blame the consumers." You appear to be arguing against a strawman, which effectively renders pretty much the rest of your post moot.

 

 

Get Government out of taking care of every aspect of human behavior and we can go back to individual responsibility and meaningful failure, will keep many from failure.

You seem to be the only person anywhere around here talking about government "taking care of every aspect of human behavior." This is not about taking care of human behavior. It's really quite difficult interacting with you when you a) ignore the core concepts being presented to you, b) argue based on flawed and unfounded premises and misrepresentations of others, c) never concede to being mistaken even when it's plain that you are, and d) fail to offer any evidence whatsoever in support of the points you are making.

 

 

I don't understand where Paul, an economist gets his facts, but money saved, means it's some place. Unless it's in the mattress, say in a bank, a saving account or whatever, the firm handling that money will invest the money, creating returns far more than buying a 6$ cup of coffee.

Incredulity is not a valid argument, nor is the fallacy of composition you continue to put forth.

 

 

Do you want me to continue???

Since you asked... Not really, no. You seem wholly immune to evidence and logic, so there really seems to be no point.

 

 

iNow, there is not one thing Krugman or anyone else says under economics, that is immune to argument

I agree, but that's why I find it so powerful that their arguments and statements have so consistently been accurate and valid indicators of what actually happened. Retrospect is a beautiful thing, and looking back we can see which voices have spoken accurately and which have spoken wrongly. You (for reasons which escape me) continue listening to voices which have been consistently in error.

 

Common sense is generally very useful, but we find ourselves in a situation where the common sense approach is the wrong one. With demand so low and interest rates as low as they are, your common sense will fail, and the primary option left to dig us out of this hole is to put people to work with stimulative spending from the government, so long as that spending is on efforts which will have a high rate of return.

 

 

Maybe I can't touch his arguments, to your satisfaction and frankly I'm not trying to, but your a faithful follower, articulating Keynesian Economics and Krugman and why I bother.

To be honest, Jackson, you're really out of line here for suggesting that I'm some blind follower of a faith.

 

I change my mind readily when the data suggests it's appropriate to do so, and your suggestion that I'm some congregant in an ideological church is frankly insulting, and reeks of hypocrisy. I agree with logical arguments which are rooted in facts and continually prove to be accurate.

 

That doesn't make me a "faithful follower," it makes me a rational human being who uses evidence instead of ideology to form my approach to the world and my understanding of its complex dynamics. You should try it sometime. It must get tiring being wrong so often.

Edited August 19, 2011 by iNow

[swansont]

 

Reasons? Optimistic data? Your grandmother's advice?

 

So wouldn't then your definition of a crash be the markets overreacted?

 

Reason: Pundits have marketed such weird Orwellian speech that those who invest parrot nonsensical things having to do with emotional responses of the market. Said "emotional responses" even if true are still not essentially relevant because one still loses cash. Reason for crash? You can't fool all the people all the time.

 

You first*. I've been practically begging you to present an argument more involved than hand-waving to support your position, but all I've seen so far is fear-mongering.

 

 

*actually second, or fifth, maybe, because others in the thread have been presenting actual arguments and data to support them. Even if we are not in agreement about what it all means, there's some substance to the discussion.

 

swansont; Markets are driven by people or people representing others, we're talking hundreds of millions that have or are taking risk with their money. To even infer their general sentiment is somehow an overreaction seems a bit ludicrous to me.

 

Didn't you just say that "demand has not fallen near the degree of the markets"? Which is it? Is the action of the market justified or not?

 

Not trying to change the "goal post", we are a World Economy and what effects one can have a devastating chain reaction around the World, the most vital chain being the US. We effectually now have a 16.8T$ debt, just to get by fiscal year 2012, with estimates up to 24T$ by 2024, total unfunded liabilities about 115T$ TODAY, with a National Revenue that will possibly hit 2.4T$ this FY and your discussing or advocating, there is no problem, WE NEED TO SPEND MORE. I'm sorry this just won't calculate, in my mind.

 

If you could install a new heating system that was 97% efficient to replace the one that was 80% efficient, and this would save you $5000 over the next 10 years in heating costs, would you borrow $3000 to do it? It's the same argument. You're saying no, more debt is bad. I'm saying we come out of it with less debt than was projected. We have $2000 (less interest) that we wouldn't have had. Unless interest rates are high, it's a great investment, and interest rates are insanely low.

 

 

I don't understand where Paul, an economist gets his facts, but money saved, means it's some place. Unless it's in the mattress, say in a bank, a saving account or whatever, the firm handling that money will invest the money, creating returns far more than buying a 6$ cup of coffee.

 

That only works if someone is borrowing the money. But you've turned that off.

[jackson33]

He didn't "try to blame the consumers." You appear to be arguing against a strawman, which effectively renders pretty much the rest of your post moot.[/Quote]

 

iNow; "If Americans had followed these simple rules over the past decade, there would be no financial crisis", sure sounds like the blame game to me and I'd suggest the rest of my post mooted any reasonable response...

 

Since you asked... Not really, no. You seem wholly immune to evidence and logic, so there really seems to be no point.[/Quote]

 

To be honest, Jackson, you're really out of line here for suggesting that I'm some blind follower of a faith. [/Quote]

 

Actually, the comment was meant as a compliment. You know I rarely get involved in discussion, basically I'd agree with or have little interest in and you are one that expresses the exact opposite of my ideology.

 

It appears to me I'm frustrating you, which was not my intent and you are an asset to this forum IMO, so I'll take your advice and withdraw from commenting on any of your post.

 

Didn't you just say that "demand has not fallen near the degree of the markets"? Which is it? Is the action of the market justified or not?[/Quote]

 

swansont; Within another context, yes. It was suggest demand or consumer spending was the cause for the weak markets, yet consumer spending is not far off all time highs. The markets are off because of uncertainty, which involves maybe 100 issues.

 

If you could install a new heating system that was 97% efficient to replace the one that was 80% efficient, and this would save you $5000 over the next 10 years in heating costs, would you borrow $3000 to do it? It's the same argument. You're saying no, more debt is bad. I'm saying we come out of it with less debt than was projected. We have $2000 (less interest) that we wouldn't have had. Unless interest rates are high, it's a great investment, and interest rates are insanely low. [/Quote]

 

That's a terribly exaggerated analogy, but I'll play your game. If I borrowed 3K$ on a 60 year note at age 50, obligating my descendents, to save myself a potential 5K$, over 10 years, the end cost would be about 18K$. Just using the 2012 projected Federal deficit of 17T$, makes paying off previous debts getting to the current, if even possible, a very long proposition. I understand what your saying, but it's not comparable to what's going on in Government. They already have 115T$, rapidly growing obligation and there is no doubt, this won't be covered without massive inflation.

 

That only works if someone is borrowing the money. But you've turned that off.[/Quote]

 

Cute lead in; But Banks all over the world are still loaning or investing daily.

[swansont]

That's a terribly exaggerated analogy, but I'll play your game. If I borrowed 3K$ on a 60 year note at age 50, obligating my descendents, to save myself a potential 5K$, over 10 years, the end cost would be about 18K$. Just using the 2012 projected Federal deficit of 17T$, makes paying off previous debts getting to the current, if even possible, a very long proposition. I understand what your saying, but it's not comparable to what's going on in Government. They already have 115T$, rapidly growing obligation and there is no doubt, this won't be covered without massive inflation.

Why would you take out a 60-year loan other than to turn the argument into a straw man? 60 months, perhaps. Or even double that — I gave a time frame of 10 years. 10-year notes are right around 2% at the moment. That'll cost ~$600 in interest, right?. If you can save more than that, why wouldn't you do it?

[iNow]

iNow; "If Americans had followed these simple rules over the past decade, there would be no financial crisis", sure sounds like the blame game to me and I'd suggest the rest of my post mooted any reasonable response...

Only if you blatantly misinterpret the author and assume he's excluding decisions by our government. You took this to mean that he was "blaming consumers," and I think that misses rather plainly the context of the article, and is completely invalid conclusion.

 

 

 

 

It appears to me I'm frustrating you, which was not my intent and you are an asset to this forum IMO, so I'll take your advice and withdraw from commenting on any of your post.

Well, yes. You are frustrating me, but I'd rather you fix that by acknowledging your errors, providing evidence, and no longer using logical fallacies when responding. That would be a MUCH preferable option to you simply withdrawing and walking away from the discussion.

 

 

swansont; Within another context, yes. It was suggest demand or consumer spending was the cause for the weak markets, yet consumer spending is not far off all time highs. The markets are off because of uncertainty, which involves maybe 100 issues.

Here's the rub. You are correct that there is uncertainty in the market. However, you are wrong about the nature of that uncertainty. People are uncertain about if the economy will grow or continue to falter, so question their investment decisions. This is not equivalent with the way you are suggesting there is uncertainty.

 

You are suggesting that their uncertainty is with the government, and with regulations, and with tax policy. That surely plays a small role, but the uncertainty you're conflating here is really about what will happen with demand and overall performance. They are not the same, and if this were the physics forum I'd tell you that you are "mixing frames." Your assertion simply doesn't match the magnitude of the effect we're seeing.

[jackson33]

Why would you take out a 60-year loan other than to turn the argument into a straw man? 60 months, perhaps. Or even double that — I gave a time frame of 10 years. 10-year notes are right around 2% at the moment. That'll cost ~$600 in interest, right?. If you can save more than that, why wouldn't you do it? [/Quote]

 

swansont; I'm thinking you don't understand the nature of Bonds, which I've explained a couple times. So long as there is NO surplus in the budget, Bonds are rolled over and currently I don't see any surplus for generation, regardless which party gets elected. Even with a balanced budget, as was the case in the late 90's, only some bonds are actually paid, I assume those more expensive to service, 2% er's will be the first rolled in 2021.

 

Not to be knit picking figures (word games), your not going to get a 10 year note for much of anything today for less than 5-6%, without additional collateral, includes down payments. Your credit card would more relate to Bonds, as that charge would fall to the last item and if you pay only interest for years, that end cost would shock you.....

 

In fairness the counter arguments would suggest printing money, which of course produces inflation, where everybody pays the cost. That is, we could print 17T$ and pay off all debt today or about 10T$ to pay off bonds held by foreign investors/banks, but what you buy for a dollar today, would be cut in half by tomorrow...The third option would be to grow the economy and here, by my estimates we already need a 6-8% annual growth (GDP/Budget) just to keep up with current and future obligation, we're several years from even that possibility.

[iNow]

...which of course produces inflation, where everybody pays the cost.

 

Why are you repeating this invalid assertion that "everybody pays the cost" of inflation when only two days ago I countered that argument factually?

 

 

I think it's important to note that in a situation where we're experiencing moderate inflation in the short term there are actually quite a number of very positive benefits (again, at least in the short term, and especially given that we're in a liquidity trap and pressed against the zero bound).

 

With a higher level of inflation, the value of the dollar is decreased relative to other currencies and relative to it's past value. When the value decreases relative to it's past value, our debt becomes lower and it's essentially easier to pay off. For every dollar of debt we owe, inflation reduces the impact of the payments on that debt since each dollar is worth less, but we still owe the same number of dollars overall. For example, if we owe $100, and we experience 5% inflation, then the value of that $100 we pay back is actually closer to $95 at the time we entered into the debt. In essence, we get a free discount on our debt if moderate inflation is allowed in the short term. This adds up to some enormously large savings when that debt is larger than $100 (for example, when it's $14 Trillion like our government currently holds).

 

Also, moderate inflation in the immediate term would make US exports much more attractive to other countries, and would help boost manufacturing in the US. More people would be put to work because companies would have more demand for their products (because those products become much more attractive to purchasers paying in other currencies in an environment where the dollar is worth less than their own currency... It's like going to Mexico and being able to get tons of stuff for just a few bucks since the dollar is worth so much more than the peso). That higher demand for US produced products overseas would increase employment within the US. There are obviously some challenges in that imports would cost more when purchased with the US$, but overall some inflation now would help manufacturing (and job creation) rather significantly.

 

So, my basic point is that, no. If we experience some moderate inflation now, it is NOT true that "everyone pays the price."

[swansont]

swansont; I'm thinking you don't understand the nature of Bonds, which I've explained a couple times. So long as there is NO surplus in the budget, Bonds are rolled over and currently I don't see any surplus for generation, regardless which party gets elected. Even with a balanced budget, as was the case in the late 90's, only some bonds are actually paid, I assume those more expensive to service, 2% er's will be the first rolled in 2021.

 

If the government borrows money and invests it with a greater rate of return than the bond interest, they will have to issue fewer bonds in the future. i.e the debt is smaller than it would have been. In my example, the money saved can be used to pay down other debt.

 

Not to be knit picking figures (word games), your not going to get a 10 year note for much of anything today for less than 5-6%, without additional collateral, includes down payments. Your credit card would more relate to Bonds, as that charge would fall to the last item and if you pay only interest for years, that end cost would shock you.....

 

WTH? We're talking about the government. The 10-year note today was below 2% for the first time ever, IIRC. So the numbers are different — it still doesn't explain why you insisted on a ridiculous 60 year loan when you could pay it off in just a few. Even at 6% you end up with extra money, which you can use to pay down other debt.

 

Why wouldn't you do this?

[iNow]

swansont; Markets are driven by people or people representing others, we're talking hundreds of millions that have or are taking risk with their money. To even infer their general sentiment is somehow an overreaction seems a bit ludicrous to me.

Didn't you just say that "demand has not fallen near the degree of the markets"? Which is it? Is the action of the market justified or not?

It's worth noting that high speed trading performed by computers (not people) appears to account for over 75% of market activity and is quite likely making these volatile up/down swings worse.

 

 

http://www.npr.org/2011/08/19/139799416/is-computer-driven-trading-causing-market-spikes

 

The Dow Jones industrial average fell 173 points, or about 1.6 percent, after big drops in Asia and Europe. The sell-off has come amid worries about a global economic slowdown

 

But many people believe the decline has been aggravated by the explosion of high-speed trading.

 

Joe Saluzzi of Themis Trading has been watching the turmoil on Wall Street over the past few weeks, with huge volumes of shares being bought and sold, and triple-digit swings in the Dow nearly every day.

 

Saluzzi says many of the trades are coming from one source: "Some people are estimating that 75 percent of the volume is high-speed trading. Well, that only leaves 25 percent of real investors ... which are institutional and retail."

 

High-speed traders use supercomputers to find discrepancies in stock prices. Then they use the data they collect to rapidly buy and sell shares — sometimes in tiny fractions of a second.

 

Critics like Michael Greenberger, a former member of the Commodity Futures Trading Commission, say high-speed trading distorts the market. You need expensive supercomputers to play, and only the richest traders can afford them.

 

"Most rational people have to believe it is not a healthy way for the market to operate, where you're trying to game the market by getting in ahead of human decision-making," Greenberger says.

 

But critics also say there's another problem. High-speed traders can pile on a stock trade, making price swings bigger than they normally would be. "High-frequency trading will amplify a move, whether it's to the upside or to the downside," Saluzzi says.

[amanda more]

You first*. I've been practically begging you to present an argument more involved than hand-waving to support your position, but all I've seen so far is fear-mongering.

 

 

 

I've been practically begging you to address the topic at hand and assuming the stock market is crashing, the reasons that could end up being the cause. Negating others forays into odd repetitive rhetoric however exacting does not address the question. In a science forum since when is taking a viewpoint to establish some reasons suddenly fear mongering? Postulate a cause- see if it holds up. You have done some of it but I have been modeling a reply then a short sentence. One reason that media keeps parroting (as long as you dollar cost average etc) to the individual investor is to keep them in the market which increases viewership.

 

Reason: Those who take an objective approach to reasons regarding stock market and economic downsides are immediately accused of fear mongering which tends to decrease intellectual activity and deludes participants into making bad decisions. This heightens swings as truth has a hard time being denied and provides more energy for crashes.

 

Support of my position? The above post.

 

 

 

[swansont]

I've been practically begging you to address the topic at hand and assuming the stock market is crashing, the reasons that could end up being the cause. Negating others forays into odd repetitive rhetoric however exacting does not address the question. In a science forum since when is taking a viewpoint to establish some reasons suddenly fear mongering? Postulate a cause- see if it holds up. You have done some of it but I have been modeling a reply then a short sentence. One reason that media keeps parroting (as long as you dollar cost average etc) to the individual investor is to keep them in the market which increases viewership.

 

Reason: Those who take an objective approach to reasons regarding stock market and economic downsides are immediately accused of fear mongering which tends to decrease intellectual activity and deludes participants into making bad decisions. This heightens swings as truth has a hard time being denied and provides more energy for crashes.

 

Support of my position? The above post.

 

Why should I assume the market is crashing? That's your thesis. You support it.

 

Media conspiracy to keep investors in the market? I don't find that convincing.

[iNow]

In a science forum since when is taking a viewpoint to establish some reasons suddenly fear mongering?

Primarily when that viewpoint is unsupported by evidence, based on a flawed non-representative sample, and biased heavily toward "OMG! THE SKY IS FALLING!!!!1!!2!one!!."

 

Postulate a cause- see if it holds up.

The challenge I think, amanda, is that you're stopping with the first and never getting to the second. You instead cycle back to postulating cause after cause after cause without ever scrutinizing them for validity.

 

 

Reason: Those who take an objective approach to reasons regarding stock market and economic downsides are immediately accused of fear mongering

I believe there is a bit of delusion and lack of self-awareness here. You have been many things, but objective is not one of them. Further, the accusation of fear mongering was hardly immediate.

Edited August 20, 2011 by iNow

[amanda more]

Primarily when that viewpoint is unsupported by evidence, based on a flawed non-representative sample, and biased heavily toward "OMG! THE SKY IS FALLING!!!!1!!2!one!!."

 

 

The challenge I think, amanda, is that you're stopping with the first and never getting to the second. You instead cycle back to postulating cause after cause after cause without ever scrutinizing them for validity.

 

 

 

I believe there is a bit of delusion and lack of self-awareness here. You have been many things, but objective is not one of them. Further, the accusation of fear mongering was hardly immediate.

Perhaps this is oversimplification. Assuming the stock market is crashing- why is that? I invite to somehow sanitize this with a different thread to prevent any lively misinterpretation as fear mongering.

 

Most scientific thoughts do have an emotional component of fear. Global warming etc. anyone? The intent here for myself is to counter the staid pundits populating conventional airwaves. Challenged to stay on topic it could be found here. In that venue perhaps any negative truth telling should be examined for the fear factor. This forum doesnt have millions watching.

 

Perhaps for those who have missed the intent. My longstanding interest in economics and some history has always made me ponder the multifactorial causes of The Great Depression.

 

Most almost intensely have accused me of deep thought and almost brutal objectivity. Perhaps an advantage to a cyber life is to step away from one's true self.

 

Hindsight is 20 20. Weather predictions are 100% as the hurricane is overhead. This is an attempt to see reality in real time.

 

Only an attempt.

 

Reason: Reality is tough and the realization of the then pure arbitrariness of their fate and especially the stock market has effected outlooks of traders and consumers alike. All it takes is one example of precarious situations like the debt ceiling debacle to call attention to the possible downside. It is surprising because this downside discussion is generally avoided in the media and even in online social media.

 

 

 

 

 

 

 

Why should I assume the market is crashing? That's your thesis. You support it.

 

Media conspiracy to keep investors in the market? I don't find that convincing.

"Media conspiracy to keep investors in the market? I don't find that convincing."

So one might be able to guess that viewers of stock market programs generally have stocks in the stock market and have not exited their position in stocks. Pundits who advocate exiting of positions don't increase viewership do to people getting away from stocks and are very rare on the airwaves. Shows are compelled to produce say two reasons but they interview an "expert" who presents the oddly rosy view with more airtime.

 

 

This is an if then statement

 

If the stock market was to crash then what would be the causes.

(note The fine print said- assuming it is.)

 

Can you consider the highly negative viewpoint that the stock market is in the process of crashing and hypothesize and consider some reasons. The thesis is therefore -not- is the stock market crashing?

 

There may be a tendency to believe that picking only one reason has some kind of a benefit. Currently a simple turn of the dial on any day can have one hear multiple things. Economics is multifactorial. So this reminds me of a reason.

 

 

 

Reason: As markets decrease on any one day the public is actually exposed to reasons for each individual fall usually a short two reasons. This is unable to be counteracted by the usual long talk by a pundit again saying that investors have to take a long view. At some point negative assertions however do weigh on the psyche of investors even if it is always multifactorial and they feel a chance of a bear market is more likely.

 

 

[amanda more]

http://video.pbs.org/video/2099556994

 

It was late at night so maybe I did dream some of it. For this show we have actually a lack of a pundit saying :stay the course.

 

Now if they had always had shows that had clear disclaimers instead of gobblygook bizspeak then it wouldn't be so startling.

 

Surprising Morgan Stanley warns of a depression but maybe they are preventing lawsuits. Surprised this is associated with Forbes connection no less:

http://www.forbes.com/sites/joshuabrown/2011/08/19/ten-rules-for-surviving-a-market-crash/

 

Reason: Once no one will step forward with the usual calming "everything will be allright speech" on Biz programs then the market really tanks. All along if more realistic programs cautioned and emphasized the betting nature of the stock market there would have been a more ethical approach and there wouldn't be such a strong shock when it comes causing an even worse market.

Edited August 21, 2011 by amanda more

[iNow]

http://video.pbs.org/video/2099556994

 

It was late at night so maybe I did dream some of it. For this show we have actually a lack of a pundit saying :stay the course.

I'm not exactly sure what your intended point is supposed to be. You posted a 20 minute business program which focused on the reasons for a faltering market, and indicated that many industry experts are concerned that there is not enough emphasis on growth (further reinforcing the arguments many of us, including myself, have consistently put forth in this thread and others).

 

I have two questions for you, now.

 

1) Is the fact that they didn't mention (during this 20 minute program focused on larger issues and concerns about growth) that it's a good idea not to withdraw your money from the market until it picks back up somehow supposed to be relevant to anything I've said?

 

2) Are you now advocating that people should withdraw from the market and sell during this time when they'll have the lowest possible return for those assets?

 

Again, you're not really making sense. What's your point, exactly?

 

 

EDIT: Interesting that at time point 11:25 in your video they directly suggest how some of the problems we're seeing right now in markets are coming from the "sell first, ask questions later mentality which has gripped US markets these past several days."

 

Surprising Morgan Stanley warns of a depression but maybe they are preventing lawsuits. Surprised this is associated with Forbes connection no less:

http://www.forbes.com/sites/joshuabrown/2011/08/19/ten-rules-for-surviving-a-market-crash/

Your link fails to support your claim. You claimed that Morgan is warning of a depression, which itself is absurd. If anything, they're be warning of a recession, with an R. I know it's only one small letter at the front, but that changes the meaning entirely. It's like the difference between hire and fire, or food and mood. Recession and Depression are different words and different topics, and Morgan Stanley is not warning of a depression, nor is Forbes adding any support for such a claim as you implicitly suggested.

 

On top of that, you shared a link about the "10 Rules for surviving a market crash," which was essentially an FAQ for people who may be looking for simple, elementary guidance on what to do IF the market crashes. The link you provided does NOT support your assertion that Morgan is warning of depression.

 

What it did do is make me personally more depressed that people make claims like you while being so well intentioned and simultaneously misguided.

 

 

Here, from 3 days ago: http://www.marketwatch.com/story/morgan-stanley-cuts-global-growth-outlook-2011-08-18?link=MW_latest_news

 

Morgan Stanley economists cut their outlook for global economic growth late Wednesday and said the U.S. and Europe are dangerously close to slipping back into a recession. The economists cut their outlook for global economic growth to 3.9% from 4.2% in 2011. For 2012, they see the growth number at 3.8%, from 4.5% previously. In the developed markets, the economists expect growth of 1.5% this year and next, down from a previous estimate of 1.9% and 2.4% respectively. In the emerging markets global economy, Morgan Stanley sees growth of 6.4% this year, down from a 6.6% previous estimate, and they see 2012's number at 6.1% from a previously-estimated 6.7%.

Edited August 21, 2011 by iNow

[amanda more]

I

 

1) Is the fact that they didn't mention (during this 20 minute program focused on larger issues and concerns about growth) that it's a good idea not to withdraw your money from the market until it picks back up somehow supposed to be relevant to anything I've said?

 

2) Are you now advocating that people should withdraw from the market and sell during this time when they'll have the lowest possible return for those assets?

 

 

 

1)I am first just kind of observing. Hypothesizing.

2)Mathematically a 20% grab from an individual's stocks that will have a realized loss is a risk that I am advocating is acceptable. At a crash of 50% then the savings is much more precious than the perceived loss. What you paid and what the stock is currently worth are two different things.

 

Let's say there is a run of a bank. Would anyone have advocated that people do a run on a bank? Would they rather the government have prevented it? Observing similar to a natural event, can it be described and analyzed?

 

This is like a run on the bank. Sensible people could have prevented this to begin with. Our government could have prevented it but paralysis appeared to be a political tactic.

 

So it is two very different questions.

-Aunt Mable wonders if she should go down and be first in line otherwise she will lose everything and come live with you.

-One advocates that everyone suddenly do a run on a bank.

 

As similar as they appear there is some thorniness. One friend said bank runs are illogical. But for Aunt Mable to go get in line is very logical. Is she being then irresponsible? If she has little Elroy to take care of she would be irresponsible not to try to get her money to feed him?

 

As collective advice is it irresponsible and illogical?

 

This I truly advocate: At 7-11 for state lotteries- on the ticket:

 

"This is gambling. For every $1 you wager you will get back 50 cents in the long run"

 

Business programs instead of "past returns are no guarantee of future profits"

 

"The stock market is gambling. You can lose all the money invested in stocks."

 

More than Truth in Lending why must we as a culture go through these experiences over and over? The main thing I advocate is increased truth telling. Or rather attempts at truth telling. Constant daily truth telling works a lot better than a sudden shock that deepens losses. In the example they are now saying there is a recession coming. Others have said a second recession has to be a depression because there aren't scenarios for getting out of it.

 

 

 

[iNow]

1)I am first just kind of observing. Hypothesizing.

2)Mathematically a 20% grab from an individual's stocks that will have a realized loss is a risk that I am advocating is acceptable. At a crash of 50% then the savings is much more precious than the perceived loss. What you paid and what the stock is currently worth are two different things.

So, this basically brings us back to what was said on page 1 of this thread. Folks like you should probably avoid getting into the stock market at all if you're not comfortable with the risks or feel you don't have adequate information to make intelligent decisions.

 

 

Let's say there is a run of a bank. Would anyone have advocated that people do a run on a bank? Would they rather the government have prevented it? Observing similar to a natural event, can it be described and analyzed?

 

This is like a run on the bank.

That's why we have the FDIC, which sort of makes the rest of your hypothetical scenario non-reality based.

[Realitycheck]

Aunt Mable wouldn't be riding a rollercoaster with her lifesavings.