Today the main feature of the US economy – government Bailouts.

Discussion in 'Economics' started by SouthAmerica, Feb 24, 2008.

  1. .
    February 24, 2008

    SouthAmerica: It seems to me that today the entire American Capitalist System it is on life support and on intensive care.

    Today, the United States the country itself depends on borrowed money from other countries to keep its economy afloat.

    For a number of years the American economy has been going through one financial crisis to another – and from a bailout to the next. Without government bailouts it seems to me that the American capitalist system is becoming obsolete, and probably would collapse without heavy government intervention.

    The principles of laissez-faire and free market economy that the United States used to hype around the world and wanted to impose and preach as gospel for other countries to adopt it - it is completely broken.

    But the reality is that the US market economy is running into trouble repeatedly and time after time the US government intervene with massive bailouts.

    Today to better understand how the US economy works – we can describe it as the “Bailout Economy” – that is the best characterization for people to understand how the US economic system is working today.

    The old idea that the free market economy system was the most efficient, productive, and so on – it is becoming very clear for most people around the world that it is not true in the real world.

    Without US government subsidies for many industries, and major bailout the US economic system can’t survive.

    The US government humongous federal budget, combined with major government industry subsidies, and massive economic bailout it is getting to the point that very soon people will start asking questions about the future viability of the American capitalist system. And if the system it is in the process of dying a slow death.

    The idea that free market economics created the most efficient allocation of resources went down the toilet after the savings and loan scandal of the 1980’s, the trillions of US dollars that went up in smoke during the telecommunications and dot com meltdown in the early 2000’s, plus all the other bank, and insurance company bailouts that is becoming a routine for the US economic system to be able to operate - and that is costing trillions of US dollars to the taxpayers. (trillions of dollars in borrowed money from people from around the world.)

    Right now the American capitalist system it looks like a dying system – a system that is being kept alive only by a bailout after another.

    In a Nutshell: Today the main feature of the US economy is the major US government BAILOUTS that the US economy can't survive without it.


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    A ‘Moral Hazard’ for a Housing Bailout: Sorting the Victims From Those Who Volunteered
    By EDMUND L. ANDREWS
    Published: February 23, 2008
    The New York Times

    WASHINGTON — Over the last two decades, few industries have lobbied more ferociously or effectively than banks to get the government out of its business and to obtain freer rein for “financial innovation.”

    But as losses from bad mortgages and mortgage-backed securities climb past $200 billion, talk among banking executives for an epic government rescue plan is suddenly coming into fashion.

    A confidential proposal that Bank of America circulated to members of Congress this month provides a stunning glimpse of how quickly the industry has reversed its laissez-faire disdain for second-guessing by the government — now that it is in trouble.

    The proposal warns that up to $739 billion in mortgages are at “moderate to high risk” of defaulting over the next five years and that millions of families could lose their homes.

    To prevent that, Bank of America suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates.

    “We believe that any intervention by the federal government will be acceptable only if it is not perceived as a bailout of the bond market,” the financial institution noted.

    In practice, taxpayers would almost certainly view such a move as a bailout. If lawmakers and the Bush administration agreed to this step, it could be on a scale similar to the government’s $200 billion bailout of the savings and loan industry in the 1990s.

    The arguments against a bailout are powerful. It would mostly benefit banks and Wall Street firms that earned huge fees by packaging trillions of dollars in risky mortgages, often without documenting the incomes of borrowers and often turning a blind eye to clear fraud by borrowers or mortgage brokers.

    A rescue would also create a “moral hazard,” many experts contend, by encouraging banks and home buyers to take outsize risks in the future, in the expectation of another government bailout if things go wrong again.

    If the government pays too much for the mortgages or the market declines even more than it has already, Washington — read, taxpayers — could be stuck with hundreds of billions of dollars in defaulted loans.
    You can read the entire article at:

    ource: http://www.nytimes.com/2008/02/23/b...scp=3&sq=Edmund+l.+Andrews&st=nyt&oref=slogin

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  2. Excellent and Always Insightful Commentary....
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    A previous poster in another thread stated a very telling phrase....the losses are being socialized...whereas the gains have been capitalized....

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    What is interesting is to point out what went wrong with the current form of American Capitalism....

    One cause would be the ineffective form of distribution of wealth...

    Another cause would be the continued add ons to inefficiency to productivity....

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    Another interesting point is that there are a lot of right things about American capitalism as well....

    Assets form their highest wealth on electronic stock exchanges...

    Whereas it is also true that the very same assets form much lower wealth levels in a socialistic framework....
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    The US economy will have to morph into efficiency mode....This mode must also recognize that globalization is here to stay...in simpler terms ...cheaper labor is elsewhere and will be pursued...
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    Thus since labor is but one component of the overall process...then what has to happen to make the collective process more efficient...within the boundaries of the US...to better benefit the US population..
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    First one must look at the basic categorical underpinnings.....

    Education
    Medicine
    Government Taxes
    Manufacturing
    Entrepreneurial Small Business
    Government Legal
    Currency
    Nongovernment legal
    Finance
    Housing
    Energy
    Food
    Wealth Distribution

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    Now that the debt picture is so large ....efficiency in all categories has to be relentlessly pursued...and must be rectified in the shortest time frame possible...
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    The package that promotes efficiency would include..

    E Government
    Eliminate IRS...Consumption tax only
    E Education
    Non oil non food based energy
    Eliminate legal largesse
    Enhance electronic stock exchanges
    Mandate stock ownership
    Remove medicine as a business

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    Socializing the losses...and making sure that the 1% of Americans retain ownership of more than 80% of total assets...is a sure path to failure...

    Even Gates and Buffett have made recent remarks about how American style capitalism has to change.....

    If it does not.....well....look at where it is going....

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  3. The "root of our financial ills" is the US Gummint's policy of deficit spending. For DECADES the Gummint has spent significantly more money than it has collect in tax revenues. Unlike other conuntries which simply "printed" more money, the US has floated treasury bonds and has always had an "official debt ceiling"... both bond floating practice and the debt ceiling are now and always were phony-baloney. (The Gummint ALWAYS intended to NEVER repay the borrowings in kind, but rather planned to raise the debt level indefinitely and float even more bonds to pay off on the bonds maturing.)

    Unfortunately, this reckless use of credit by the Gummint has spilled over to consumers and financial industries. We have consumers living beyond their means via "charging the difference", with no ability to repay (perhaps never had any intention of repaying?)

    Whenever a government resorts to the excessive printing of money, it's always either/both (1) they're trying to get away with something... mosly, consuming the country's wealth while the majority of citizens don't realize how they're being hosed, and (2) they're covering up past financial misdeeds.

    America has two choices.... (1) stop deficit spending and allow they "credit-foolish" to pay for their financial discretions, or (2) print money ever faster in an effort to "paper over" as many bad decisions and practices as possible. (Of course, this will lead to very much higher inflation and currency debasement... even currency destruction and bankruptcy for nearly all Amreicans if carried far enough.)

    I believe the Gummint has opted for "Door #2", as it will postpone the ultimate collapse... perhaps even long enough for today's crop of evil doers to die... leaving the mess for someone else (younger generations of Americans) to cope with.

    The "handling of the money-print press" by the US Gummint, is not novel... nothing new at all. It's been done HUNDREDS of times before throughout history... and always with the same result.

    And unfortunately our mess is not because we were "unlucky", or "unintended consequences"... the Powers have known all along what they were doing. America's problems stem from the greed and dishonesty of the American Gummint politicos. They have quite simply shown themselves over and again to be none better than common LIARS AND THIEVES, just like in most (all?) other governments. :mad:
     
  4. Excellent Commentary Gnome...
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    Having lived in several countries....every one of them have created more dilution and debt ...without exception...

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    As imperfect as the current US status is....it still leads the rest of the world...

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    What can change the current debt picture...is to change the system...and thus the changes in valuation of assets that would happen as a result of this change....

    The items that I listed above have to be addressed ...no exceptions....If pursued properly...the valuation of the US economy will be strengthened a million fold...

    Every great company will want to be in the US...Every human being in the world would want their country to be just like the US...
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    A place where health care is a human right not a business...a place where people who contibute to making their companies great get some ownership of the company...so that even their children will have something....a place where there is no income tax on individuals or companies...just consumption taxes...a place where 1% of the people do not own 80% of the assets...a place where the government is truly controlled by its people via the internet....a place where all children find an equal education...and truly an equal prospective future...a place where the energy comes from an everlasting local source that does not polute the air and ground....a place where legal largesse is no more whereby small business can thrive....a place where infrastucture and not the military is more important.....a place where opportunity for small business exists in the form of non obligatory loans called stocks that trade on electronic exchanges that take the place of the non producing banks....a place that will work towards a single world currency so that the fiat currency and loan options no longer exist...

    No countries have this now...but the US can have this....as long as the chosen leadership will cause the legal direction...

    It is very very unfortunate that neither of the prospective candidates support or plan to implement what I have mentioned... The closest was Ron Paul...The current prospects will just supply more of the same...
     
  5. The primary reason "the US leads the world", is because we haven't fully blown it yet, but unfortunately, "we're working on it". (After all, it takes a while to "spend all you've got" when you're as large as America.)

    At one time, America was the pinnacle of economic and financial power and personal liberties.... by miles and MILES. Of course we're not Rwanda yet, but unfortunately we're barreling down that path at an ever accelerating speed. :mad:
     
  6. libertad,
    those were 2 of the best posts I have ever read here.
    You are 100% spot on.
    COULD it happen? SHOULD it happen?
    Absolutely.
    But WILL it?
    unfortunately, only 1%-3% of the general populace agrees with us on the general principles involved. Just look how Ron Paul has placed.
    If we could have a ten-fold increase in the amount of people who agree with these concepts, we could start making it happen. But such a small minority as we have now can't get it done.

    Odysseus