Is the gov't an economy?

Discussion in 'Economics' started by nutmeg, Feb 6, 2013.

  1. Question. Probably an elementary question.

    Anyways, is the Fed/gov't an economy? If it is an economy, is it in competition with the private economy? Our current situation seems distorted. Has it always been this way?

    For example: ( excerpt from burning platfor blog)

    ".... the Federal government hasn’t attempted to spin off their 80% control of Ally Financial (aka GMAC, Ditech, Rescap). The Feds are attempting to manufacture a recovery by doling out subprime auto loans to anyone who can scratch an X on a loan document and offering 0% loans over 7 years to good credits. How exactly does a finance company generate a profit by making 0% loans for seven years and approving loans to people with no means of paying them back? Experian recently noted that 44% of ALL auto loans have been to subprime borrowers over the last year. When a financing company doesn’t have to worry about profits or loan losses, everyone gets a Cadillac Escalade. The losses on these subprime loans will be in the billions when the next leg down in this Crisis hits."
  2. Question.

    If the gov't lends money to buy cars without expecting to make a profit on the loans, how does this effect for profit lenders?
  3. Those are very valid questions. I think that it corroborates what most of us see as the ongoing shift towards a centrally planned economy. This was put into overdrive towards the end of 2008 when many of the traditional private sources of capital either went out of business or were "saved" as a guise to create a merger of sorts between crony interests and DC.

    If you think about it, the 2003-07 period with the real estate bubble as a "solution" to the "deflationary potential" of the tech fallout, and with it the complete disregard for traditional lending practices (i.e. the exact same situation as you outlined above with channel stuffing, student loans, etc...). Basically, the role of failure in capitalism has been completely abandoned. Without it, a series of asset bubbles predicated on constant misallocation of capital and limitless deep pockets ensues.

    But back to the main point of Quinn's article. The narrative is that we have a "recovery". At times, they can massage the data to fit the narrative; other times they simply come up with another bag of tricks (such as the anticipation of more Fed stimulus) to support the rising stock market = economic recovery myth. Meanwhile, the useful idiots who still believe in this "Dem's vs Repub's" get all frothed up about the successes and failures of politics as it applies to another artificial asset bubble.
  4. There is no longterm plan to fix any if the structural problems that are causing things to stagnate
  5. Of course not, the plan is to consolidate more of the formerly "private economy" into the hands of DC and their special crony interests.
  6. yes the fed and government are an economy. they buy 85 billion a month from the markets and who is ever going to buy that position back from them?
  7. What is going to happen to competition?

    We watched mom and pop business fail to larger scale operations. Now we have larger scale business, get larger and then too big to fail which become de facto gov't operations themselves.

    This situation is going to be a disincentive to create new business.
  8. vicirek


    One have to start with how money is created: one is savings and economic growth and the second is inflationary money by government debt creation.

    Are those two competing. Sure. Therefore there were check and balances in place like then independent Fed and democracy to prevent imbalances between those two because both are needed for accelerated economic growth.

    Now what is happening is really dangerous for long term stability.

    If the bank has to lend to business which is risky, requires expertise and lots of work dealing with people that smell and brings back little profit money as opposed to warehousing and distribution of freshly minted paper by the billions who do you think they choose.

    Another important factor is politics and power. Politicians and career bureaucrats figured out how to hijack democratic system and corrupt it with this deficit debt creation. Now they can print money and elect themselves by paying corrupt electorate and people with no free will who depend on government salary, pension and handouts.

    So yes now government is becoming the economy and the profits do not matter for them because everything is about absolute power of oligarchy and it is called socialism (trying not to call it publicly what it rally is)
  9. Just as measuring market capitalization of companies to the GDP's of countries is not meaningful, so also is the government not an economy.

    The government is the foundation of the economy, designed to enforce laws and property rights. It is not an economy that has to sustain itself, and never will, but it's that sustainability and dependence on the private citizens of our nation to provide tax revenue to support our society.

    No government is an economy, and no government should ever be classified as such or even compared to the motivations of our largest for-profit corporations. There is no productivity in government, therefore nothing is contributed to the economy.

    The G portion is nearly always offset by fiscal and monetary imbalances, but even if it were positive this would not be a net plus for anybody in those economies because any surplus is not spent to produce productive resources but to re-allocate our most productive capital to less than worthwhile uses.
  10. vicirek


    Such division into "productive" and "non-productive" parts of society has its roots in communist/socialist ideology and those abstract concepts has been tried in practice in the past and were proven wrong. This abstraction does not exist in real life and in real society.

    Government is an economy as local policeman, teacher, social worker, doctor and bureaucrat are also the economy. If you properly structure it and measure all its parts then you will discover that there is such think as productivity there.
    #10     Feb 7, 2013