Lol, no, sorry but need to correct you. After the communist system broke down politicians (the only segment with power) split off in three directions: a) emigrated to other countries and were never heard of again, b) remained in politics and now hold positions in various ministries, c) used their political connections plus the opportunity in the hours of total chaos to amass undervalued assets that would have never been such undervalued had there been fair auctions, markets, and competition. The third group was what later became known as "oligarchs". Most washed their hands even in blood, killed people either single handedly or had them killed, worked closely with the quickly in power rising mob, but still maintained their briberies to politically related "entities" in order to be "allowed" to continue to exploit the system. People who are now several billion USD heavy had not had to be necessarily smart and some really are not. Let me ask you , has it ever occured to you in the whole human history that people can gain wealth in the tune of several billion dollars from nothing through honest and ethical work and that in less than 10-15 years? Really the only 2 groups of people that come to mind are a) speculators who seized the opportunities of bubbles such as the tulip mania, and on the other side entrepreneurs who started IT companies and sold them years later at 10000%+ markups. Both groups made their money through honest and legal work, in transparent and liquid markets. Russion Oligarchs in my view are nothing but gangsters who bought themselves into London real estate and Swiss Ski Resorts in their belief the world will now respect them for something they never deserved. There are two regions that I believe will fail miserably because wealth was created because of fotunate events but not hard work: Russia, and the complete oil-blessed middle East. The likes of Dubai and Quatar will go where they come from, camel riding bedouines. I never invested nor will I ever invest a single penny in those two regions. Look at what happens to multi-national oil companies when they started negotiating a fair share of their business. They get sacked and are forced to "sell" their ownership share at flee-market prices in investmensts such as Sakhalin 2. Or like to take a look at the must expensive hotel that, I think, just opened last year. A country in the desert who wants to make tourism their major source of income? Which but some eco tourists want to spend their annual vacation counting sand? Oh, dont forget the billions those idiots invested in US investment banks of which some dont even exist anymore. Have those sovereign wealth funds ever made a penny on their investments? Please point it out I must have missed it. So question remains: Would you want to invest your hard earned dollars with some totally retarded and unskilled people who currently may be lucky because they sit next to a gold fountain which, however, may stop working any moment? A casino looks like a money market account to me in comparison.
consumers and businesses hoard money? Can you point me to examples? I only see even the wealthiest trying desperately to sell some of their mansions and vacation homes to stay liquid. Everyone but some rare exceptions are begging for credit. The change in thinking has not even begun. People and businesses still believe they can borrow their way out of this mess. That is why credit card companies, banks, markets limit credit. I would not want to throw good money after bad ideas. Maybe I am blindfolded...;-)
The savings rate is rising. People are paying off debt. People are spending less. Business aka Banks are trying to improve their balance sheets and meet reserve requirements. I could quote articles from Bloomberg and CNBC, CNN, BBC, the Fed whatever, but I don't think that's necessary. Maybe 'hoarding cash' isn't as good of an explanation as 'not spending nearly the same amount' would be. It amounts to money being taken out of the economy. The fed can print as much money as it wants and we'll still go into a depression if all that money just disappears into the sewer and never makes it out into peoples hands.
That's a valid point, and one I was going to mention (by way of edit) in the interest of full disclosure, but you beat me to it. Broken_Trades - you have summarized perfectly well exactly the sentiment and ideas I've been emphasizing. I would dare say 80% of the stimulus money went to pay for government systems and employees (teachers, firefighters, police officers, sanitation workers, city employees, state employees) that would not have gotten paid had it not been for the 'bailout bill,' so there was no "extra" stimulus contained in that money, and the other 20% is still locked up pretty much, awaiting absurd requirement before it can become 'shovel ready disbursements.' As far as the TARP and TALF fund, the buying of Treasuries, and the bailouts to auto companies and insurance companies (AIG), other forms of bailouts to banks and financial firms, and all the rest of the roughly 12 trillion of federally guaranteed 'backstop' pledges and guarantees, this money isn't the liquid variety, set to wash over the economy - it really doesn't come into existence until a triggering event occurs, and even then, it flows to select, specialized parties, and not into the economy as a whole - think a CDS default where AIG must pay Goldman Sachs because a counter-party to Goldman can't pay on a bet, and AIG was the insuring party to the CDS. There's nothing stimulative or inflationary about this.
Just to add onto this again. Maybe "HOARDING MONEY" was the right term to use. haha Lowest Libor Hides `Exceptionally Wide' Spreads by Banks Hoarding Deposits http://www.bloomberg.com/apps/news?pid=20601087&sid=aApb7uqQRqQw&refer=home
You are right of course, there is not the productivity growth needed in the US to pay back its borrowed money with money that has anywhere close to the same buying power as the money borrowed. However, the US will be able to meet its debt obligations for quite sometime by monetizing, and that of course is going to fuel some inflation. We already see considerable inflation in food prices in the US and commodities appear to be on a rise once again, though no one expects to see early 2008 commodity prices again for a long time. So we might see, in the US anyway, a sort of depression accompanied by inflation. Living standards will drop for many, consumption will slide, wages will stagnate, but prices won't fall and in fact will rise. Not a pretty picture at all. Over the current century, and more likely in the first half of it, the dollar will lose its status as the world's reserve currency. Eventually, but it's quite a ways off, the US will be forced to issue debt denominated in a basket of currencies. In the meantime, one should expect a substantial influx of dollars back into the U.S. as U.S. assets are sold off to foreign interests. This will help to correct imbalances, and this process has in fact already begun. The US has entered what seems to be an irreversible debt death spiral at very high altitude so there is a long way to drop before the eventual crash. There remains a remote possibility of pulling out of this spiral, but that would require two very unlikely events: the cost of medical care would have to decrease by about 50% and military spending would have to decrease by an even greater factor to bring it in line with competing economies. I don't see either of these things happening, but who knows? The U.S. is a nation that seldom acts on anything significant until a crisis looms. Perhaps there is still a chance that the economy can be rescued. By investing in U.S. infrastructure and creating jobs the Obama administration is both reacting to the present reality and attempting to push the country in a more productive direction. These are good things to do, but will the return on investment be sufficient to pay off the the money borrowed? Regardless, if the U.S. does not correct its medical and defense spending habits, it will not be able to sustain even its present wounded economy.