Time Magazine man of the year Ben Bernanke (lol) said he backs the treasury giving stimulus to save them from the recession pt.2, which is the same recession getting deeper. I wonder how many hundreds of billion dollars they will sink into it this time?

I know that I have said that they can't keep up the stimulus for ever and ever, but  seems like they'll give it their best shot.

I wonder what the best option would be to stimulate or not.

Maybe the outcome would be similar either way.

We might find out ourselves if the coalition get in, because I doubt that Abbott would stimulate the economy. Could be a timely experiment.

Public Pensions and Our Fiscal Future

Recently some critics have accused me of bullying state employees. Headlines in California papers this month have been screaming "Gov assails state workers" and "Schwarzenegger threatens state workers."

I'm doing no such thing. State employees are hard-working and valuable contributors to our society. But here's the plain truth: California simply cannot solve its budgetary problems without addressing government-employee compensation and benefits.



As former Speaker of the State Assembly and San Francisco Mayor Willie Brown pointed out earlier this year in the San Francisco Chronicle, roughly 80 cents of every government dollar in California goes to employee compensation and benefits. Those costs have been rising fast. Spending on California's state employees over the past decade rose at nearly three times the rate our revenues grew, crowding out programs of great importance to our citizens. Neglected priorities include higher education, environmental protection, parks and recreation, and more.

Much bigger increases in employee costs are on the horizon. Thanks to huge unfunded pension and retirement health-care promises granted by past governments, and also to deceptive pension-fund accounting that understated liabilities and overstated future investment returns, California is now saddled with $550 billion of retirement debt.

Since 2007, one million private jobs have been lost in California. Median incomes of workers in the state's private sector have stagnated for more than a decade. To make matters worse, the retirement accounts of those workers in California have declined. The average 401(k) is down nationally nearly 20% since 2007. Meanwhile, the defined benefit retirement plans of government employees—for which private-sector workers are on the hook—have risen in value.
Link -
http://online.wsj.com/article/SB10001424052748703447004575449813071709510.html
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There are some tough decisions coming, but the pain must be spread evenly or the situation will deteriorate further.

At present California, which would be in the top 10 GDP nations if it was a country, is pretty much bankrupt and the situation will worsen.

It seems likely that the US Federal government will bail out California and some other basket case states, which will again exacerbate the already dire situation for the USA Federal government!

 

Quote:


Is there really any difference between printing more money and selling off debts to fund stimulus packages?
The end (or at least interim) result will need to be inflation and a fall in the value of currency.
An minor injection of cash into the economy may be a good thing when it can be funded, but too much and..oops  

The ‘Flations – Part II

Inflation versus deflation discussions are the rule for columnists, economists and BubbleTV. This false distinction is potentially harmful for investors and shoppers who think they must decide between the two, then act. Inflation and deflation act contemporaneously. The relative movement of what is inflating and what is deflating (e.g., common stocks vs. gas, bonds vs. bread) influences, and possibly changes, the way we live.


The deflation to be concerned with is not prices, but rising levels of unserviceable debt and the attendant consequences – for example, falling income and access to credit. The inflation to watch is Federal Reserve and Treasury Department actions, whether a spree of money printing or rearrangement in how the government distributes money in the economy.


As for timing, the undertow of deflationary tendencies is palpable.

Investors should be vigilant of being pulled under water in a deleverging economy, a process that is still in its childhood. An ever-present possibility is that of frozen credit markets, initiated, for instance, by an institution (a bank, a government) that loses access to funds.


The U.S. government seems universally intent on refloating the economy through a tag team effort of spending (fiscal policy) and Federal Reserve money expansion (monetary policy). These tactics have already failed, but reputations demand more of the same.


The federal government is spending as if there is no tomorrow. Assurances of fiscal forbearance are empty. The commitments grow and all we need is for the stock market to fall 40%, quite possible if not predictable, to witness another unseemly spectacle in Washington. An emergency trillion dollar accretion to insolvency will whip its way through a confused Congress, smothered in patriotic ardor but with anarchic purpose, during an emergency government sales campaign that frightens the electorate into temporary fear. This is predictable because the national politicians have ignored our sources of instability (primarily, their own past policies) so have made no other preparations.

Simple Ben has every intention to fulfill his destiny. A century of inflation has reached its final stage. All previous Federal Reserve chairmen inflated the supply of money, but all struggled against the urge to do so.


Bernanke’s most quoted speech was delivered on November 21, 2002. The (then) vice chairman of the Fed delivered a speech to the Washington National Economists Club with the title. “Deflation: Making Sure ‘It’ Doesn’t Happen Here.”


To be clear, when Bernanke spoke (and speaks) about deflation, he fears falling prices. As discussed in The ‘Flations, falling prices may be good or bad. The inflation to fear, and which neither the Federal Reserve chairman nor his money-printing policy address, is the debt deflation of a deleveraging economy.


It is the acknowledgement of “its electronic equivalent” that ensures Bernanke’s moment of destiny. He is not constrained – as Germany was in 1923 – by the speed of the printing press.

A corollary, in this age of electronic money, is for the Fed to wire dollar deposits to Americans’ banking accounts; let’s say, $100,000 to each. As ridiculous as this sounds, it is worth recalling that Federal Reserve (and Obama administration) policy is the playground for academics, those who have ravaged the economy and left the United States in such an impoverished state. They are fortunate the American people do not understand – yet – their policies are the most compelling source of our woes, and are willing to follow their conclusions to a hyperinflationary end to prove themselves right.

A lingering question is whether the Fed would dare take such steps. Congress has not stopped the Fed from irregular and illegal activities (e.g.: “the Federal Reserve and the Treasury decided to ignore existing law and provide a bailout to the benefit of Bear Stearns’ bondholders at public expense.” – John Hussman, Hussman Funds’ Weekly Commentary, March 31, 2008). The legislators are too dumbfounded to press charges.


In summary, a deleveraging shock is an ever-present worry, and investors should protect themselves. It is the fear, undoubtedly whispered in Fed governor ears by Wall Street bankers who stand to prosper from ignorance, that the Dow could fall to 1000 and house prices dive another 70%, which helps to explain why the crosscurrents of speeches by Federal Reserve governors sound like transcripts from talent shows at a lunatic asylum.

Link -
http://dailyreckoning.com/the-flations-part-ii/
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Approaching a Dangerous Stall Speed

EXECUTIVE SUMMARY

•The tailwinds of the first half of 2010 will become headwinds in the second half: The fiscal stimulus will turn into a fiscal drag; the inventory adjustment that boosted growth is done; and the base effects and the temporary Census hiring are gone.
•Most components of aggregate demand will look worse in the second half of the year than in the first, possibly even worse than in Q2 2010; our baseline scenario now shows average real U.S. GDP growth at 0.9% in H2 2010 and at 2.5% for the year. Our current 2011 growth forecast stands at 1.5%

Link -
http://www.roubini.com/analysis/129596.php
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In the Energy industry, they use a term EROEI, which is Energy Return On Energy Investment.

If we look at national GDP's, particularly the USA, we should apply a similar criteria and ask what would the national GDP have been, without the additional support of Government stimulus investments?

In other words, what would the Net GDP figure be, without the stimulus & bailouts measures and I suggest that would clearly be a massive negative GDP, in the case of the USA, over recent years!

Perhaps in Economics, we should use the term

GROSI, which stands for Gdp Return On Stimulus Invested

?

We should also evaluate whether the GROSI, will return a Positive or negative impact over time? This question must be answered, as obviously there are limitations on Deficits & Debt, which may have dire consequences, if those limis are exceeded!

In the case of the current GFC, I suggest that continuing to throw money at the problems will show a negative return over time, as the Global Macro factors are all heading south and additional money will not turn them into positives.

Global Macro Factors :-
1) Baby Boomer Retirement  

2) Peak Energy

3) Declining Global Population

4) Interest Rates already at or near Zero, in many major Economies.

5) Debt & Deficits already thru the roof, in many major economies.

6) Climate Change looking to curtail the Usual Economic expansion.

7) Real Estate markets are De-valuing, Financial markets are De-leveraging & Currencies (particularly in the USA) may be De-valued & Sovereign Debt (including the USA) may De-fault.
 

Haven't had a chance to view the Schiller video yet. I heard on this morning's news that Obama met with senior officials overnight and wants to start lowering taxes, especially small business, but the republicans have blocked it(of course). no link, that's just how it is with the radio lol.

Do you think that would be a good move? considering the debt. I just think that earning less, while spending more seems a bit counter productive to me.

Top economists: The second Great Depression has arrived

David Rosenberg, market guru, has officially declared that the US economy is in a state of depression, and he sees the economic superpowers woes worsening.

On the heels of that bleak forecast, the statistics for existing home sales for July were released and the numbers were ugly. The weak housing market collapsed. Reflecting the worst slump in American history, existing housing sales had plummeted a stunning 27 percent and there's no sign on the horizon that sales will stabilize any time soon.

The bottom line, argues Rosenberg and others: the US economy has collapsed into another Great Depression.

Citing the period from 1929 to 1932 and the eerie similarities, Rosenberg said, "We may well be reliving history here. If you're keeping score, we have recorded four quarterly advances in real GDP, and the average is only 3 percent." The same happened during the early 1930s stock market rebound of 50 percent after the 1929 crash.

The Great Depression followed the brief economic upswing.

On the other side of the pond, in the US, sits Arthur Laffer. The author of several important books on economic theory including his latest, "Return to Prosperity: How America Can Regain Its Economic Superpower Status," Laffer was also an adviser to the Reagan Administration during the 1980s and a member of the Economic Policy Advisory Board.

His economic models have been proven to work and withstood the test of time. Now Laffer has declared that the US economy is heading for a very big fall early in 2011.

Now Arther Laffer has analyzed the direction of the federal government over the past two years and hears alarm bells going off. The savvy economist has studied the potential impact of the historic debt, an economy hovering just above a depression, and the building pressure to raise interest rates when inflation rises in the future, and compares the ship of state to the Titanic.

"Today's corporate profits reflect an income shift into 2010. These profits will tumble next year, preceded most likely by the stock market," writes Laffer in the Wall Street Journal article, Tax Hikes and the 2011 Economic Collapse.

Nobel Prize winning Paul Krugman, a liberal economist, concurs, but for different reasons.

Krugman is furious. Writing in a New York Times OpEd piece recently, he condemned the current administration's economic policies and predicted a Second Great Depression. He also raised a rather bellicose alarm against Treasury and other responsible for US monetary policy—including the Fed. Krugman is convinced that tens of millions will never find work again and the economy will worsen in 2011 and 2012.

All economic indicators echo 1929 - 1933.
Link -
http://www.helium.com/items/1933168-us-in-economic-great-depression
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You would have to wonder why Bernanke, in particular, being such a great student of the Great Depression and also Greenspan, did not see where all of this was heading?

Unless, of course, they did!

And then, you may need to ponder why?