Forum Post: The economy sucks not in spite of the FED pumping money into WallSt but because the FED is pumping money into WallSt
Posted 11 years ago on Aug. 18, 2012, 4:53 p.m. EST by richardkentgates
(3269)
This content is user submitted and not an official statement
http://blog.richardkentgates.com/2012/08/it-depends-on-what-class-youre-in.html
One of the themes I push, not so much on my blog but on social media, is that it really matters who controls the conversation. This is implied in the complaints about our government being bought. It means that our politicians are listening only to those who can purchase time to be heard. I am now going to present to you a very big reason that the working class and especially the poor, should be controlling the conversation at this point.
The well to do crowd has had their say and as Wall Street indicates, they are doing better than ever. Yet, at the same time unemployment is up, employment down, prices are up except for housing. Housing is down because of the high foreclosure rate and is not being dictated by the rest of the economy for now. So how can this be true at the same time? Poor employment numbers but record profits on Wall Street. Well, first I'll share this graph and explain it on the other side.
The price index is an indicator of inflation. Inflation is when prices rise and the value of the dollar falls respectively. What the FED has been doing through programs like operation Twist and Quantitative Easing, is pumping money into the system. Whenever you have a surplus of currency you cause inflation and since the money is just sitting with the banks and not circulation, inflation rises. Now CNBC opinion makers and other financial propagandists have been "fearing" inflation due to this money pumping. They either know this is crap or they are ill equipped for their careers, I'll let you decide.
The reason inflation is not actually a fear is because the pumping of money is actually fighting off deflation. This is something the FED and The Hill fear more than anything. Why? Because it destroys wealth. Make no mistake, I am in no way saying it destroys the economy. Quite contrary actually because it only destroys wealth, depending on what economic class you are in. Deflation would cause the value of the dollar to rise and prices to fall.
What does deflation mean for the lower end of the 99%? It means more purchasing power. Deflation is like getting a raise without actually changing the amount you make.
What does deflation mean for the middle and upper 99%? Well the picture isn't as rosy. This economic class would experience the same effect of getting a raise, but this is also the class of people more likely to own their home. As I have said the housing market is currently detached from the rest of the economy but that is only temporary and this class may see a decrease in home equity. This is questionable though because of the existing deflation that is still persistent in housing.
What does deflation mean for the 1%? This picture is really really bad. With lower prices, they would make a lot less profit.
Now you see, what our leaders call a cure for the economy, clearly depends on what class you're in. If you look at the graph one more time, see the dip? That is the market, the economy, self correcting. That dip hitting in 2009, if left alone and for us to go from there, would have been a balancing of the economy and a correction to the inequality in this country. Instead they could have used the money to write down the principle on mortgages and the only people who would have taken a hit would have been the 1%. But that isn't what happened. What happened was the FED and Washington made the decision to kick start inflation and fuck the lower class so the 1% could retain their wealth. Don't think for one second that Romney or Bush would do any different because Bush signed the first stimulus bill.
If the 99% don't learn to control the conversation, this will always be the case.
Related post: http://occupywallst.org/forum/almost-the-truth-but-this-guy-lives-on-investments/
Tired of yelling into an abyss of party preachers and idiots. You would rather argue over the price of tea in china then be able to identify the root cause of inequality in a capitalist society. You'd rather bitch about Republicans or Democrats, or Romney's dog.
I am appending this highly relevant link to your rather excellent 'forum-post' which also attempts to cut 'The Inflation / Deflation Gordian Knot' :
e tenebris, lux ...
You have no idea how creepy it is to hear this echoed back at me, almost verbatim.
I'm used to being the outsider of thought.
LOL !!! You can't hide The Truth bro' !! & 'The Truth' comes to the minds & through the mouths of many !
Max Keiser is effectively a 'High Finance Dissident' and he gets Near Zero coverage in the U$A. His shows for 'PressTV' & 'RT' are legion in the rest of the world though.
http://maxkeiser.com/ ,
http://rt.com/programs/keiser-report/ &
http://www.presstv.ir/section/3510532.html .
The UK Government has contrived to shut down 'PressTV' in The UK - essentially because they are US Stooges, though we still get 'RT' (UK Freeview 85 ; SkyDigital 514). I'm led to believe that RT is available on cable in The U$A but where & how, I know not & I'll watch the latest 'Keiser Report' in 40 mins in UK.
e tenebris, lux ...
but putting your dog on the roof of your car for a cross country trip is cruel think about yourself in that situation with the wind and noise not to mention for a dog it must seem scary to be up that high going that fast / also shaving a classmates head because you think he is gay is really speaking to this guy's personality - it shows he has the capability to justify immoral actions - think about that in terms of the economy alone - we don't need a president like that - and unfortunately all we have is the government monopoly system of two candidates to choose from - just like Verizon and Comcast - pick your poison...not much of a choice I agree - The root cause of inequality in a society is the ability to justify immorality and the greed that perpetuates in a monopoly system.
ohhh Occupy forum. What have you become?
What have you become
My sweetest blog
Everyone that's real
goes away
In the end
Full of broken thoughts
I cannot repair
Beneath the stains of time
The feelings disappear
You are someone else
I am still right here
What have you become
My sweetest blog
Everyone that's real
goes away In the end
If you could start again
A million miles away
I would get on line
I would find a way
Oh yah! You just got Hurt Parodied!!! - http://www.youtube.com/watch?v=3aF9AJm0RFc
Very Nice :-)
A tortured soul - J.C.
Good post. I just listened to a podcast with Jean-Marie Evillard basically saying the same thing, but building upon some ideas of inflation from Ana Shwartz. He makes the further argument that as inflation increases, it paralyzes the economy, destroying debt, but also destroying the little people like us.
Worth a listen: http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2012/8/25_Jean-Marie_Eveillard.html
Thanks, Richard. Personally, I've been wishing for deflation for a few years now.
we expect inflation to happen
and thereby are willing to pay higher prices as the years go by
Yep. A little understanding of economics would go a long way to correcting a lot of problems in this country, I think.
I had 1 semester in high school
and 1 year here
A year here. heh heh heh. I can relate. Didn't learn it in school, but I've learned a lot here since October.
Me too.
I agree that mild deflation is the best outcome for common people, and for all the reasons you stated.
However I take issue with the inflation part. If you pump the money in (money supply) the only catalyst necessary for hyperinflation or very high inflation is velocity. Money velocity is a social phenomenon. They can print the money, but they can't determine where it flows, thereby causing asset bubbles, like the tech bubble, the housing bubble, and what's going on in China now, and the bond bubble (also yet to burst).
So Inflation will come, M2 and M3 looks like a rocket launch. All that remains is a match (velocity).
Or a credit downgrade. Coming to a currency near you in 2012.
Another excellent post.
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Thanks for this I could not agree more - also depressing -- - someone posted this film on here before - really hits home for all of us and I think also offers an important solution ... it talks about land ownership as a cornerstone of class warfare and watching how wealthy people invest in land and have a huge capital gains write off for it (just look at Mitt Romney) and use the rest of us to profit off of it has created a new aristocracy in America - one that 99 percent of us will not benefit from unless you enjoy massaging rich people's feet and polishing their mercedes as you starve and live in a box http://www.youtube.com/watch?v=XL3n59wC8kk
If we removed the stimulus and QE, would we be in a deflationary stage right now?
Yes, but I do not recommend removing actual stimulus such as roads. Stimulus that leads to direct employment is a plus. In my opinion.
Were trashy harry's posts deleted? Why?
No idea. I seldom talk with harry.
If the economy sucks, it's simply because it's not built upon a sustainable model.
those with lots of cash would do very well in a deflationary world - their money would go farther. those with debts would do much worse - those with most of their wealth in their home get hurt badly - here is richard wolff - rms : Published Class Analysis Economic Theory Marxism The Economic Crisis English
by Richard Wolff. Published on July 25, 2011 Throughout its history, capitalism never succeeded in preventing recurring economic cycles or crises. However, they were usually contained within the system. Economic crises usually did not become social crises; the system itself was usually not called into question. Transition to a different system was then an idea kept away from public discussion, a project kept from public action. During cyclical downturns production was reduced, unemployment and bankruptcies rose, deflation often hit and hurt, and mass working-class suffering spread. Downturns typically drove down wages and the prices of productive inputs. Eventually, those declines provided sufficient profit opportunities for employers to resume production. Then downturns became upturns, the unemployed (or at least some of them) were rehired, and prosperity replaced depression until the next cyclical downturn (usually within a few years). Before the 1930s, government interventions to offset or manage downturns were mostly marginal, minor and sporadic. Mass resignation to endure "hard times" was the norm, although voices for fighting back were also evident.
In contrast, during and since the 1930s, crises in capitalism provoked significant government economic interventions. This happened chiefly for two reasons. First, the Great Depression of the 1930s cut so deep, lasted so long, and damaged so many that resulting mass dissatisfaction extended, for growing numbers, to the capitalist system itself. Second, when labor unions and anti-capitalist political movements (socialists and communists) were strong, they functioned as antidotes to resignation. Periods of mass suffering were no longer accepted quietly or fatalistically. Labor and left organizations blamed capitalists and capitalism, and they mobilized popular responses that often challenged the system and not just its latest crisis. In the 1930s, the combination of a severe crisis with fast-growing industrial unions and anti-capitalist political parties forced Roosevelt's administration to undertake massive economic interventions. They aimed to prevent cyclical crises contained within capitalism from becoming social crises of capitalism bringing the system itself into question.
In the 1930s and since, governments' economic crisis interventions usually had two purposes: (1) to save capitalists from the huge losses and possible collapse that the system routinely reproduced, (2) to save the system by shortening and softening mass suffering (thereby blunting the labor unions' and anti-capitalists' appeals). Roosevelt's New Deal achieved bailouts for banks and corporations, regulations trying to prevent the worst capitalist abuses, and such social welfare institutions as Social Security, unemployment compensation, and direct federal hiring of the unemployed (11 million after 1933).
Governments' services to capitalism were also evident in how they financed such costly interventions. In the US, Roosevelt got capitalists to accept the new social welfare institutions by carefully NOT taxing their wealth (either corporate or personal) and limiting tax increases on their incomes. Roosevelt got workers to accept the bailouts of capitalists by NOT taxing workers to pay for those bailouts. Of course, to finance very costly government interventions without taxing corporations, the rich, or the workers enough to pay for them meant that the government had to borrow what it did not raise in taxes. The federal budget had to run big deficits that rapidly increased the national debt.
Roosevelt got corporations and the rich to lend Washington the money that they anyway could not profitably invest during a depression without taking huge risks. Instead, they would earn interest on very low-risk loans to the Treasury. Moreover, Washington would use that borrowed money to speed recovery from depression and offset threats to capitalism. Corporations and the rich could cash in their loans to the government whenever they wanted to use their money for other purposes. Finally, capitalist enterprises and the rich understood that if they did not lend to the government, either the IRS might tax the money from them instead or else the end of capitalism itself might loom. With mass union, socialist, and communist demonstrations in the streets, Roosevelt's program won the support of the majority of capitalists and the rich. With the streets silent, Obama does not even conceive of such a program.
Since the 1930s, politicians in capitalist countries have used government deficit financing more and more, not just in cyclical downswings. Corporations and the rich -- like the mass of people -- always want more from government and less taxes to pay, so politicians accommodate both sides by borrowing (state deficit financing). They remind corporations and the rich that deficit finance is far preferable to their being taxed more. The last 75 years have thus yielded repeated government budget deficits and rising national debt levels. So when the 2007 crisis cut back government tax revenues and required costly government interventions, huge additional budgetary deficits were enacted in all capitalist countries, but this time they came after a long period of rising national debts.
The most indebted capitalist economies discovered that corporations and the rich had become wary of a new risk: lending more to countries with already high debt levels meant huge interest and principal repayments that citizens there might refuse. Politicians there might be unable to devote ever more of their citizens' tax payments to pay off creditors rather than providing public services. Countries like Greece -- with strong labor and left traditions -- became flashpoints for a Europe-wide and indeed global struggle over sacrificing mass living standards (austerity) to satisfy creditors' demands.
Capitalism's new contradiction: it can no longer easily use deficits and rising debt to prevent economic crises from becoming social crises. Yet, politicians fear to tax corporations and the rich whose money now makes or breaks political careers. Hence governments everywhere impose austerity on their people. Relatively weakened labor and left organizations (compared to the 1930s) cannot stop and at best slow the process. For the mass of people, austerity adds to the burdens that capitalism's crisis already imposes.
Capitalism is not "delivering the goods." It is piling on the bads. These conditions do not prevent an economic crisis from becoming a social crisis. Quite the contrary. Resignation never was the only response of working people to capitalism's dysfunctions. After the initial shock -- at an American Dream fast disappearing and lasting economic decline looming -- rebuilding old and/or creating new labor and left organizations will resume. The old mole of real class struggles will return to the surface of contemporary politics.
"Kick start inflation"? Inflation is historically low! I don't know what you are referring to
But with all the money coming out of the FED, we should be experiencing inflation. As you point out, we aren't. The reason is because they are fighting off deflation. The economy has to experience deflation. They think they can just maintenance current inflation levels and wait for demand to catch up. Demand isn't going to catch up because wages are stagnate and have been declining for 30 years. Ie, the economy has to take a hit because it's falsely inflated. Rather than take the hit, they are following the mantra "Fake it till you make it". It's a fantasy, a farce. The economy needs deflation. At the very least, they need to quit devaluing the dollar.
Are you saying we can avoid some catastrophe if wages get a real boost and demand grows in a meaningful way? If so perhaps there is some value in agitating for these things.
I am a proponent of increased wages but a better fit would be to decrease the leverage capabilities of banks.This would have a similar effect of taking money out of circulation, leading to deflation which would bring prices down. How much decrease in allowed leverage would need to be calculated by math experts to control the rate of deflation. Lowering prices by deflation would be more conducive to stimulating demand than raising wages would be.
Wow thats really deep. I have to admit it's a little beyond me. I think what you ask for is probably a long shot. What is going to happen when we do not do as you suggest. Major problems? What kind? And When?
They are going to spend until demand catches up to the current level of inflation. That is not going to happen because the gap between wage stagnation and the current level of inflation. They are going to pump money until something happens that isn't going to happen. It's a road to nowhere ending in runaway inflation and massive national debt.
Ok. So how will that translate to me the average shmoe.? Just want to prepare you know.
If your money is not held in assets, you will be made poor, even if your income remains the same. If you are already poor, you will become even more poor, even if your income remains the same. If you are homeless, you will probably starve.
If you hold your wealth in assets, a 1%er, you will become a king.
Assets? Like what?
Hard assets. Physical assets. I'm not going to play the investment guru, thats not the purpose of my post.
Of course it's not. Just one guy askin for a little help. But I understand you don't wanna help. No problem.
Don't take it personal, he's one of the good guys. He just has little patience with this forum lately, which is entirely understandable.
Yeah, Just seems like he doesn't have much hope for improvement. And I do not see much hope his plan will pass. I guess we should start hoarding food and ammo!
I don't consider it pessimism, just a little added insurance. It's no more pessimistic than having a small stash of cash hidden somewhere in your home. It's just the concept of having all your bases covered.
Definitely hoard some food and ammo. It can't hurt.
I'm not that pessimistic. I'm always disappointed when I hear people talking and living that way. Don't give up. If we work together we can create positive change.
Wouldn't the wealthy become even more wealthy though since all those dollars they have are now worth so much more?
That depends. Is the wealthy person in question holding their wealth in cash? In a standard bank account?
More likely would be assets, stock, or something similar that would lose vale under deflation. All wealth is not stored equally and can be effected differently under a set of conditions. Stocks would lose value because of lower shelf prices. Land as we see has already experienced deflation. So now all of those foreclosures are at a lower price, and so are all the other houses in the neighborhood, even if they aren't under foreclosure. Therefore your purchasing power in realty is increased for the same amount of money.
Just as under inflation the poor lose out, the well off will lose out because of deflation. And we know the 1% aren't going to stand back and give the power of the markets over to the working class and the poor. A balanced economy would almost end poverty and nobody wants that. So we make sure the FED keeps injecting inflation.
The Fed is not a federal institution - it named itself that so people would make the association. The fed is a conglomeration of rich and powerful men who make their own money which they lend to the government. They themselves vote on the interest rate they will charge the government when the government pays back the imaginary money they gave them with the taxpayer' money. The interest that is owed on the money will always exceed the amount given and thus the government will always remain in debt to the Fed. Why is our government in the practice of using the taxpayers to create windfalls for private institutions? Mitt Romney wants to allow drilling in the Arctic (which a private company will be allowed to do and put on the open market to sell and to trade stock on it) Obama is auctioning off the RF spectrum which could service the entire nation with free wireless internet service since we the people already own the frequencies. What's next leasing out Yellowstone to Disney so Disney can then charge the public an entrance fee? It's a giving away of public property for private enterprise. Plain and simple - the Fed is a scam and our politicians are crooks getting a cut.
Exactly. Read down the forum, find my other posts.