Society needs more "Good" Traders

Discussion in 'Economics' started by Longcat1982, Oct 9, 2010.

  1. Right now, central banks are pumping massive amounts of stimulus, but that money isn't reaching the ordinary joe. The path of money is:

    Central Bank -> Banks -> (buying bonds) -> Bond Market

    A good trader makes money by taking money out of the bond market. He then spends that money on buying nice things, vacations, etc. for himself, thus stimulating the economy.

    So now the path of the money is:

    Central Bank -> Banks -> Bond Market -> Trader -> Economy

    If the # of traders out there that are successful at extracting this stimulus money increases 100x fold, how do you see the economy heading? Full employment? Hyperinflation? Stagflation?
     
  2. Are you serious?
     
  3. LEAPup

    LEAPup

    Huh?:confused:
     
  4. For once we are in agreement. This made me laugh too.
     
  5. I think he is damn serious. I wonder why you are asking. Can't you see there is a liquidity trap? Banks get the money in US and Europe and they invest it back in government bonds because they are afraid to lend businesses. As a result the bubble in bonds. The governments in turn get the money to repay debts. Surpluses of a few lender nations increase. QE is not helicopter money. It is a means of bolstering bank balance sheets only. Just a few executives get good pay and they are the only ones who spend money.

    Real QE would be to print money and pass it directly to businesses with an allocation model that relies on earnings, growth and expansion plans. True, a lot of money would be wasted but the net effect would be a drop in unemployment and a rise in inflation. The rise in inflation would be small if the money is allocated to companies that are competitive and productive.

    This can be done by the FED purchasing directly bonds issued by corporations.
     
  6. Quite apart from you being incorrect on a variety of points above, what does it have to do with the OP's absurd idea? Are you telling me that you seriously expect punters to become the financial transmission channel for the real economy?
     
  7. Kubinec

    Kubinec

    I agree with you 100%.

    I'm fresh to economics and have asked myself and a lot of other "experts" that question a lot of times when going over the system that we currently have.

    It seems that the economic model we have going right now is simply ineffective.

    If the goal of this model is to provide the most economic benefit to the public, then it simply fails in that regard.

    But OP's method could use some trimming with an Occam's razor.
     
  8. IMO the OP was kind of joking but behind his joke lie some real problems with current way of stimulating the economy.

    Please enumerate the points I am incorrect in detail otherwise it is just your usual ad hominen approach.

    I really do not understand you. You must have a serious problem. Why do you call punters growing businesses I made reference to? Do you have such a serious comprehension and attitude problem?

    The only punter I see around is you.
     
  9. First of all, how can it be ad hominem? Did I say anything offensive about you or belittle you in some other way? I would gladly point out the particular points where I believe your statements to be incorrect. Secondly, what do you mean "my usual ad hominem approach"? Do I normally insult people personally? If that's the case, I'd like to see instances of this pls.

    Finally, I think you misunderstand. When using the term "punters" I was referring to the traders mentioned by the OP. It had nothing to do with your post, so I am not really sure why you're taking it all so personally. As to my comprehension and attitude problem, didn't you say smth about "ad hominem" in the previous paragraph?
     
  10. That's largely off the mark. The contraction in credit is not just a supply issue. Most recently it's been mostly a consequence of demand shrinking due to deleveraging. Banks are investing in government bonds, but it's mostly not because they're afraid to lend to businesses. It's because a) as I said above, businesses that are crediworthy don't need the credit and would rather pay down debt accumulated in the previous cycle; b) banks are addressing the liquidity regulations, such as Basel III, which require them to hold a much higher percentage of govt bonds on their balance sheets than before. This is all part and parcel of what Reinhart & Rogoff call "financial repression".
    Well, I don't see a bubble in bonds, really, but you can call it whatever you will. The term "bubble" is very much abused and, most importantly, ill-defined, so I don't use it and don't argue with its use. Surpluses of lender nations have nothing to do with the situation in the govt bond mkt, but result from patterns of global trade. As to QE, the idea is that once you bolster bank balance sheets, they'll happily supply credit to the rest of the economy. Of course, as I mentioned above, if it's not a supply problem, QE isn't that effective. Finally, regarding executive pay, what does that have to do with anything?
    Firstly, your sugestion has some merit. This version of credit easing has been adopted by other central banks (BoE, SNB and, kinda, ECB). The problem with this, of course, is who's gonna decide which company is "competitive and productive", if you're gonna take this function away from the mkt? Is it going to be a panel of "govt experts" who will tell the Fed which corporate bonds to buy? Moreover, I think you're being excessively optimistic regarding the effect, unfortunately. After all, one of the indirect (but intended) effects of QE has been the unprecedented rally in credit, which meant that corporations have been able to borrow at rock-bottom yields (there was a thread here about IBM issuing at 1%). Has that translated into lower unemployment and a rise in inflation? So direct credit easing, in my view, won't help much. The problem is that the American economy has, as a result of the crisis, undergone a very significant split. The large corporations that have access to the bond mkt are doing marvellously well, whereas small businesses haven't recovered at all. This tiering (which you can observe by looking at the ISM vs NFIB data) means that the Fed is, in fact, pushing on a string to a large extent.
     
    #10     Oct 10, 2010