Robbing Peter to pay Paul

[CoyoteChris]

You folks are the smartest people I know....especially Mathman, Doris, Mrs. P, and others....I don't understand what the feral Govt is thinking its trying to do.

I cant get a handle on our economic policy...
Last year, our deficit was 680 billion Dollars ...this debt must be
financed by borrowing money..say selling T-bills, for instance. Thus, the National Debt keeps rising.

The Federal Reserve system, in an effort to keep interest rates low, has been spending $85 billion a month, or
about a trillion a year, buying T-bills and Mortgage bonds....I understand that Commercial banks are required to buy stock in the Federal
reserve banks, and I am no expert on the federal reserve system, but this seems to be like a shell game. I can't wrap my pea brain around
where this 85 billion is coming from and what happens when, say next week, its spending is stopped, driving interest rates up. And more importantly,
what happens to all those poor smucks, being banks or individuals, that bought T-bills and Mortgage bonds paying next to nothing when suddenly the
interest rates rise and their bills and bonds value drop like rocks....

I suppose there is some committee somewhere like the federal reserve board that believes that if you "jumpstart" the economy hard enough, taking
away the stimulas wont have the effect of driving interest rates up and killing the economy???????

What am I missing here...???? It seems there is no way this is gonna work long term unless everyone has a job and taxes are raised....

 

[spikydurian]

You sound frustuated and worried, and rightly so. I am no economist but having lived through three recessions, I have come up with this simplistic philosophy which I live by ..... never spend more than you earn, money don't grow on trees, and real growth is always slow.

Hope some economists can give you an answer. Interesting question. Will revisit this thread later.

 

[louisa05]

Some perspectives to read:

http://www.forbes.com/sites/johntharvey/2012/07/18/why-you-should-love-government-deficits/

http://www.gao.gov/special.pubs/longterm/debt/debtbasics.html

http://www.pbs.org/newshour/bb/politics/jan-june11/debtceiling_05-16.html

http://www.washingtonpost.com/blogs...2a85386-55fc-11e2-8b9e-dd8773594efc_blog.html

http://webcache.googleusercontent.c...how+does+the+national+debt+work&hl=en&ct=clnk

http://www.justfactsdaily.com/do-large-national-debts-harm-economies

 

[CoyoteChris]

Thanks! The rains are supposed to start here in Spokane in three days so I will have time to delve into these...
(Spokane is like Africa...dry season....wet season...except the lions are smaller....)
Chris working outside
(read some of these.... I always enjoy the contradictions...Prof. Harvey believes that the more deficit spending the Gov. does, the "richer" we shall all be.
Deficits create wealth in the PRIVATE sector, he believes....others do not quite see economies working in that manner....

Some perspectives to read:

http://www.forbes.com/sites/johntharvey/2012/07/18/why-you-should-love-government-deficits/

http://www.gao.gov/special.pubs/longterm/debt/debtbasics.html

http://www.pbs.org/newshour/bb/politics/jan-june11/debtceiling_05-16.html

http://www.washingtonpost.com/blogs...2a85386-55fc-11e2-8b9e-dd8773594efc_blog.html

http://webcache.googleusercontent.c...how+does+the+national+debt+work&hl=en&ct=clnk

http://www.justfactsdaily.com/do-large-national-debts-harm-economies

 

[CoyoteChris]

Actually, I am one of the lucky ones.....money was easy to make in the 1990s and if one, like you aptly pointed out, didnt live beyond one's means, saving for retirement was easy also....now, except for the threat of hyper-inflation, my retirement is good and safe.....I really think the younger folk are going to have a very tough time...you can only kick the can of recession/depression down the road so far till it hits a wall...and the farther you kick the can, the deeper the depression. louisa05's links might enlighten me a bit as to the theory the feral govt is working with.....I fear they know what really needs to be done but don't have the courage to do it.....

You sound frustuated and worried, and rightly so. I am no economist but having lived through three recessions, I have come up with this simplistic philosophy which I live by ..... never spend more than you earn, money don't grow on trees, and real growth is always slow.

Hope some economists can give you an answer. Interesting question. Will revisit this thread later.

 

[dorispulaski]

The deficit is at a 5 year low, due to record revenue, and the effects of the "sequester"
and more jobs

Spending exceeded receipts by $680.3 billion in the 12 months ended Sept. 30, the narrowest gap since 2008, compared with a $1.09 trillion shortfall in fiscal 2012, the Treasury Department said today in Washington. In September, the U.S. recorded a $75.1 billion surplus, little changed from the surplus in the same month a year earlier.

Stronger hiring has helped reduce the country’s deficit as a share of gross domestic product by more than half in the past four years, narrowing it from a record $1.42 trillion in 2009. Bolstering revenue this year were higher payroll taxes Congress allowed in January, while spending growth has been limited by across-the-board cuts known as sequestration that lawmakers failed to prevent in March.

“We’ve made a lot of fiscal progress in the U.S. because of the sequester cuts, tax rates going back to historic norms and the economy improving,” said Bricklin Dwyer, an economist at BNP Paribas in New York. “Politicians have, thus far, avoided the most difficult choices -- addressing unsustainable spending on entitlements such as Medicare and Medicaid.”

Revenue jumped 15.2 percent to $301.4 billion in September from a year earlier, bringing the annual figure to $2.77 trillion, today’s report showed. Spending increased 21.5 percent to $226.4 billion last month, contributing to a 12-month total of $3.45 trillion, it showed.

http://www.bloomberg.com/news/2013-...-narrows-to-5-year-low-on-record-revenue.html

Since money can't be made in the bank or on Tbills, people have their money in the stock market.

http://www.cbsnews.com/8301-505123_162-57610208/5-signs-the-stock-market-is-in-a-bubble/

But that may be a false high, exactly because investors have no where else to earn money.

There's too much money in the system. Larry Fink, CEO of giant money manager BlackRock, clearly thinks the market is frothy. "We've seen real bubble-like markets again," he said at a panel discussion this week, according to the Bloomberg news agency. "We've had a huge increase in the equity markets."


Fink and many others are concerned about the impact of the Federal Reserve's "quantitative easing" program, under which the central bank is buying $85 billion a month in government bonds and mortgage securities in hopes of stimulating economic growth. These assets have vastly expanded the Fed's balance sheet, including recently. Since Sept. 4 alone, those balance sheets have increased 4.3 percent, while the S&P 500 has increased 4.9 percent.

In other words, investors are doubling down to capitalize on the cheap money that continues to flood the market.

Cheap money can't go on forever, basically.

 

[Mathman]

I suppose there is some committee somewhere like the federal reserve board that believes that if you "jumpstart" the economy hard enough, taking away the stimulas wont have the effect of driving interest rates up and killing the economy?

What am I missing here? It seems there is no way this is gonna work long term unless everyone has a job and taxes are raised.

As far as i can tell, there are two schools of thought about whether the government can keep on borrowing forever and never pay up. There are the economists who say no, and the economists who say yes.

The Fed seems absolutely committed to keeping the stimulus going and interest rates low, come hell or high water, or at least until a new administration comes along to blame it all on in 2016. Wall Street is giddy. The Dow, NASDAC, etc., are at all-time highs. Anyone who put a dollar in the stock market at the beginning of 2013 now has a buck and a quarter. If we take a disastrous hit next week, we've still got a buck and nickel.

Long term, you nailed it. Get more people working and raise taxes. Unemployment continues to be a stubborn national problem despite all the tricks government can come up with, and nobody likes to pay taxes. Im spite of everything, I think we will muddle through.

 

[CoyoteChris]

I hope you are right....no one seems to want to get all those jobs back from China so when the Demos get a super majority in both houses, they can raise taxes on the rich, who ever they are, and spend it on putting people to work rebuilding the infra structure, I hope....I think the system is still "fixable" a this point. But I also think you need a handful of carrots and a bunch of sticks....carrots for those that apply themselves and want to work and make things better for themselves...and sticks for those that cheat the system and refuse to work....or worse, break the law and harm others who are trying to do the right thing for themselves, their families, and their country.
Doris makes good points but something about the market stinks...like the housing bubble stank.....if you are a fund manager and are given 6 million dollars a month to invest...you HAVE to invest it...you cant sit on it...so you compete with other fund managers for stocks, using money from folks that have automatic deductions at work in the hope that they can retire some day...always hoping that someone else will come along and buy YOUR funds when you want to retire and take the money out....
Chris taking money out to put new flooring in his house...

As far as i can tell, there are two schools of thought about whether the government can keep on borrowing forever and never pay up. There are the economists who say no, and the economists who say yes.

The Fed seems absolutely committed to keeping the stimulus going and interest rates low, come hell or high water, or at least until a new administration comes along to blame it all on in 2016. Wall Street is giddy. The Dow, NASDAC, etc., are at all-time highs. Anyone who put a dollar in the stock market at the beginning of 2013 now has a buck and a quarter. If we take a disastrous hit next week, we've still got a buck and nickel.

Long term, you nailed it. Get more people working and raise taxes. Unemployment continues to be a stubborn national problem despite all the tricks government can come up with, and nobody likes to pay taxes. Im spite of everything, I think we will muddle through.

 

[Olympia]

I really had hopes that they would be able to enact work programs that dealt with infrastructure repair, because that would solve two problems in one. But getting anything done seems to be like herding cats. Shame on the ones standing in the way of this. This is not something that private citizens can do instead of government. Private citizens don't own the Interstate highway system, for instance.

 

[dorispulaski]

You don't herd cats. You drop cat treats and let them follow where you lead them.

 

[Mathman]

Doris makes good points but something about the market stinks...like the housing bubble stank.....if you are a fund manager and are given 6 million dollars a month to invest...you HAVE to invest it...you cant sit on it...so you compete with other fund managers for stocks, using money from folks that have automatic deductions at work in the hope that they can retire some day...always hoping that someone else will come along and buy YOUR funds when you want to retire and take the money out….

It will be interesting to see what will happen as the baby boomers retire. This represents n immense amount of money in IRAs and other individual retirement vehicles, mostly invested in equity funds. But they will face the same problem. There is nothing to do with all that money except to plow it back into the stock market and hope for the best.

 

[CoyoteChris]

... But they will face the same problem. There is nothing to do with all that money except to plow it back into the stock market and hope for the best.

Some do feel like that and maybe its true for those that invest for the long term....but I don't. But I have a very unusual retirement which I manage myself...in any given year, I determine what my taxable income is and what tax bracket I am in. Now that I
take social security and in a few months, medicare, I can breath a bit easier but the truth is I never really had to worry....except I do worry about what I see going on in this country and in this economy.
When I was studying the Great Depression at the U of ILL in 1969, we were told that overproduction, easy credit, and concentration of wealth were the three major causes....well, we just saw what happens
when people were allowed to buy houses at low rates with no job and no money down.....and I would argue that we have very great concentration of wealth....just like few saw or cared about the then approaching
mortgage backed securities debacle, I have to wonder if we are in for another very bumpy ride...so, back to Mathman's statement...I chose not to put my retirement into the stock market...sure, I have a bit there that
I can afford to loose....but loosing 10 or 20 percent of my wealth by "investing" in CDs or Bonds at 2 to 3 percent wont change my standard of living....loosing 50 percent or more in a major market collapse might.....
(disclaimer: one, I hate investing...but it was a necessity to learn....two...I invested very conservatively over the last 20 years.....my college friend, who is a veterinarian outside of Detroit, is two years younger than I
and she invested heavily in the stock market.....she cant afford to retire.....I have been retired nine years....not bragging...just sayin'....I would advise anyone trying to make money or even preserve capitol to diversify into many investments....
not just the market....like she did.

 

[Mathman]

I think you and I are a vanishing breed, Chris. To me, it seems obvious that one shouldn't bet more than he can afford to lose. My old-fashioned view is this: my retirement money is my retirement money. It is what I plan to live on when i retire in the same way that my pay check is what i live on now. If I have any money left over and feel like taking a flyer in the stock market, that's a whole separate question. Right now I have the bulk of my retirement savings in vehicles with guaranteed principal preservation and guaranteed minimum interest rate. Just for fun I have have the rest (about a third) in equity accounts.

My financial advisor thinks I am the biggest fool in town. And indeed, my stock account outperformed by secure retirement savings accounts about six to one last year. But I can lose 100% of the value of my stocks and still be OK.

 

[CoyoteChris]

LOL! We sound like brothers....except I don't do math in public....you will get a kick out of this story....my advisor thinks I am an idiot and perhaps she is right, but I stuck a chunk of change into a fixed rate annunity (five or six percent) for seven years and when it matured, I rolled it into an index annunity that could go up, but not down, but once it did go up, it could never go down from that point ....for seven years...the hook was there was a yearly ceiling on the up side....that worked out well....then a year ago IT matured so we had to do something with it and choices were few....till I found a little clause in another annuity I had...I could add to it once and once it matured, I had the option of keeping it at a fixed three percent rate for as long as I wanted and could take any amount out at any time for the rest of my life.....my advisor couldn't believe I found this clause....I was in her office and she about came unglued....we got the insurance company on a speaker phone call, got a rep to repeat the terms...and she still couldn't believe it! The rep said, very calmly, "Madam, my name is so and so and this call is being recorded and here is the reference number for the call. Mr. Coyote can roll the entire amount of his other annunity into ours and switch it to 3 percent fixed for as long as he wants. At any time, he can roll any amount he wishes into another instrument or take a distribution BUT HE CANT ADD ANY BACK TO THIS ONE AS WE DONT OFFER IT ANYMORE. (snicker snicker). So there the chunk of change sits till times (hopefully) get better.....or my wife lets me buy a new stove....
How did you like the market going up to a new high, falling back one percent on a "feeling" yesterday and going back up again today on another "feeling"? Remember when investors cared about P/E ratios????

I think you and I are a vanishing breed, Chris. To me, it seems obvious that one shouldn't bet more than he can afford to lose. My old-fashioned view is this: my retirement money is my retirement money. It is what I plan to live on when i retire in the same way that my pay check is what i live on now. If I have any money left over and feel like taking a flyer in the stock market, that's a whole separate question. Right now I have the bulk of my retirement savings in vehicles with guaranteed principal preservation and guaranteed minimum interest rate. Just for fun I have have the rest (about a third) in equity accounts.

My financial advisor thinks I am the biggest fool in town. And indeed, my stock account outperformed by secure retirement savings accounts about six to one last year. But I can lose 100% of the value of my stocks and still be OK.

 

[Mathman]

Remember when investors cared about P/E ratios????

An amazing transformation, really. Back in the day the idea was, you bought stock in a company and became a part owner. If the company did well, you got a little chunk of the profits in the form of a dividend.

That's totally out the window. Now it's just a roulette wheel. Ya pays your money and ya takes your chances.

(On the other hand, since the 1950s there has never been a 25-year period where the stock market did not average at least an 8% annual gain, so maybe the smart guys are really smart after all. )

 

[CoyoteChris]

(On the other hand, since the 1950s there has never been a 25-year period where the stock market did not average at least an 8% annual gain, so maybe the smart guys are really smart after all. )

That is a good fact! I kind of collect "facts" although I seldom verify them. I was told in college that if you had kept your money in the market through the crash of 1929, it would have taken you till 1954 to recoup
your losses...but I believe your fact cause if you look at the inflation year by year in the 1970s and 1980s, there were quite a few years where inflation was over 8 percent....let me dig out my WIN (Whip Inflation Now)
buttons...
http://observationsandnotes.blogspot.com/2011/03/100-years-of-inflation-history.html
Chris who doesn't have 25 years to go.....20.....OK, maybe I have 10 good years!

 

[spikydurian]

http://observationsandnotes.blogspot.com/2011/03/100-years-of-inflation-history.html
Chris who doesn't have 25 years to go.....20.....OK, maybe I have 10 good years!

Enjoy your 10 years, Chris! You can't worry about everything in life. Some are controllable some aren't.

 

[CoyoteChris]

Yes, that is a good way of putting it....my dad always believed that one makes their own luck and to a great extent, that is true....but you cant control everything.....at least I got my Medicare card today!

Enjoy your 10 years, Chris! You can't worry about everything in life. Some are controllable some aren't.

 

[Mrs. P]

For me and other young people, the key to success is saving more of what you earn. No amount of stock market playing can replace good old-fashioned saving.

I take 15 percent off the top of my bi-weekly paycheck for my 401k and my husband and I use the rest for most of our everyday expenses. Anything leftover from my husband's salary after paying property taxes and insurance (health/home/car) goes to savings.

We don't make a ton of money right now, however our principal savings continue to increase and that is what ultimately matters. Quite a bit of my 401k is in stocks, but given that we're not using it yet, so that's fine. Our more liquid savings are mainly in CDs. We'd like to get into bonds when we've saved up some more money.

I really like this blogger's philosophy: http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/

What happens when you can save more of your income? As it turns out, spending much less than you earn is the way to get rich. The ONLY way. And the effects are surprising: if you can save 50% of your take-home pay starting at age 20, you’ll be wealthy enough to retire by age 37. If you already have some assets now, you’re even closer than that. If you can save 75%, your working career is only 7 years.

A few years ago, we decided to go on the crazy train and pay off our house. We basically lived on nothing for about a year and it felt very uncomfortable, but now that we have no house payment, the temporary suffering was definitely worth it. And it's interesting how despite the fact we make less money than some our friends, we are actually in a better financial situation due to our lack of debt. And we're not missing out anything fun either -- we are going to U.S. Nationals!

I suppose one could argue my husband and I are terrible for the economy because we don't buy a lot of stuff. However, my argument is that people like us provide stability because our buying habits do not change with the economy because we maintain a steady cash flow.

 

[Mathman]

Here is an interesting article that just came out in Forbes Magazine, reporting that the minutes of the October meeting of the board of governors of the Federal Reserve "have no clue" how to address the question if the original post on this thread.

http://www.forbes.com/sites/afontev...r-qe-without-tanking-the-market-fomc-minutes/