Sorry to Harsh John Adam's Mellow...

[John Adams]

Sorry, no Dwight here. I'm Chris. That aside, since you don't believe that the pols will do the right thing, why the other thread about Peggy Noonan's "mindless optimism" and trying to adopt that outlook? I don't get it.

 

If you didn't read the article, I don't fault you but she wasn't advocating a mindless--as in uncritical--optimism. She was advocating being optimistic because it can help--but combining that optimism with some serious (stoical in the article's parlance) reflection on the country's mission.

 

So how can we--you and me--be optimistic in view of the political machine? We can buck off our chains whenever we want. We need to vote out the powers that be. It's possible and that's my optimism. It's hard and that's my stoicism.

 

Her closing quote.

 

 

If you work in a great institution: Do you remember the mission? Do you remember why you went to work there, what you meant to do, what the institution meant to you when you viewed it from the outside, years ago, and hoped to become part of it?

 

<a name="U10370136186YHC">And an optimistic idea, perhaps mindlessly so: It actually might help just a little to see national hearings aimed at summoning wisdom and sparking discussion on what has happened to, and can be done to help, our institutions. This wouldn't turn anything around, but it could put a moment's focus on a question that is relevant to people's lives, and that is: How in the coming decade can we do better? How can we repair and rebuild?

[John Adams]

I know they are not risks, that why I was making fun of you with them. Come on, what will a falling dollar mean? Last time I checked, a high dollar happened at the bottom of the economic mess as investors flocked to it as a safe bet. A lower dollar happened because investors felt safe to go out again

 

A lower dollar is a much bigger problem than a higher one. Sure, it helps American manufacture a little but weakening our currency and encouraging the world to look for better places to put their currency is not a good thing for the US.

[bills_fan]

I disagree with some of the article....specifically...

 

There are only three possibilities with respect to meeting 2010 funding needs:

 

The Fed continues its QE beyond their planned cessation in March 2010.

The Fed raises interest rates to levels that would attract the capital necessary to fund government operations via conventional credit markets.

No Fed action is taken. That would cause the government to default on some of its obligations.

 

Now, I have read that 2010 net funding needs will approximate $5 trillion vs. only $200 billion in 2009 (when QE is removed). Thats a lot of money. But what if investors started clamoring for Treasuries? And Treasuries were in great demand? We could fund no problem, right? Even with no rise interest rates. But, what would make investors rush to Treasuries? Hmmmm...an overvalued and overheated equity market correcting itself? Yep, that'll do it.

[Magox]

But, what would make investors rush to Treasuries? Hmmmm...an overvalued and overheated equity market correcting itself? Yep, that'll do it.

It could. Definitely a scare in the stock market would create a higher demand for treasuries, but if it's just a correction, then it would be temporary. How about an overvalued equity market with signs of Stimulus fading leading to an unsustained recovery without even more stimulus?

 

Mortgage rates are already creeping up above 5.1%, and the latest pending home sales numbers today were abysmal. I believe that at some point in 2010 the Fed will continue QE and not raise rates through out the year, and I do believe that once there is signs that Stimulus is fading there will be talks for even more in 2011.

 

Another point to consider is the massive issuance of Debt that is out there, I would have to believe that some of the buyers of our debt from last year may not revisit that same investment again moving forward, just a thought.

[BadDad]

Have you factored in the coming default of Kalifornia and the expected federal bailout? That will happen sooner than later and will also have a major negative effect on our economy (and constitution)?

 

At some point our creditors won't be buying our debt, which means that all hell will break lose. Rates will soar, business lending will get crushed, along with many other loans. Of course this has some serious implications on the value of the dollar. Jesus, I hate to think what will happen to the dollar.

 

This may happen sooner than later. China and petro producing nations are working as fast as they can to find a viable alternative to the dollar, which you already know.

How does this compare to the Japanese a decade or so ago? They were buying up real estate, bonds, etc. and then they had to divest. Is there a reason to compare, or is this a unique situation?

[Magox]

How does this compare to the Japanese a decade or so ago? They were buying up real estate, bonds, etc. and then they had to divest. Is there a reason to compare, or is this a unique situation?

That is an interesting comparison of that of the "lost decade" and what we are seeing today. There were some similar systemic risks like what we just went through, I would say the main difference between the two is that the keynesian argument is that the Japanese didn't do enough, quick enough to avert their crisis with QE, rates and etc. and that the hopeful signs of a possible "recovery" that they thought they had, in reality was a false recovery. Historians believe that it is attributed to monetary policy makers and the government withdrawing "stimulus" measures to early, leading their economy to a long sustained relapse, which is the argument that Krugman makes in our case in the article that I referenced and linked up above.

 

The other difference is that Real Estate and Equity values went much higher both in relative dollar terms and percentage wise then what we went through, so the impact was felt greater over there, and they don't have the resources as we do to fund their stimulus measures, primarily through issuance of debt.

 

However there are striking similarities between the two, the main one that I can think of is that the Japanese government bailed out the banks in the same manner we did, which was through recapitalizing them, while their toxic debt still remained on the books, which in my view is the main underlying problem.

 

If banks have billions and billions of dollars worth of bad debt on the book that they can't unload for a reasonable price without taking too severe of a hit, then it hampers their ability to lend, knowing that they already have lots of exposure in a non performing market.

 

This is why I have been saying that recapitalizing the banks doesn't solve the underlying problem. This is also why the mortgage bailout plan they have is a flawed plan as well. The government is pressing the banks to lend and refinance more than what it already is doing.

 

Of course the banks are reluctant to do so with unemployment as high as it is, home prices still deteriorating in many sectors of the country and the fear that if the Federal reserve and treasury take off stimulus measures such as QE and Tax credits and other stimulative measures, that the housing market will relapse again, which in my view is very possible.

 

The refinancing plan from the government doesn't work. If people are upside down $50,000 or $100,000 on a $300,000 home, and the government is telling the banks to lower the monthly payments, that still won't deter many people from walking away from their homes. Why should they? It will take many many years for the value to come back to the purchase price. It's better to just cut your loss.

 

What the banks should be doing is lowering the value of the loan as opposed to the payment. The problem is largely with bondholders and the tremendous loss that they would have to incur, which of course means that their stock value would get hammered and could put their bank at risk of closing down.

 

The elimination of mark to market has allowed these banks to hide these toxic assets because they are not forced to mark it to market value, so on the books they look fine, but in reality they know they are holding a BIG STINKY PILE OF ****!!

 

This is similar to what happened to Japan.

[BadDad]

That is an interesting comparison of that of the "lost decade" and what we are seeing today. There were some similar systemic risks like what we just went through, I would say the main difference between the two is that the keynesian argument is that the Japanese didn't do enough, quick enough to avert their crisis with QE, rates and etc. and that the hopeful signs of a possible "recovery" that they thought they had, in reality was a false recovery. Historians believe that it is attributed to monetary policy makers and the government withdrawing "stimulus" measures to early, leading their economy to a long sustained relapse, which is the argument that Krugman makes in our case in the article that I referenced and linked up above.

 

The other difference is that Real Estate and Equity values went much higher both in relative dollar terms and percentage wise then what we went through, so the impact was felt greater over there, and they don't have the resources as we do to fund their stimulus measures, primarily through issuance of debt.

 

However there are striking similarities between the two, the main one that I can think of is that the Japanese government bailed out the banks in the same manner we did, which was through recapitalizing them, while their toxic debt still remained on the books, which in my view is the main underlying problem.

 

If banks have billions and billions of dollars worth of bad debt on the book that they can't unload for a reasonable price without taking too severe of a hit, then it hampers their ability to lend, knowing that they already have lots of exposure in a non performing market.

 

This is why I have been saying that recapitalizing the banks doesn't solve the underlying problem. This is also why the mortgage bailout plan they have is a flawed plan as well. The government is pressing the banks to lend and refinance more than what it already is doing.

 

Of course the banks are reluctant to do so with unemployment as high as it is, home prices still deteriorating in many sectors of the country and the fear that if the Federal reserve and treasury take off stimulus measures such as QE and Tax credits and other stimulative measures, that the housing market will relapse again, which in my view is very possible.

 

The refinancing plan from the government doesn't work. If people are upside down $50,000 or $100,000 on a $300,000 home, and the government is telling the banks to lower the monthly payments, that still won't deter many people from walking away from their homes. Why should they? It will take many many years for the value to come back to the purchase price. It's better to just cut your loss.

 

What the banks should be doing is lowering the value of the loan as opposed to the payment. The problem is largely with bondholders and the tremendous loss that they would have to incur, which of course means that their stock value would get hammered and could put their bank at risk of closing down.

 

The elimination of mark to market has allowed these banks to hide these toxic assets because they are not forced to mark it to market value, so on the books they look fine, but in reality they know they are holding a BIG STINKY PILE OF ****!!

 

This is similar to what happened to Japan.

 

So my original question is, and you did answer it partially in that bailing out the Banks was a wrong policy and I agree, how do we get control again of our economy? Should we just suck it up and eat the loss, or is there another stimulus (politics aside), that could work?

[Magox]

So my original question is, and you did answer it partially in that bailing out the Banks was a wrong policy and I agree, how do we get control again of our economy? Should we just suck it up and eat the loss, or is there another stimulus (politics aside), that could work?

 

Well, in my view we should let the market find it's natural bottom, let the businesses that aren't strong enough to sustain this downturn do what they should have done all along, which is let them go throgh their natural process of bankruptcy, and go through some serious pain for a few years. What this will do is filter out the companies and banks that had bad risk management policies and let the strong survive.

 

A perfect example of this is Ford, although they didn't receive direct help from the government, you could definitely make a case that they received indirect help through the Federal Reserve, but back to what I was saying, Ford today posted some really good numbers today, while GM and Chrysler continue to falter and Ford is the one that is doing it on it's own. Ford has a responsable financing arm, Ford Credit which primarily deals with auto and auto related loans where as GMAC which was at one time wholly owned by General Motors that expanded into riskier residential and commercial RE financing which is a big contributing reason why they went under, that and of course model, and of course the unions.

 

But what will most likely happen is that we will go through many rounds of stimulus with the hopes that the economy will get back on its feet again. Of course the big problem with doing this is the National Debt, I honestly don't believe that many of these politicians understand the risks that our National debt poses.

 

Not only is there the issue of the National debt which I believe is tremendous, but by bailing out these banks and companies, etc. you allow these companies to continue with their same failed policies that got us into this mess, which is exactly what we are seeing today with the banks, and you don't allow these markets to find a natural bottom which totally !@#$s up and distorts the markets.

[Magox]

I am certain that by the end of 2010, U.S treasury debt rates are going to go up at least 1% with the possibility of going up 2%. This is a problem. The U.S housing market continues to fight an uphill battle, with credit shrinking, home prices that are either still falling or in best case remaining stagnant, and the reasons why the home sales have been picking up is because mortgage rates are at record low prices and the government is giving nice tax credits for those who want to buy homes, which btw I believe is a total waste of money. Think about it, it is estimated that only 15% of home buyers went out to buy homes because of the $8000 tax credit. Which means that 7 out of 8 buyers were going to buy homes anyway, so when you do the math, it comes out to close to $120,000 worth of tax payer real value to each hombuyer. FREAKING WASTE!!

This is just to add to my point that I was making in regards to how wasteful the $8000 tax credit from the government is for us the taxpayers.

http://www.bloomberg.com/apps/news?pid=206...LYt4&pos=15

 

Tax credits designed to revive the U.S. housing industry are costing taxpayers as much as $80,000 for every additional home sold, according to Michael R. Widner, a Stifel Nicolaus & Co. analyst.

 

The federal program is “an exceptionally inefficient use of tax dollars,” Widner wrote yesterday in a report. He estimated the total cost through last November at $17 billion, “a high price to us for relatively little benefit.”

 

The CHART OF THE DAY shows existing-home sales would have fallen at a 2 percent annual rate in the three months ended in November without the credits, based on his estimates. Instead, the pace rose 28 percent, according to data from the National Association of Realtors. Resales accounted for 92 percent of homes sold during the past 12 months.

 

Widner estimated that 1.83 million new and existing homes were sold to first-time buyers last year through November, and only 303,000 of them changed hands because of the tax benefit. The $80,000 figure reflects his assumption that 30 percent of the added sales would have been made this year, not in 2009.

 

President Barack Obama’s extension and expansion of the program in November will do little to bolster this year’s sales, the analyst wrote yesterday in an e-mail. First-time buyers got another five months, until April 30, to obtain an $8,000 credit. Buyers who owned a home became eligible for a $6,500 credit.

 

“People who were going to be lured in had a good nine months to make their decisions before the last-minute extension and acted before it,” he wrote.

 

I stated $120,000 worth of wasted taxpayer money where I should of stated $55,000 according to my calculations. In any case, this article highlights the ineffectiveness of this Tax Credit.