[Quinny]

Anyone else think the arguments between France and USA mark a move towards a fortress Europe economic policy with protectionist trade barriers being built beyond CAP?

[Bas]

I highly doubt it. The EU is very commited to free trade as it is one of it's founding principles. Also nobody wants to repeat the mistakes of the Great depression.

[Quinny]

But it's free trade within the EU. CAP can hardly be considered free trade.

[Denny]

From the Report on Business

Looks like we are in a new era, not one of deficit reduction at all, but of governments actually seeking infrastructure projects and the like to force money to move in the economy:

"TOKYO — Richard Koo has a message for G20 leaders gathered in Washington to deal with the global financial crisis: spend, spend big, spend till it hurts and when you are tired of spending, spend some more.

...

That's because, as he explains in his new book, The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession, the world is suffering from a rare and deadly disease, the same one that Japan suffered in the nineties: a “balance-sheet recession.”

In such a downturn, companies focus single-mindedly on reducing debt, and this acts as a barrier to the normal flow of money through the economy. No one borrows because everyone is desperately paying down debt.

Spending can halt the cycle. Japan spent hundreds of billions of dollars to shore up the economy during its “lost decade.”

This may open the door in the USA to the Pickens energy plan, which for sure would involve a lot of government spending, and also for mass transit projects. Maybe this recession is a door of opportunity to build these while we can, as the commodities, such as iron, coppoer and the like are once again affordable.

[TWilliam]

Unfortunately, capital is not energy. You need energy in order to extract raw materials, process them into 'infrastructure' (or anything else) and deploy that which is produced. When it requires ever-increasing amounts of energy to extract equivalent amounts of raw materials, and both the energy and the raw materials are becoming increasingly scarce, eventually you reach a point where no amount of capital can overcome the energy deficit between that which goes in and that which is returned. It's called EROEI (Energy Return On Energy Invested)...

[Carlhole]

Unfortunately, capital is not energy. You need energy in order to extract raw materials, process them into 'infrastructure' (or anything else) and deploy that which is produced. When it requires ever-increasing amounts of energy to extract equivalent amounts of raw materials, and both the energy and the raw materials are becoming increasingly scarce, eventually you reach a point where no amount of capital can overcome the energy deficit between that which goes in and that which is returned. It's called EROEI (Energy Return On Energy Invested)...

That's what Iraq is for.

[TreeFarmer]

Have you guys watched "money as debt"? I'll put the link below. That video explains in common language why the governemnt has to spend. Paying off debt destroys money, so with everyone paying off debts the money supply is shrinking rapidly. They government has to spend like a drunken sailor to keep from having deflation.

Enjoy http://video.google.com/videoplay?docid ... 2583451279



TF

[EnergyUnlimited]

Have you guys watched "money as debt"? I'll put the link below. That video explains in common language why the governemnt has to spend. Paying off debt destroys money, so with everyone paying off debts the money supply is shrinking rapidly. They government has to spend like a drunken sailor to keep from having deflation.

Enjoy http://video.google.com/videoplay?docid ... 2583451279



TF

But government cannot spend like drunken sailor.

1. It has large but still limited tax revenue.
2. It may try to get credit from abroad but it is more and more difficult these days.
3. It may print.

If it does the last then game over.

If it doesn't, then first two options will not provide enough money to spend like drunken sailor.

Overall outcome one way or another entails economic ruin.

[Concerned]

Japan spent all that money hand still had a "lost decade"? going on to it's second lost decade now.

Japan's stock market is still down over 75% from it's all time highs nearly 20 years ago.

It hit an all time high of 38,915 in December 29, 1989, today it sits at 8462.

So I don't really buy the whole spend on infrastructure and we will be saved argument..

[RdSnt]

So I don't really buy the whole spend on infrastructure and we will be saved argument..

The concept was predicated on the notion that the country (choose any you like ) would grow into the infrastructure that was built, thus revenue (taxes) would grow and pay off the long-term debt. This works provided you keep growing.
We are now though coming to a point where there can be no growth, due to peak oil. Really we need to deliberately stop growing, however we don't have any business/cultural models for how to do this.

How do you shrink a population and an economy, yet remain innovative and expand research?

[TWilliam]

Paying off debt destroys money, so with everyone paying off debts the money supply is shrinking rapidly.

Soooo... what you're saying then is that John Cummuta is an evil b@stard who's destroying our economy?

[threadbear]

Japan spent all that money hand still had a "lost decade"? going on to it's second lost decade now.

Japan's stock market is still down over 75% from it's all time highs nearly 20 years ago.

It hit an all time high of 38,915 in December 29, 1989, today it sits at 8462.

So I don't really buy the whole spend on infrastructure and we will be saved argument..

A 75% drop in the stock market is a small price to pay to avoid mass starvation. The aggressive deficit spending wasn't the only thing that kept Japan from sliding into the abyss. They also protected key industries that helped anchor them during their economic sh** storm.

I don't think that govts are going to be able to stream line and coordinate a one world plan to help pull their economies out of the ruins. It's too destabilizing for their own citizens. Stronger regional trading alliances between countries like Mexico, US and Canada, Eurozone, ASEAN region, South and Central America, etc... will likely form, and WTO will be tossed onto the dung heap of history.

If govt deficit spends on alternative energy projects, there will be some benefit for future generations.

Pragmatism and domestic appeasement will be at the forefront of govt financial policy, unless the US manages to turn it all into a big pork barrel party for elite interests.

[TWilliam]

unless the US manages to turn it all into a big pork barrel party for elite interests.

Well... TPTB have had a lot of years of practice in that regard...

[TreeFarmer]

Energy, why is it thatgovernment can borrow money and pay interest, yet it can't print money and not pay interest? I ask that in the deflationary environment we are in now where people and companies are paying off debt and thus shrinking the oney supply.

As for John Cummuta, I have no idea what he actually says. I do know what Dave Ramsey says and he's exactly right for the individual. The problem is that if everyone paid off their debts we would have problems due to the shrinkage in the money supply. I guess the government would have to print then to make up for it, which would not be a bad thing in that situation.

Once again, have you all watched "Money as Debt"? If you have not, we are not speaking the same language.

TF

[Tyler_JC]

Japan had an economic mess BECAUSE they propped up failed industries. The banks refused to write off bad debt and refused to issue any new loans. The money spent by the Japanese government to prop up failed businesses resulted in money sitting in bank vaults. The rest of the world grew enormously between 1989 and 1999. Japan could have grown right along with them...but they didn't.

They were too busy deluding themselves into thinking that loans issued to functionally bankrupt companies were still worth face value. The Japanese government was too scared of unemployment to let the free market take its course and demolish the inefficient firms.

In many ways, Japan is a perfect allegory for the mistakes being made in the world right now.

Imagine what the United States would look like today if Pan Am, Ames Department Stores, and Enron were still running around.

If a business is insolvent, you have to let it fail. Propping it up means taking money from good businesses and giving it to bad ones.

There ain't no such thing as a free lunch.

The trillions being borrowed by world governments to provide loans to failed enterprises is draining away money from otherwise healthy businesses in need of short term credit.

Keynesian economics only makes sense if you are accumulating surpluses during the good times to pay for spending in the bad.

Otherwise you're only making the situation worse.

[threadbear]

Japan had an economic mess BECAUSE they propped up failed industries. The banks refused to write off bad debt and refused to issue any new loans. The money spent by the Japanese government to prop up failed businesses resulted in money sitting in bank vaults. The rest of the world grew enormously between 1989 and 1999. Japan could have grown right along with them...but they didn't.

They were too busy deluding themselves into thinking that loans issued to functionally bankrupt companies were still worth face value. The Japanese government was too scared of unemployment to let the free market take its course and demolish the inefficient firms.

In many ways, Japan is a perfect allegory for the mistakes being made in the world right now.

Imagine what the United States would look like today if Pan Am, Ames Department Stores, and Enron were still running around.

If a business is insolvent, you have to let it fail. Propping it up means taking money from good businesses and giving it to bad ones.

There ain't no such thing as a free lunch.

The trillions being borrowed by world governments to provide loans to failed enterprises is draining away money from otherwise healthy businesses in need of short term credit.

Keynesian economics only makes sense if you are accumulating surpluses during the good times to pay for spending in the bad.

Otherwise you're only making the situation worse.

Mass starvation is much worse than anything you mention here, Tyler. The Japanese protected their auto industry, for example, from imports. The US could very well end up doing the same thing. As for the years of growth in the Western developed nations? Can you really make that claim with a straight face? I'm not a fan of Keynesian policies at all, unless they are, as you describe, taken from savings during good times. But I assure you, if this turns into a deflationary depression, as it appears to be, you for one, will be begging for Keynesian methods, on steroids

[idiom]

You can let big businesses fail and have public works projects.

Currently neither is happening.

[Tyler_JC]

A 75% drop in the stock market is a small price to pay to avoid mass starvation. The aggressive deficit spending wasn't the only thing that kept Japan from sliding into the abyss. They also protected key industries that helped anchor them during their economic sh** storm.

You were talking about Japan. I was talking about Japan.

They spent a huge amount of money in the 1990s and 2000s (and still today) propping up failed industries. They had an economic sh** storm because of this misguided policy.

It would have been cheaper to give food stamps and unemployment checks to workers rather than prop up an entire failed industry.

In order for the markets to work, governments must learn to accept the good and the bad.

If the US hadn't dropped real interest rates into negative territory for most of this decade, would we have had a housing bubble (and corresponding debt orgy) anywhere near this massive? Of course not!

And it's worse than that. We didn't get an economic boom or a useful new infrastructure (railroads, internet) from this bubble. Instead we got a bunch of half-finished Florida condos that will be stripped for copper wire. Did society get any lasting economic gain? Did anyone learn a bunch of useful skills that can be translated into new productive jobs?

The Federal Reserve and the Bush Administration refused to allow the 2000-2001 recession to wipe the excesses out of the economy. They removed sensible regulations on banking institutions in order to prop up the housing "boom". Home ownership rates went home and they went right back down. The ownership society proposed by our leaders was an abysmal failure.

Now we're paying for their arrogance to the tune of $5 trillion in bailouts (so far).

[cube]

....

Mass starvation is much worse than anything you mention here, Tyler. The Japanese protected their auto industry, for example, from imports. The US could very well end up doing the same thing. As for the years of growth in the Western developed nations? Can you really make that claim with a straight face? I'm not a fan of Keynesian policies at all, unless they are, as you describe, taken from savings during good times. But I assure you, if this turns into a deflationary depression, as it appears to be, you for one, will be begging for Keynesian methods, on steroids

Is this going to be the new popular phrase on this forum?

First it was, "privatize the profits socialize the losses."
Then the nation of "cube-stan" had a rather short run
and now it's "Keynesian economics, on steroids"

The problem with Keynesian economics, on steroids is if everybody is borrowing money to spend then who is lending?
The answer of course is.....we borrow the money from ourselves so we can spend it.
That sounds like a failed attempt at the economic equivalent of a perpetual motion machine.

[jasonraymondson]

Have you guys watched "money as debt"? I'll put the link below. That video explains in common language why the governemnt has to spend. Paying off debt destroys money, so with everyone paying off debts the money supply is shrinking rapidly. They government has to spend like a drunken sailor to keep from having deflation.

Enjoy http://video.google.com/videoplay?docid ... 2583451279



TF

This is the first time I have seen this layed out in such a way.