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Source of our current economic challenges

Original post made by GX, Another Pleasanton neighborhood, on Sep 30, 2011

For those who are truly interested in increasing your understanding of the economic dynamics that has lead us to our current impasse, I urge you to read the following summary of a David Stockman interview. Please note the URL at the bottom of the page for a video of the full interview.

Web Link

I urge everyone not to to turn this into just another partisan squabble as both Republican and Democratic leadership have helped create this mess. Also, please note that Stockman believes that both tax reform and entitlement reform will be required to get out of the hole we have dug. Compromises on both sides will be required.

Until we gain a true understanding of what got us here, it will be impossible to develop a solution to our economic problems.

I do hope that one day we will have leaders who have the courage to tell us the truth. Then maybe we can start an earnest road to recovery.

Comments (9)

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Posted by radical
a resident of Another Pleasanton neighborhood
on Sep 30, 2011 at 2:16 pm

Stockman also states that the current Keynesian experiment currently being undertaken by the Democrats needs to stop.

i am reading the entire transcript, much more detailed than the summary points. good info

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Posted by GX
a resident of Another Pleasanton neighborhood
on Sep 30, 2011 at 2:32 pm

Yes I did note that but didn't want to point it out as I didn't want to start the same old partisan bickering that tends to happen in these blogs.

To be fair, one needs to note that the current Keynesian experiment actually started under Bush and a Republican congress. This is why I stated above that both Republicans and Democrats share the blame for this mess (with the Fed being at the front of the line).

I know that many want to place the blame at the foot of Wall Street. Clearly, they share a large portion of blame for our current mess. However, their actions are an artifact of the easy money/debt expansion trend that has been going on for years. They are a part of making our "Minsky Moment" happen.

Just think about what debt expansion does. It pulls forward demand from the future. So the more debt we take on, not only is our hole a bit deeper but we also will have a little bit less of economic activity to help us get out of that hole. This is why debt for consumption is so dangerous - and unfortunately something the US has been doing for decades.mUEZ6

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Posted by Stacey
a resident of Amberwood/Wood Meadows
on Sep 30, 2011 at 2:50 pm

Stacey is a registered user.

Web Link

"If you borrow money and spend it on something that going to go up in value, that’s good debt. If you borrow money and spend it on something that is going to go down in value, that’s bad debt."

Andrew Jackson seemed to know the difference.

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Posted by dublinmike
a resident of Dublin
on Sep 30, 2011 at 6:19 pm

The "Keynesian" never got off the ground with this current administration, thanks to the obstructionist Republicans.

GX, I appreciate your comment about the partisan bickering but some statements need to be responded to.

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Posted by GX
a resident of Another Pleasanton neighborhood
on Sep 30, 2011 at 8:43 pm

Stacey - Simple but excellent point. I continue to remind my kids what the difference is between good and bad debt.

Unfortunately, we as a society forgot this simple definition decades ago.

This is why we need to be very careful about any further deficit spending we take on. If it does not lead to true investment (meaning that investment will provide a return greater than the original investment and generates wealth), then we shouldn't spend the money.

Yes there are people like Krugman that say spend regardless, but what they fail to acknowledge is the difficulty of paying that money back in the future if the current spending does not improve our economic standing. Pulling forward demand doesn't do anyone any good. Yes it may seem alright today, but it puts us in an even more untenable future position to pay money back in the future.

Greece is a perfect example of this. They have no hope of paying back their loans because they don't have the economy that generates enough surplus wealth. They will be defaulting soon - let's hope for the sake of the rest of the world that that default is orderly.

I do hope more Americans become educated on the dynamics surrounding our economy and how we got there so that we can start to push our elected officials in the right direction.

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Posted by Steve
a resident of Parkside
on Oct 1, 2011 at 7:40 am

It was obvious that after having control of the govt for two years, the Keynsians had their chance and blew it, leading to the 2010 landslide election results. Even if dems think the bottomless pit spending plan is the only answer, the electorate disagrees. It's time for govt to back off and allow the dust to settle from the damage they've inflicted and the market will find equilibrium.

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Posted by GX
a resident of Another Pleasanton neighborhood
on Oct 1, 2011 at 8:04 am

Steve - I agree with your recommended action of letting the markets find their equilibrium but it sure would be nice to keep the tiring Democrat vs. Republican argument out of this. I'm sure you realize that the most recent round of Keynesian stimulus actually started under Bush.

The bigger issue here is that we have allowed debt to expand from 1.6 of the economy to 3.6. This has been happening for at least three decades and both political parties are responsible for this - e.g. remember the unfunded mandate of Medicare Part D that Bush sponsored? I'm not trying to pick on one party vs. another. We need to hold both parties accountable and expect more from them.

Here is a truly scary point. Do you realize that the debt ratio in 1929 at the start of the Great Depression was only 2.25 vs. our 3.6 today? Think about the implication of that.

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Posted by Main Street Jay Walker
a resident of Another Pleasanton neighborhood
on Oct 1, 2011 at 10:41 am

Ayn Rand ... that's the source. Her philosophical theories that captured the imagination of Alan Greenspan. A downloadable documentary is on Netflix right now ... it will show how ground zero greed came into being and yes, our 20-20 insight betrays that we all are to blame, not just the bad guys.

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Posted by Patriot
a resident of Another Pleasanton neighborhood
on Oct 1, 2011 at 3:23 pm

"However, their actions are an artifact of the easy money/debt expansion trend that has been going on for years."

I think there is more to it than that, but I agree with your basic point. Without an enormous quantity of debt, the size of the whole credit default swap problem would have been much smaller. I'd say the Department of Treasury also shares a lot of the blame.

"The banking system has been saved on the back of the savers of the United States."


It is sad to see what's happening with college tuition and expenses these days. Excessive debt is at the root of this too, and the real money is being made placing side bets on defaults. Once again we don't know who owes whom how much on the derivatives written against student loan defaults. Wasn't Dodd/Frank supposed to get this stuff traded on a public exchange? Seems like all we're getting from Dodd/Frank is higher debit card fees.

Sorry, but further commenting on this topic has been closed.

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