Why would anyone believe America is broke?

[BigRob]

OK. Here's my opinion, based on experience and history. I tried to find links to back me up but my Goo-fu is technically classified as "sucky."

Think of the consequences of an inflation rate between 2% and 2.5% as a target. Using the rule of 72, we would recognize that this means a dollar doubles about every 30 to 35 years.

This is a typical working life for most couples, and is about the life of most home mortgages, right?

Lets say you have money to lend to finance that couple's mortgage, and you want a fair return which is a modestly higher-than-prime-rate-of interest, plus the inflation rate. You are happy with that return, but of course you worry about the equity position too, since what good is getting the interest if you lose the principle, right?

So, what does that modest inflation rate do for the parties to that home purchase.

What does it do for you as the lender? Over the life of the mortgage the home rises in value, the payments become easier for the buyers to make, and your risk as the lender drops off dramatically after the first 5 years. Thats a great outlook for you, eh? A good, solid, 30 year investment with little risk during the past 25 years.

What does it do for the community? Home owners feel closer to a community than renters. Homeowners are more stable in the community than renters who are moving in and out. That means more involvement, and a better community for everyone.

Finally, what does it do for the couple? It gives them a family center, a place to raise children, and a place to focus their energies for their own well-being. As pay raises come along, they have more money and can fix up the place, add a room, get some nice landscaping, and generally enhance the value of their home. The home develops significant equity for them, and that equity can bridge them through a rough patch, a bad illness, or a disaster. At the end of their working lives they have a home more or less paid for, worth twice what they paid for it, and probably more besides, if they worked on it.

Consider the same scenario with 0% inflation. Any little hiccup during that 35 years and the whole thing comes tumbling down.

Now, if this does not make sense to you, blame the messenger for not getting the message right. But this is the way American economics has been run from the 1930s to the 2000s. Maybe a lot longer.

You don't have to convince me that some inflation is a good thing...but that glosses over the entire crux of the argument...the debate is how we can maintain that.

And as we continue to pile on debt and devalue the dollar, that is going to get harder and harder, and ultimately impossible.

 

[BigRob]

I can totally understand that you don't like Obama, that you are a Republican and you want the Republicans to win the next election. No problem with that! But, escaping from reality, and looking at the situation through deforming glasses is not going to do any good. If you want to change the situation, if you want a Republican to be the next POTUS, focus on electing a viable candidate in the primary election. Beating on Obama is not going to do that! Just look at history, both Reagan and Clinton had approval rating LOWER than Obama at this time in their presidency. And still they won a second term.

Just to zone in on this issue...

Reagan also had an economy that was starting to really turn around noticeably, and Clinton was looking at a 9.2% unemployment rate...both of those are going to be hard to overcome for Obama, barring some changes in the next year or so.

 

[ProudLefty]

You don't have to convince me that some inflation is a good thing...but that glosses over the entire crux of the argument...the debate is how we can maintain that.

And as we continue to pile on debt and devalue the dollar, that is going to get harder and harder, and ultimately impossible.

Read Openmind's post concerning Europe. They are doing all these things, doing them well, and beating us at every measure there is.

Before we throw up our hands in despair, lets take a few minutes and see what it is that they are actually doing in Europe, and see what we can learn from their successes.

There really is no reason to punish ourselves nor for us to wear a hair shirt.

All we have to do is copy what is already working, eh?

 

[Openmind]

Just to zone in on this issue...

Reagan also had an economy that was starting to really turn around noticeably, and Clinton was looking at a 9.2% unemployment rate...both of those are going to be hard to overcome for Obama, barring some changes in the next year or so.

I agree. I don't know if he can do it. What makes me really angry is that, if you look at it honestly, who has the most to gain with the high unemployment?

Those people who have made it their career goal to "make Obama fail!" Every big business is sitting on huge amount of money currently. They could decide to hire, but the official line is "they won't as long as the economy is so uncertain."

But, who makes that economy so uncertain? Sure, we've had problems, and we still do! But a lot of that uncertainty is carefully spread by "talking mouths" on the news, by the fear mongering.

Big business doesn't want Obama to succeed, no more than their allies, the extreme Republicans want him to succeed. They both have interest in KEEPING the unemployment rate artificially high. . .

To me this is a conflict of interest. In fact, Wall STreet is doing very well, so they are not being affected by the "uncertainty!" But it also comes from a change of focus over the last 10 to 15 years: now, when a business "restructure" by firing employees and accepting a take over, the value of their stock goes UP, not down!

Another conflict of interest. 30 or 40 years ago, a company's value was also it's employees, and it's building, and it's machinery, and it's stock. Today, if you cut on all of that, the stock goes up, but the quality of life, goes down around that industry, as the unemployment goes up.

 

[ProudLefty]

I am predicting that before Labor Day we will see more and more of the wealthy speak out against Republican policies. The Chamber of Commerce has already told Republican lawmakers to sit down, shut up, and raise the debt limit.

The wealthy need a strong and vibrant and strong middle class or the wealthy have no customers. Most of the wealthy understand this. Spoiled little rich boys like the Koch brothers are in the minority. Thank God!

http://www.usnews.com/news/articles/2011/07/05/chamber-gop-butt-heads-on-debt-ceiling

"... The Chamber of Commerce was the top outside spender in the 2010 elections, buying nearly $32.9 million worth of ads, often opposing Democratic candidates. But now, some of the members of the Republican wave that the chamber helped to bring about are arguing that drastic spending cuts, without tax increases, will be necessary before the debt ceiling is raised. In January, Chamber of Commerce President Tom Donohue told MSNBC, "We absolutely support the expansion of the debt." In a May letter to all members of Congress, R. Bruce Josten, the chamber's executive vice president for government affairs, urged lawmakers to raise the debt limit "expeditiously." And at a June event in Atlanta, Donohue jokingly told representatives threatening not to raise the debt limit, "We'll get rid of you. ..."

 

[BigRob]

Read Openmind's post concerning Europe. They are doing all these things, doing them well, and beating us at every measure there is.

Before we throw up our hands in despair, lets take a few minutes and see what it is that they are actually doing in Europe, and see what we can learn from their successes.

There really is no reason to punish ourselves nor for us to wear a hair shirt.

All we have to do is copy what is already working, eh?

But what is working in Europe seems to be cuts, not this idea of spend spend spend. That is what many Republicans are advocating for.

 

[BigRob]

I agree. I don't know if he can do it. What makes me really angry is that, if you look at it honestly, who has the most to gain with the high unemployment?

I'm not sure anyone wants to keep unemployment high to benefit...but I certainly won't fault someone for taking advantage of the situation they find themselves in...that does not mean they created it however.

Those people who have made it their career goal to "make Obama fail!" Every big business is sitting on huge amount of money currently. They could decide to hire, but the official line is "they won't as long as the economy is so uncertain."

But, who makes that economy so uncertain? Sure, we've had problems, and we still do! But a lot of that uncertainty is carefully spread by "talking mouths" on the news, by the fear mongering.

No business watches the talking head programs to get their economic advice. Uncertainty for them is based on economic data, and a lack of a coherent tax/economic policy from the Obama Administration.

Big business doesn't want Obama to succeed, no more than their allies, the extreme Republicans want him to succeed. They both have interest in KEEPING the unemployment rate artificially high. . .

I don't buy that. It is far easier for big business to prosper in a booming economy than in a sluggish one.

To me this is a conflict of interest. In fact, Wall STreet is doing very well, so they are not being affected by the "uncertainty!" But it also comes from a change of focus over the last 10 to 15 years: now, when a business "restructure" by firing employees and accepting a take over, the value of their stock goes UP, not down!

Well, it depends on a lot more factors than just that on if the takeover is a good idea and will ultimately help the stock price.

Another conflict of interest. 30 or 40 years ago, a company's value was also it's employees, and it's building, and it's machinery, and it's stock. Today, if you cut on all of that, the stock goes up, but the quality of life, goes down around that industry, as the unemployment goes up.

Again, there is more too it than that. Look at Circuit City for example, firing employees, closing stores, and eliminating stock does not automatically help the stock price. There are many other factors that have to be considered when determining a companies value.

 

[Openmind]

I'm not sure anyone wants to keep unemployment high to benefit...but I certainly won't fault someone for taking advantage of the situation they find themselves in...that does not mean they created it however.



No business watches the talking head programs to get their economic advice. Uncertainty for them is based on economic data, and a lack of a coherent tax/economic policy from the Obama Administration.



I don't buy that. It is far easier for big business to prosper in a booming economy than in a sluggish one.



Well, it depends on a lot more factors than just that on if the takeover is a good idea and will ultimately help the stock price.



Again, there is more too it than that. Look at Circuit City for example, firing employees, closing stores, and eliminating stock does not automatically help the stock price. There are many other factors that have to be considered when determining a companies value.

Yes, I do understand that there are more factor than just one entering in the decision to close a company, or a manufacturing plan.

But today, the "value" of a company is determined by how its stock is valued. If you look back at a time when we, as a country, were doing really well in manufacturing and other economics indicators, the fact that a firm provided employment for a whole community, the multiplicating effect of those employees' money on the community (velocity of money) including small business that reaped benefits from a healthy local economy. . . all those factors entered in what a big business was worth.

Today, it is ONLY about stock price, and stock prices tend to go up if the "cost" of the company goes down. And the most expedient (although not the smartest, or the most profitable in the long run) is to "trim down" the company, and fire people. . .who then become unable to support the local economy.
Flint is an exemple, but it is not an isolated exemple.

 

[BigRob]

Yes, I do understand that there are more factor than just one entering in the decision to close a company, or a manufacturing plan.

But today, the "value" of a company is determined by how its stock is valued. If you look back at a time when we, as a country, were doing really well in manufacturing and other economics indicators, the fact that a firm provided employment for a whole community, the multiplicating effect of those employees' money on the community (velocity of money) including small business that reaped benefits from a healthy local economy. . . all those factors entered in what a big business was worth.

I am not sure what you mean by "when" we were doing well as a country in terms of economic indicators. Can you be more specific with a time frame?

Today, it is ONLY about stock price, and stock prices tend to go up if the "cost" of the company goes down.

Should a company not be valued on their assets/business etc?

And the most expedient (although not the smartest, or the most profitable in the long run) is to "trim down" the company, and fire people. . .who then become unable to support the local economy.
Flint is an exemple, but it is not an isolated exemple.

I don't think that is the case always. That is the case when a company starts to make a poor product and be unable to compete in the market. However, other companies are gaining market share and hiring employees as they expand.

I see no problem with letter the market pick winners and losers.