Aramike's Economic Stimulus Package

[UnderseaLcpl]

You're preaching to the choir A-mike

[Aramike]

PD, I disagree with the premise of even bothering with our debt. It's elimination or reduction does nothing economically positive. The reason for that is those who we owe won't call in full payment because their nations are heavily dependant upon our economy to begin with (China is a great example - they own billions in T-bills).

Our national debt, as high as it is, is completely manageable and is, in fact, one of the only reasons we allow such high trade-deficits to exist. Nations are fearful of calling in their T-Bills because our response would naturally be to revoke their PNTR status (Permanantly Normalized Trade Relations, formerly Most-Favored Nation status). Basically, we're telling nations such as China that, we'll buy a ton of your goods while not requiring your markets to be equally open to us, if you don't call in our debt.

Furthermore, I wholly disagree that our government exists through tax dollars, at least not in the international economic sense. Foreign nations care about the buying power of Americans.

[Platapus]

Originally Posted by Aramike

T
Part One: Cut the corporate tax rate from around 35% to about 20%. This move would IMMEDIATELY add billions of dollars to the corporate coffers, allowing for job creation, innovation, modernization, etc.

Why do you think that cutting corporate taxes will result in anything other than the companies pocketing the "extra" money as profit.

It would be NICE if a company would take that tax cut and create jobs, but companies are not in the business of being nice, they are in the business of making the most profit they possibly can. What would prevent a company from just pocketing the tax break as instant no-effort profit?

Unless there is some sort of guarantee that the tax savings would be used for job creation, I am afraid that any corporate tax cuts will only make the fat cats a bit more plump.

If we ever get to the point where corporations start really caring about something other than profit, this might work.

[PeriscopeDepth]

Originally Posted by Aramike

Businesses are not obligated to have a certain number of jobs available. They have every right to manage their bottom lines the way they see fit. Ultimately, they're going to so what they believe is in the best interest of their bottom lines, and there is absolutely nothing wrong with that.

There absolutely isn't, I agree. Unless you knowingly pursue a risky path so you can report profits and not giving a damn about what COULD happen. It is NOT something they were forced to do. They were okay with taking risks, they LOBBIED Congress to be allowed to take risks.

http://www.nytimes.com/2008/10/03/bu...3sec.html?_r=1

PD

[PeriscopeDepth]

Originally Posted by Aramike

PD, I disagree with the premise of even bothering with our debt. It's elimination or reduction does nothing economically positive. The reason for that is those who we owe won't call in full payment because their nations are heavily dependant upon our economy to begin with (China is a great example - they own billions in T-bills). Our national debt, as high as it is, is completely manageable and is, in fact, one of the only reasons we allow such high trade-deficits to exist.

You certainly could be correct. But I don't think so. We'll find out sooner rather than later it looks like. Do you know of any bubbles in the market that ended up never popping?

Nations are fearful of calling in their T-Bills because our response would naturally be to revoke their PNTR status (Permanantly Normalized Trade Relations, formerly Most-Favored Nation status). Basically, we're telling nations such as China that, we'll buy a ton of your goods while not requiring your markets to be equally open to us, if you don't call in our debt.

I realize this. It's not something that anybody would do because they are pissed off at us, but simply because it may not be economically feasible for all those needed to to continue buying US debt. Can you guarantee that circumstances throughout the world will always allow the necessary amount of investment in debt to continue the smiling and winking?

I'll bet that Madoff guy thought he could.

You can't make investments contrary to mathematics and expect them to work out indefinitely.

PD

[Aramike]

Why do you think that cutting corporate taxes will result in anything other than the companies pocketing the "extra" money as profit.

See, this is specifically what I mean when I say that people are "misinformed". I honestly believe that a large percentage of Americans don't truly know how business works.

Companies don't just "pocket" money.

Profits are distributed to the owners of those companies which, in the case of the 1000s of publically traded corporations are the shareholders - normal people with investments, 401Ks, etc.

Following such positive results, those companies see further investments which means greater operating capital. That turns into growth which means job creation.

The current economy's problems are chiefly caused by people having too much money tied up in housing. When that money simply disappeared due to the bubble bursting as a result of bad mortgages, people had to take money from other sources (investments, bonds, etc) to compensate. This directly diminished the working capital of businesses, causing them to hemorrage value and cut into their operating expenses.

By cutting the corporate tax rate, much of that money would be returned to the companies allowing them to further profitability and therefore attract capital investment.

It would be NICE if a company would take that tax cut and create jobs, but companies are not in the business of being nice, they are in the business of making the most profit they possibly can. What would prevent a company from just pocketing the tax break as instant no-effort profit?

If they were to just "pocket" the tax break, that money would be paid as dividends to the company owners, thereby attracting more owners, thereby increasing operating capital, thereby fueling expansion and job creation.

As far as private companies go, sure ... the owners could simply take the extra money. But what do you think they are going to do with that money? I'm betting on investing and purchasing - also job-creating tools. In fact, that investment would be even more likely as the stock market would simply skyrocket.

Unless there is some sort of guarantee that the tax savings would be used for job creation, I am afraid that any corporate tax cuts will only make the fat cats a bit more plump.

If we ever get to the point where corporations start really caring about something other than profit, this might work.

Again, I'm afraid you don't seem to know how the business world works. For-profit corporations ONLY exist to care about profit - there's no other purpose for their existance. But the "fat cats" you refer to tend to be the little guys (you and me). When we keep money out of the hands of the "fat cats", that just keeping money out of our hands.

What's sad is that the left knows this but they keep propagating the very talking points you used in an attempt to divert both yours and my money to the government, who they see as the end-all, be-all.

[Aramike]

PD, only have time for a few counter-points so if I miss something, forgive me:

There absolutely isn't, I agree. Unless you knowingly pursue a risky path so you can report profits and not giving a damn about what COULD happen. It is NOT something they were forced to do. They were okay with taking risks, they LOBBIED Congress to be allowed to take risks.

This is only referencing 1 sector of the business community ... I was referring to business in general.

You certainly could be correct. But I don't think so. We'll find out sooner rather than later it looks like. Do you know of any bubbles in the market that ended up never popping?

I think where we're getting caught up is that you see it as a bubble and I see it as a stabilizing factor.

The international market is pretty much nothing more than a fiat economic system devised to create bargaining tools for trade relations. Ultimately, the REAL money doesn't come into play until actual goods and services are exchanged. That's why I don't believe there's any real "bubble". If it were to "burst" there would still remain the same essential supply/demand situations that existed to create the system to begin with, which is a circumstance unlike the housing market, for example.

The reason the world's economy took a hit along with ours is because when our housing bubble burst, American buying power was reduced significantly. The supply/demand hasn't changed - only the ability to satisfy the purchase itself. That's why a tax cut PLUS and infusion of American buying power could stabilize the situation.

I realize this. It's not something that anybody would do because they are pissed off at us, but simply because it may not be economically feasible for all those needed to to continue buying US debt. Can you guarantee that circumstances throughout the world will always allow the necessary amount of investment in debt to continue the smiling and winking?

They have no choice, and ultimately it doesn't matter. We live under a fiat economy - essentially, these governments could theoretically simply promise to buy the debt and it would be the same as an actual purchase.

[Aramike]

PD, only have time for a few counter-points so if I miss something, forgive me:

There absolutely isn't, I agree. Unless you knowingly pursue a risky path so you can report profits and not giving a damn about what COULD happen. It is NOT something they were forced to do. They were okay with taking risks, they LOBBIED Congress to be allowed to take risks.

This is only referencing 1 sector of the business community ... I was referring to business in general.

You certainly could be correct. But I don't think so. We'll find out sooner rather than later it looks like. Do you know of any bubbles in the market that ended up never popping?

I think where we're getting caught up is that you see it as a bubble and I see it as a stabilizing factor.

The international market is pretty much nothing more than a fiat economic system devised to create bargaining tools for trade relations. Ultimately, the REAL money doesn't come into play until actual goods and services are exchanged. That's why I don't believe there's any real "bubble". If it were to "burst" there would still remain the same essential supply/demand situations that existed to create the system to begin with, which is a circumstance unlike the housing market, for example.

The reason the world's economy took a hit along with ours is because when our housing bubble burst, American buying power was reduced significantly. The supply/demand hasn't changed - only the ability to satisfy the purchase itself. That's why a tax cut PLUS and infusion of American buying power could stabilize the situation.

I realize this. It's not something that anybody would do because they are pissed off at us, but simply because it may not be economically feasible for all those needed to to continue buying US debt. Can you guarantee that circumstances throughout the world will always allow the necessary amount of investment in debt to continue the smiling and winking?

They have no choice, and ultimately it doesn't matter. We live under a fiat economy - essentially, these governments could theoretically simply promise to buy the debt and it would be the same as an actual purchase. The international economic system doesn't really represent much except for bargaining chips relating to actual goods.

I'll bet that Madoff guy thought he could.

The difference is that Madoff was trading in empty promises and governments are trading in access to markets.

That was funny, though.

You can't make investments contrary to mathematics and expect them to work out indefinitely.

In this case, you actually can. What ultimately happens is that the mathematics are simply changed to accomodate the investments.

Edit: I must add one important factor: It WOULD be possible for our debt to be called in if American buying-power was sufficiently reduced. That's what my plan would address.

[PeriscopeDepth]

Originally Posted by Aramike

The reason the world's economy took a hit along with ours is because when our housing bubble burst, American buying power was reduced significantly. The supply/demand hasn't changed - only the ability to satisfy the purchase itself.

No. It is because our consumer economy was being fueled with "money" (debt) that didn't exist. A lot of Americans NEVER HAD that buying power that they felt so entitled to. You see, when you buy things on credit - it works like money. But it isn't. The US economy (and many more around the world) was simply not as strong as it was made out to be.

They have no choice, and ultimately it doesn't matter. We live under a fiat economy - essentially, these governments could theoretically simply promise to buy the debt and it would be the same as an actual purchase. The international economic system doesn't really represent much except for bargaining chips relating to actual goods.

Again, credit (a promise to pay people back) is not money. If it doesn't look like it will be paid back, the financiers that provide that REAL money will stop giving it out. Because there IS a finite supply of money, and things will only run on promises as long as long as the creditor feels you can keep that promise.

The difference is that Madoff was trading in empty promises and governments are trading in access to markets.

That was funny, though.

One more time - If promised investments cannot be paid back, it IS an empty promise. A Ponzi Scheme. Be it Madoff taking investors' money and never paying them back, a consumer charging off one credit card to another, a government in $10s of TRILLIONS of debt asking for investors to pay for more, or a "home buyer" going into a significant amount of debt he/she can never afford to pay back if that ARM jumps up a little.

In this case, you actually can. What ultimately happens is that the mathematics are simply changed to accomodate the investments.

We'll meet back here in five years and compare notes. Set aside an hour or two on 2/6/14.

PD

[Platapus]

Originally Posted by Aramike

Profits are distributed to the owners of those companies which, in the case of the 1000s of publically traded corporations are the shareholders - normal people with investments, 401Ks, etc.

Aramike, I believe we are actually in agreement if you read my comment. Giving corporations a tax break has a good likelihood of being transfered to the stockholders (which I humourously called fat cats) as profit/dividend. Of course stockholder include CEOs and house wifes and everyone in between.

But the first part of your posting mentioned this tax credit would result in job creation and that is what I was questioning.

A tax credit may or may not result in job creation, but would, in my opinion, would more likely result in more money for the stockholders.

Giving more money to the stock holders is a good thing and this may have a secondary impact on the economy. But the point I was trying to make is that giving a tax credit to a company does not automatically result in job creation.

[Aramike]

Originally Posted by Platapus

Aramike, I believe we are actually in agreement if you read my comment. Giving corporations a tax break has a good likelihood of being transfered to the stockholders (which I humourously called fat cats) as profit/dividend. Of course stockholder include CEOs and house wifes and everyone in between.

But the first part of your posting mentioned this tax credit would result in job creation and that is what I was questioning.

A tax credit may or may not result in job creation, but would, in my opinion, would more likely result in more money for the stockholders.

Giving more money to the stock holders is a good thing and this may have a secondary impact on the economy. But the point I was trying to make is that giving a tax credit to a company does not automatically result in job creation.

That's cool, except that there is nothing that automatically results in gainful job creation. All the government can (and should) do is take steps to send the private sector in the right direction.

[Aramike]

No. It is because our consumer economy was being fueled with "money" (debt) that didn't exist. A lot of Americans NEVER HAD that buying power that they felt so entitled to. You see, when you buy things on credit - it works like money. But it isn't. The US economy (and many more around the world) was simply not as strong as it was made out to be.

Actually, whether or not you purchase with credit has nothing to do with "buying power". The ability to purchase, period, is buying power.

I do agree that the economy was over-valued, but that it was far more due to artificially-inflated property values than consumer-debt. Those property values resulted directly in the value-loss of assets. For instance, people that paid $100K for a house found themselves only owning $75K in assets. This has a net result of, literally, 25% of that money simply being gone.

Again, credit (a promise to pay people back) is not money. If it doesn't look like it will be paid back, the financiers that provide that REAL money will stop giving it out. Because there IS a finite supply of money, and things will only run on promises as long as long as the creditor feels you can keep that promise.

You're response is regarding the consumer economy ... I don't necessarily disagree.

However, you're responding to my point about international economics, which is a different issue.

There is no such thing as "real money" in international trading - not really. It is all theoretical as it is a bloated version of consumer fiat economics.

One more time - If promised investments cannot be paid back, it IS an empty promise. A Ponzi Scheme. Be it Madoff taking investors' money and never paying them back, a consumer charging off one credit card to another, a government in $10s of TRILLIONS of debt asking for investors to pay for more, or a "home buyer" going into a significant amount of debt he/she can never afford to pay back if that ARM jumps up a little.

This is not a response to my point, either. Governments are using "money" as a representation of the overall buying power of the people - as such, that "money" has no real consumer value. It only relates to accessing the markets of their citizens.

My point had nothing to do with consumer economics.

We'll meet back here in five years and compare notes. Set aside an hour or two on 2/6/14.

Works for me.

The overriding concept is that money is ultimately meaningless without the goods to represent it.

[PeriscopeDepth]

I'll post more of my ranting here when I get a chance Sunday or Monday. Until then Aramike, enjoy the weekend!

PD

[Aramike]

Originally Posted by PeriscopeDepth

I'll post more of my ranting here when I get a chance Sunday or Monday. Until then Aramike, enjoy the weekend!

PD

You know it, bro ... already working on my third (or fifth) beer...

[PeriscopeDepth]

Better late than never.

Originally Posted by Aramike

Actually, whether or not you purchase with credit has nothing to do with "buying power". The ability to purchase, period, is buying power.

I do agree that the economy was over-valued, but that it was far more due to artificially-inflated property values than consumer-debt. Those property values resulted directly in the value-loss of assets. For instance, people that paid $100K for a house found themselves only owning $75K in assets. This has a net result of, literally, 25% of that money simply being gone.

It’s true that purchasing power is a number that is just what you could go out and spend today, basically (including credit). But credit (debt) is the underlying cause behind every bubble, and it has popped. Lenders across the board are trying to reduce their risk, and as a result American’s purchasing power has dropped dramatically.
http://www.washingtonpost.com/wp-dyn...news⊂=AR

The devaluation in homes is a major factor in the overinflated figures that our economy was running at, but again credit/debt is the underlying factor. The housing craze of the late 1990s and early 2000s was fueled by speculation and “experts” (books lauding real estate as a fool proof get rich quick scheme, etc), and most of all by fraudulently easy (risky) credit. Due to the explosion in demand for homes, easy credit had to be available to meet the housing demand. People who should have NEVER been given home loans due to their obvious inability to pay them back were, through fraud on both the part of the consumer (lie about your income) and lender (no need to check what the consumer put on their app, just sell it like a used car). This was largely accomplished through the securitization and trading of debt. Everybody was happy: people were in homes, lending institutions were making a ton of money, realtors were making a killing, and investors had found (fraudulently) AAA rated investments in securitized debt.

Until a few people defaulted on their no money down home loans. Then a few more, then a few more, and so on. And then everybody wanted to look at the books. It became obvious to the people that knew what was going on that the lenders’ bets had failed. Those mortgage based securities they were selling off as no risk were clearly toxic assets to be holding on the books. They tried to cut their losses by lending more selectively, even though trillions of dollars of this toxic debt was already on their books. And housing crashed, because easy credit wasn’t available and the demand for houses plummeted; this combined with the surplus of supply of homes that people had already been foreclosed on. The demand that drove the dramatic inflation of housing prices in the past decade or so was something that could only be accomplished with easy credit, and when that credit dried up so did the “real estate boom”.

There is no such thing as "real money" in international trading - not really. It is all theoretical as it is a bloated version of consumer fiat economics.

First of all, I think we’re talking about two different things here. You are talking about international markets. I am talking about the funding of US Federal Debt.

Here’s the thing though: if that fiat price doesn’t come close enough to the market’s idea of value the market WILL CALL THAT BLUFF in every market segment. To have somebody name a price is all good and well, but the only price that matters today is the market price. I can have an appraiser tell me my home is worth $300K, but if the market’s only willing to pay $150K for it my home is only worth $150K. (You could see that today when our tax cheat Secretary of the Treasury announced his big plan. The market called his bluff.)

US Federal Debt (and thus a major amount of its CURRENT spending) is financed through bond/T-bill sales. They haven’t been doing too badly lately even with flooding of supply (all these bailouts are more federal debt that need to be funded), because the stock market isn’t doing too hot. BUT, when the “rescue plan” is for the Fed to take on all the toxic debt that is out there the federal debt market will call their bluff eventually. Combined with a flooding of supply with all the recent federal spending, federal debt will simply not continue to sell well. And depending on just how bad it gets, it is very possible that a bubble popping in the federal debt market will leave the Federal Budget crippled in a time when double digit unemployment will be present. Having millions of hungry, unemployed, homeless, and angry citizens around at a time when the Federal Government is simply not able to help them is a scary thought.

While the Aramike Stimulus plan isn’t even close to the idiocy that is being pushed on us now, as well as in the recent past, it still doesn’t address how the toxic debt will be dealt with. TARP in all its versions is currently a failure. And giving consumers a few hundred bucks and begging them to go shopping is nothing but a very short term increase in consumer spending. I am not necessarily opposed to lowering corporate tax rates, though how much that figures against a growing federal deficit NEEDS to be considered. Because the Federal Deficit DOES matter.

The underlying problem in the economy is the toxic debt, a huge chunk of it as a result of mortgage based securities. Nobody is sure how much is really out there, because both companies and government have done what they could to paper over it with spending, off balance sheet accounting, and pawning it off on the taxpayer while telling us the economy is “fundamentally sound”. It clearly isn’t. That toxic debt is still out there, and it absolutely has destroyed confidence. And any sort of “fix” relying on deficit spending or paper shuffling the debt to somebody else’s books is NOT going to drag us out of this. Just make recovery a whole lot more painful than it needs to be.

PD