Financial topics

[thomasglee]

The FED has certainly grown in size and status, but it's a private bank, not part of the government. The US federal govt is shrinking in terms of number of employees (opposed to retirees or pensioners, which are different books and aren't bureaucrats - and yes I've seen attempts to count them as the same thing), the military is being reduced, etc. The FED may be getting bigger, but the bureaucracy is not.

OLD, if I understand it right, you work in the military. When John talks about the "crusty old bureaucracy" he is referring to the large private corporations that were founded or grew mostly out of the bottom of the last cycle. For example, GE, founded by Edison, I think, was once an innovative and self-sustaining company that has become a crusty old bureaucracy dependent on government handouts, favors, and contracts.

My theory on where people best innovate is that it hasn't changed. It does not occur inside large bureaucracies like GE despite a wider recognition of what innovation is and how it is done, because innovation is closely tied with the human spirit and the conditions of necessity and freedom (maybe not the exact right words) from which all of history's progress has come. Necessity is maximized under tough economic conditions, but so is freedom. People innovate best in small unstructured environments like garages, basements, or small companies. The way the maximum number of bright people get into innovative environments is for the crusty old bureaucracies to collapse and for costs to come down. In the case, as like today, when the societal structure of the US has become flawed so as to disallow innovation, people will probably go outside those boundaries to innovate. The US economy will not receive the benefit.

Small business is being systematically destroyed by tax and regulatory provisions. They will just leave here taking every last cent and setup elsewhere and it is ongoing before your very eyes.

Another way of stating that innovation is disallowed. Reward a parasitic monster like GE but pick on the little companies from which most progress comes.

A very astute and accurate analysis. Curious, have you read "The Innovator's Dilemma"? It's interesting to see that even companies go through their own versions of Generational Dynamics. I guess that's natural, but within some industries, the generational changes seem to occur more rapidly than they do in society.

[Trevor]

That reminds me: I read that many businesses actually start and grow during economic downturns. I was skeptical at first, but it does make a certain amount of sense. During a recession, plenty of people go out of business, clearly the way for new businesses to take over.

However, we've bailed out a lot of the businesses, under the "Too Big to Fail" argument. Had we not done so, they would have collapsed and others would be trying to take their place. Only the smartest businesses will survive a new great depression. If they're able to do so, however, once the collapse ends, they'll be thriving.

[jcsok]

Trever wrote:

That reminds me: I read that many businesses actually start and grow during economic downturns. I was skeptical at first, but it does make a certain amount of sense. During a recession, plenty of people go out of business, clearly the way for new businesses to take over.

However, we've bailed out a lot of the businesses, under the "Too Big to Fail" argument. Had we not done so, they would have collapsed and others would be trying to take their place. Only the smartest businesses will survive a new great depression. If they're able to do so, however, once the collapse ends, they'll be thriving.



Its not that in recessions people go out of business paving the way for new businesses as much as people are laid off of companies, and those unemployed start small businesses of their own, in their garages etc., and as Higgenbotham discussed earlier, the new small businesses are the source of innovation. I really don't think that a lot of businesses have been bailed out. Only a few banks and a few large corporations come to mind -- GM, Chryler, GE, the psuedo governmental corps of Fannie May and Freddie Mac (which in turn bail out other banks) probably effectively 20 to 30 large banks. The smaller regional banks have not been bailed out; they're not TBTF, they haven't bought enough politicians. Had the powers that be really wanted to stimulate the economy, it would have been more effective as Helicopter Ben espoused several years ago to drop money to the masses from a helicopter. He, however, was being facetious, knowing well that the FED would only allow large banks to "'print" money through loaning electronic dollars, and then dumping the bad "electronic dollar" loans on the FED.......

[thomasglee]

Trever wrote:

That reminds me: I read that many businesses actually start and grow during economic downturns. I was skeptical at first, but it does make a certain amount of sense. During a recession, plenty of people go out of business, clearly the way for new businesses to take over.

However, we've bailed out a lot of the businesses, under the "Too Big to Fail" argument. Had we not done so, they would have collapsed and others would be trying to take their place. Only the smartest businesses will survive a new great depression. If they're able to do so, however, once the collapse ends, they'll be thriving.



Its not that in recessions people go out of business paving the way for new businesses as much as people are laid off of companies, and those unemployed start small businesses of their own, in their garages etc., and as Higgenbotham discussed earlier, the new small businesses are the source of innovation. I really don't think that a lot of businesses have been bailed out. Only a few banks and a few large corporations come to mind -- GM, Chryler, GE, the psuedo governmental corps of Fannie May and Freddie Mac (which in turn bail out other banks) probably effectively 20 to 30 large banks. The smaller regional banks have not been bailed out; they're not TBTF, they haven't bought enough politicians. Had the powers that be really wanted to stimulate the economy, it would have been more effective as Helicopter Ben espoused several years ago to drop money to the masses from a helicopter. He, however, was being facetious, knowing well that the FED would only allow large banks to "'print" money through loaning electronic dollars, and then dumping the bad "electronic dollar" loans on the FED.......

There were many other businesses bailed out, just just haven't hear of many of them. Furthermore, the bailouts of the ones you mention, did have somewhat of a trickle down effect an therefore indirectly bailed out others (their suppliers). Not saying that was a good thing.

[aedens]

http://graphics.thomsonreuters.com/12/0 ... lendon.pdf
transfer from the real economy to the financial black holes.
Let us not be naive on the preference.
The first two rules of capital have never changed.
In February, EIG announced that China Investment Corp.(CIC), China’s sovereign wealth fund, had acquired a minority stake
for an undisclosed amount. CIC declined comment.

[jcsok]

There were many other businesses bailed out, just just haven't hear of many of them. Furthermore, the bailouts of the ones you mention, did have somewhat of a trickle down effect an therefore indirectly bailed out others (their suppliers). Not saying that was a good thing.

That's the official justification for the bailouts, the trickle down theory to appease the voters. That doesn't change the rot in the system. That allowed only the worker bees to keep a job which they hate, while the elite were able to keep a job which they love because of the massive salaries and bonuses. The elite don't have the skills to do productive labor, the worker bees will find another place to perform labor, some will be entreprenuers starting new small businesses through innovation.

The TBTF financial system is where the real problems lie (pun intended). The interconnectivity of the financials and the bailout of AIG in order that Goldman wouldn't take a hit (which it could have withstood), is forgotten or misunderstood, or ignored by the voters. These transfer payments have to be paid by the worker bees, who just don't realize it because they get to keep their job....which they hate.

[jcsok]

While watching Bloomberg TV early this morning, I watch news reports of the IMF gathering 320 billion to bailout Europe again because of the crisis. (Are you exhausted from hearing the term "crisis" as I am?) No leader wants the historical stigma of the dominoes tumbling down on their watch. But 320 billion will only plug one hole in the dike, the land mass is sinking, the ocean (debt level) is massively larger and relentless. Interest compounds, real growth does not.

A couple of years ago I read a link related to systemic fragility. The article made an analogy between our society and an ant colony. The ant colony grows and grows with interconnected tunnels, much as our society has grown. In todays world, each worker has become more specializes, going to work each day, placing parts on a gizmo, repetitivly, and knows less and less about the overall mechanism. Technology has integrated more electronics into every aspect of mechanics, and fewer people can diagnose and repair problems. Throw the part away! What went wrong? Just buy a new one, later and greater.

At some point a cataclysmic event occurs to the ant hill, and the entire den collapses. Because of the specialization of today's society, the masses won't have the skills to start a new den. Nor will they be able to live on nonexistant fiat money.

I would venture to say that few on this forum have not read Atlas Shrugged. I read it 35 years ago, and began to read it again recently. As I watch Bloomberg this morning, there's an ad for a silver miner in Mexico and the US. Scary parallel with a subplot of Atlas Shrugged. I recommend reading the book again with Generational Dynamics in mind.

[aedens]

"Anyone who doesn't regret the passing of the Soviet Union has no heart. Anyone who wants it restored has no brains."
- Vladimir Putin-

Russia received its first loan from the IMF in April 1992, for $1 billion. In 1993, the Russian government took out another loan, this time for $1.5 billion. A year later the IMF provided still another $1.5 billion. By December 31, 1995, the Russian central government had borrowed over $10 billion through the IMF. When on March 26, 1996, the IMF and Russian central government reached final agreement on a new loan of $10.2 billion--the second-largest loan ever made to any borrower by the IMF. Capital flight at a rate of $2 billion to $3 billion per month was noted. Dmitri Vasiliev, former chairman of Russia's Federal Security Commission, confirmed that IMF loans were used to bail out insiders.

[jcsok]

Adeans - of the Russian loan from the IMF, was any of it repaid?

What of the parabolic nature of IMF loans... 1 billion to 10 billion in the 1990's, now the world doesn't mind throwing around 300-400 billion.

[shoshin]

as an possible antidote to our Dear Leader (the "gloomiest man alive") I post this link to Apocalypse Not Quite Yet...and to be fair, John does believe (along with me) that technology will provide changes we can't imagine...

http://www.city-journal.org/2012/22_2_a ... -daze.html