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Quantitative Easing Explained

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  • Quantitative Easing Explained

    Informative, if a bit lengthy.

  • #2
    Re: Quantitative Easing Explained

    I've seen the video, the guy that created it has missed some details, though I do think there are valid points.

    He apparently doesn't know about Interest rates on servicing debt.

    If rates were to increase by just a couple percent, our payments would exceed our revenues, this is why the Fed is buying treasuries, to keep rates low to buy time until the Einsteins in Congress can figure out how to generate revenues, yet not increase wealthy folks taxes to Clinton era rates.

    For those who feel we ought cut spending, who's grandmother should we cut first?...what Veteran's retirement fund?
    That's what it boils down to, lost revenues from the wealthy at the expense of the "have-nots", and our families.

    Another residual effect of the Bush corporate tax cuts on top of increased spending, the Fed is only doing what it's been forced to do in light of the threats to cut government jobs and stimulus spending which will decrease income and sales (consumer) tax revenues even further, another reason we need to take a closer look at the return on investment for corporate and upper class taxes.

    Mindful, Clinton created 23 million jobs with higher taxes, Bush created 1 million with reduced taxes.

    Blindly cutting taxes isn't the right idea, it has to be specifically targeted at job creation, (which is predominantly small businesses, not corporations or fake "type S" corporations), instead of tax breaks to billionaires for outsourcing American jobs.

    If corporations are getting tax breaks, yet hiring Chinese or Indian workers, the tax cuts amount to even greater deficit in lost income and sales taxes for Americans they "should" have hired for lower tax rates, which then further forces the Fed to pawn QE or more fiscal/monetary stimulus to keep the public afloat.
    Last edited by DuckButter; 12-02-2010, 02:43 AM.


    • #3
      Re: Quantitative Easing Explained

      "........ which then further forces the Fed to pawn QE or more fiscal/monetary stimulus to keep the public afloat."

      Ironic that I'd bump into a Wall St Journal article that Bernanke made this specific point today, he's asking that Congress consider further fiscal stimulus because he feels QE won't be enough to reboot jobs alone.

      Last edited by DuckButter; 12-01-2010, 08:59 PM.


      • #4
        Re: Quantitative Easing Explained

        The most destructive enemy the United States faces today is not terrorism. It is the financial industry. The Federal Reserve is the ringleader of this mob.

        All Americans should research the Federal Reserve to learn about what it is and WHO comprises it. It is also important that We The People start to pay attention to what they are doing.

        They are screwing us all in ways that the terrorists can't even imagine. Quantitative Easing is just the latest round of insanity that they are perpetrating on our wobbly-legged economy.

        Please write your congressman and support H.R. 1207, the Federal Reserve Transparency Act of 2009. This bill has been referred to the House Committee on Financial Services. It will not reign in these criminals, but its a start.

        On a related but different point... please note that ALL WE HEAR from Washington is that there are only 2 possible solutions to the Federal budget problem: 1) Cut spending, and 2) increase taxes.

        Doing either or both will not solve the problem.

        The only right answer is not being mentioned at all. That is, GROW THE ECONOMY. Right now, the US consumer market is growing several economies around the world... unfortunately the US economy is not one of them.

        Federal stimulus and quantitative easing are touted by the Federal Reserve and the Treasury as ways to stimulate the economy. Nonsense! It hasn't worked and it won't work. Current economic policy is going to accomplish little other than devalue your savings when the invitable inflation, which my buddies at the Fed are hoping for, occurs.


        • #5
          Re: Quantitative Easing Explained

          Andy, you know your stuff, which is refreshing in this venue.

          I agree with the gist of your point about the Feb, it's mainly a clubhouse of wealthy friends helping each other under the assumption it benefits us all....we could go all the way back to the Hamilton-Jefferson debate on this one, I say it's a happy medium, not abolishing the Fed, but requiring them to disclose their actions to the public. we definitely agree on transparency

          You may be aware, today the Fed was required to open their books for the first time in it's history, only a one time deal though.

          Turns out the $700 bil Tarp program was only a small fraction of the actual $3.1 trillion doled out to preserve big banks and corporations behind the scenes back in '08 & '09, who in turn have done absolutely nothing to benefit the economy aside from Goldman Sachs executives paying themselves all time record bonuses last year from the profits they made in prop trading with our tax money.

          As for your mention of American money flowing into oversea's investments, correct again.

          There is one very important distinction on the cause for that, and no, it's not corporate tax rates, if it were, Ireland would be booming for having the lowest corporate rates in the world....Ireland is economically screwed.

          If GE can open a plant in Hong Kong and get educated engineers, scientists or techs for less than one tenth the salary an American is paid, there is no corporate tax break that will offset that cost saving, further tax cuts would only serve to exacerbate an already daunting deficit, while doing little to offset the massive wage differentials between us and emerging market middle classes.

          All the foreign trade agreements that America has opened over the last fifteen years is finally exhibiting consequences, and those consequences are not going to be easy to figure out.

          The biggest problem, how does America incorporate the most expensive healthcare and education in the world into wages when competing against most countries that offer socialized healthcare and education at a small fraction the costs here?

          An example, the cost of a BCBS family plan in America is roughly four times the wages of a professional college grad in China, and that same college grad in China has no tuition to pay because China offers college the way we offer school to grade 12.


          • #6
            Re: Quantitative Easing Explained

            Andy, sobering note regarding your mention of the way the American consumer has supported global economic growth.

            Since 1980 American consumer debt has multiplied tenfold, while median wages haven't even grown at the same rate as GDP, commodity and food prices.

            This is why the reference to "consumer deleveraging" is so common now, this is a HUGE elephant in the room.

            Never mind that unemployment is at a historic high, or that wages have stagnated, we also have a very big tab to pay on top of it.

            Then factor the above problem of global wage disparity into the mix.

            This is where you may disagree, but in light of the sheer size of the problem, currency devaluation (printing ala "Helicopter Ben") might be the only way out if we can't derive revenues from those who've benefitted recently and divert it to jobs for the rest, potentially an act of desperation, discussion of that gets a bit complicated, angry debates over Keynesian, Austrian and Monetarist economics, hyperinflation or the Weimar republic doesn't exactly make for a lively form of social entertainment.

            Suffice to say Gold is a good thing to own right now.
            Last edited by DuckButter; 12-02-2010, 03:05 AM.


            • #7
              Re: Quantitative Easing Explained

              Hey Duck,

              Thanks for your comments. I think one big problem we have in the US is that people have been brainwashed into believing that the economy is a huge complicated machine that can't be understood by mere mortals. Those in the thick of it promote such beliefs by using incomprehensible jargon to obscure what they are really talking about. A good example is... "quatitative easing". We have the same problem in my field, engineering. Often times jargon is used to completely obfuscate dirt-simple concepts.

              Fact is, the economy IS a huge machine with many parts and subsystems. But so is an aircraft, computer or machine tool. No matter how complicated any system is, basic principles always apply. Few econmists seem to behave like scientists... they tend to look at only a small part of the system rather than consider the entire thing.

              I don't favor any attempt to devalue US currency. Historically, US currency has devalued over the past decade relative to several other currencies and it hasn't helped... but it has redistributed wealth and devalued the savings of Americans. This is a ratchet... it only goes one way. The problem is that, as severe as the current job and Federal debt problems are, they WILL pale to insignificance within 15 years as the population ages and burdens on SS and Medicare increase dramatically. Devaluing the currency not only screws those that are in that very sizable group, it also will crush the Government. The only thing the monetary machinations of the Fed and the Treasury can do (and they have been shown not to accomplish even this) is provide a short term, unsustainable boost to the economy.

              The value of any currency is defined relative to other currencies. The relative strength of a currency in this sense has to do with the value of primarily the production of that country - some indicators being the GDP and the trade balance. Perturbations in valuations (eg, QE) have, at most, a short term effect, until the other currencies react. It's nothing more in the long run than rearranging the deck chairs on the Titanic. Or perhaps putting lipstick on a pig. However, the damage on the micro scale can be catastrophic in terms of stealing wealth from certain groups and giving it to others. The wealth is not destroyed, it is simply redistributed. In the United States, current (irrational) policies result in growing the economy of China (a communist country) and other countries at very dear cost. A relatively few Americans who are in the chain - top corporate execs, very major shareholders (not joe average with 1000 shares of GE or Cisco) and most significantly the BANKERS and WALL STREETERS are skimming a little bit of this. A small percentage of a huge number results in more personal wealth for these folks than the rest of us can even fathom. But the point is NOT that these people are getting rich... the point IS that $1 they are making, the US economy (that would be you and me) is sending hundreds to China. Hundreds of dollars of YOUR money. Those getting the one dollar don't care that it is costing We The People a lot more. That's our problem, and We The People as a group seem to be enjoying our cheap imported stuff. FOr the time being. And THAT is why the US continues, even in the face of our growing economic nightmare, with its irrational trade policies.

              And to further point out the insanity, the TOP TAX BRACKET ON THESE GAINS isn't a hell of a lot more than WE pay, thanks to bracket creep and inflation, with some other Governmental gems like the AMT thrown in.

              Most of us must be unaware of all this... I can't believe that we as a nation are sufficiently stupid to be aware and think it's all a-ok. Yet we fill our homes with imports, let the Fed devalue our savings, and all the while whine and complain about 15 million unemployed, depressed salaries, etc. Washington's solutions are aimed at short term lipstick that will get them elected rather than fixing this mess. Sadly, as we have (or should have) painfully learned over the past few years, the lipstick isn't working, even in the short term... not even a little bit.


              There are tons of other example of economic policies that have screwed us and led to redistribution of wealth. One obvious one is the Fed's use of the interest rate knob. While many underdstand this, I encounter lots of folks that don't understand that the Fed is THE REASON why your savings are earning one percent interest. The banks don't need your deposits. They get funds for free from the Fed. You are competing with the Fed, and they are giving it away.

              But this leads to low interest rates on loans, right? Yes, particularly home loans. Fact is, though, this isn't a good thing. People buy MONTHLY PAYMENTS, not interest rates. The net effect is that lower interest rates on homes fuels increases in prices. So....the housing bubble was in fact CREATED BY THE FED. The big winner in this is, you guessed it, the financial industry, who is again taking their percentage off of each loan, but the loan amounts are much higher than they were.... so they get more money! And to add insult to injury, they develop all sorts of interesting and creative ways to milk even more money out of the deal through derivatives. When the house of cards collapsed, the tax payer picked up the tab... and to this day there is NOTHING GOING ON TO STOP THESE PRACTICES.

              That's even more incredible.

              Even something that seems as good as tax-deferred retirement plans are really not a good thing. All that money, deducted from your paycheck, is largely funnelled into the stock market. The managers of those institutions that control your money aren't doing it for free... they get a percentage. So, they love it... and are not really too concerned that all that money feeding the stock market - creating buying pressure - creates a bubble in prices. Don't think so? Take a look at the trends for P/E ratios, for instance, over the past 30 years. One would think that we would have a very unstable market that would be subject to massive corrections.... hmmm. And of course, since interest rates on personal savings are essentially negligible, many Americans have their RETIREMENT money in the stock market.

              But most brokers, don't. Maybe they recognize something that we all should see?

              I could go on and on, and apologize for tending to do so. It's clear who the enemy is, and he is operating from within.
              Last edited by Andy_M; 12-02-2010, 01:55 PM.


              • #8
                Re: Quantitative Easing Explained

                Andy, I thoroughly agree with the merits of your opinion on how the financial sector complicates a simple thing and then takes advantage of these convoluted complexities for personal gain ...which is why I agree with you on regulating or at least requiring Fed transparency.

                I also completely agree with your understanding of foreign trade, outsourcing, and the failure of trickle down (lowered upper class taxes intended to spur domestic investment) to the extent that it's a relief to hear someone who actually knows what they're talking about versus repeating what Fox, CNBC or other "unbiased" sources have been pounding the public with.

                As for currency devaluation, I also agree that it's detrimental to wealth.

                But there lies the catch, "wealth".....the American middle class has no actual on.

                My point, In the last thirty years consumer debt has soared parabolically, ten times what it was in 1980, between auto loans, mortgages, personal loans, tuition payments and credit cards.

                In that same time period, personal income has actually risen at a lower rate than GDP, commodity or food prices. (We're borrowing money to eat, literally)

                In other words, if we really break it down, the American middle class doesn't actually own any real "wealth", the average top 1% income earners own a heck of a lot of wealth....which means a devalued dollar more adversly affects them to the benefit of the recipients of stimulus. (Robin Hood economics, Keynesian)

                Note, there IS a difference between fiscal stimulus and Quantitative easing, the two are completely different things entirely.

                For the time being, just to keep Americans from starvation and homelessness, devaluation and "helicopter" provision of stimulus serves to both devalue the dollar, and make more of those dollars available to the middle class (the basic Keynes argument of switching private debt to public debt in hard times)

                For the sake of simplification, I won't get into the benefits of a lower dollar in foreign trade, I assume you understand this already.

                iAs I said above, QE an act of desperation in the face of few alternatives with the government now blindly under the guise that all spending is bad and higher taxes on the wealthy is bad.

                The wealthy, as you noted before, are only going to invest elsewhere for a higher ROI, where the labor costs are a small fraction of an Americans wages, no tax cuts can offset this cost differential.

                You personally might know this, a Chinese Engineer works for $250 a month, while his American counterpart works for as much as $4700 a month....that';s one hell of an enormous cost difference for a tax cut to

                Historically, the best demographic comparison to where we are now is the Great Depression in terms of personal income, debt and unemployment.

                The most striking graphic that resembles that era is wealth disparity

                The growth of wealth for the highest 1% of wage earners in America has soared ten times (coincidentally) in the last thirty years, while median wages have actually stopped dead in it's tracks over the same time.

                In other words, the American middle class has been borrowing money to offset lack of wage growth, this consumer lending has supported the creation of wealth for the highest wage earners in America (mainly corporate and banking executives), as well as middle class growth explosions across the globe.

                What I' saying can be summed in a very simply comparison, in America a homeless wino with $100 in his pocket is more "wealthy" than middle class home owners that have lost equity, jobs and seen no wage growth.

                The debt to income ratio for the average middle class American makes a homeless wino more wealthy in "real" terms.

                An American prison inmate is livin' large, with free meals, shelter, education and insane is that?

                How do we fix the problem?

                Teddy Roosevelt had the answer, ironically this Republican Icon who is so frequently mentioned by modern day Conservative pundits was a major supporter of the progressive income tax, people seem to forget this "minor" detail.

                The top tax bracket in Roosevelt's time was over 60%, it's currently 34%, the lowest top tax bracket in over a century.

                We have to look at the reality, the American middle class is relatively impoverished in terms of debt to income.

                The government has now been cornered into deficit to support the median who are unemployed and swamped in debt.

                The top 1% have been heavily canvassing public opinion and paying huge money to influence politics in order to avoid higher taxes, think of Rupert Murdoch's leaked secretive contribution to the Chamber of Commerce, who in turn spent that money in national campaign ads to scare the public over "higher taxes" and "big government spending".

                Teddy Roosevelt had the same problem and he confronted it, openly criticizing Plutonomy attempting to destroy Democracy.

                Lastly, though I agree the Fed got us here in large part, they are currently the only party attempting to get us out while the government is now in gridlock that's been created by big money behind the scenes, just yesterday Bernanke warned that QE2 alone was not going to be enough to reverse our unemployment situation, he asked that Congress consider stimulus again.
                Last edited by DuckButter; 12-02-2010, 02:49 PM.


                • #9
                  Re: Quantitative Easing Explained

                  As stated earlier, this predicament we Americans find ourselves in is only going to deepen and with an accelerated vengeance as the boomer cohort fades from the workforce. When TR tackled the moneyed classes, he had the advantage of good timing. The progressive era was in full bloom. The oligarchs of the gilded age were on the decline, cyclically speaking. Revitalizing the graduated income tax would be a bloody fight in this climate. A start would be reinstating the death tax for wealthy individuals. However, curbing domestic wealth disparity does not fix the other, and to me, greater problem of loss of manufacturing. And, no one is doing anything about it, except complain. A forum on ideas to curb this 30-40 year trend would be good reading and a useful exercize.


                  • #10
                    Re: Quantitative Easing Explained

                    Plumbus, sobering comments there.

                    There is no realistic way to return manufacturing to America, not when every product we own has "made in China" stamped on it somewhere and the price of fabrication incorporates a Chinese worker who can afford to work for $1 per hour or less, there's no turning back.

                    In regard to your mention of cyclical politics or ideology, it's very interesting that while the new regime of what's becomie known as Neocons will frequently spout the name of Reagan as the bible of taxation, while at the same time three of the icons of Reaganomics, David Stockman, Paul Criag Roberts and Paul Volker are currently ranting that the current low tax rates on the wealthy are causing a problem for the whole.

                    Returning upper class and corporate taxes to at least the Clinton rates will definitely help the deficit, as well as provide desperately needed capital for the government to do what corporations who are drowning in $2 trillion in cash on the books are not doing.

                    The government, with that added capital, will at least Invest in American jobs.

                    Last edited by DuckButter; 12-02-2010, 10:38 PM.


                    • #11
                      Re: Quantitative Easing Explained

                      I agree partially with Duck's point about the real wealth of people, i.e., their assets v. debt. But I reach a different conclusion and, as stated earlier, do not support devalueing the dollar. I disagree with Duck in the sense that the majority of middle class Americans do in fact have a positive net worth. This is especiallty true of theose that are say, in their fifties and sixtites and looking toward retirement. Needless to say, the younger crowd is far more likely to have zero or negative net worth... but they have a relatively long time to rectify that situation -- just as many of us middle agers and older folks have. In light of that, any move to devalue the dollar will deal a disproportionate negative hit to those in the middle class who have the least to gain (not much time left in the workforce) and most to lose (positive net worth). If we want to widen the gap between the haves and the have nots, and completely abolish the middle class, then devaluing currency is a great way to go.

                      I also don't think that the solution can come from raising taxes. I will agree that the top bracket for the very wealthy can and should be increased. However, IMO this has to be accompanied by a complete restructuring of the tax bracket structure... not only to keep the middle income folks from going down for the third time but also to get some contribution from those in the bottom half of the income spectrum... who are massive in numbers and pay, currently, nothing.... not one thin dime. Many look forward to April 15 because they get the Earned Income Credit... free money, in sizable portions.... and pretty easy to get. Of course they all have a vote, just the same as you or me or Bill Gates. So you can basically forget about this being fixed by politicians, just like you can forget the idea of a flat income tax. It's the low income special interest that won't let any of that happen.

                      Increasing or cutting taxes is not going to help. The economy has proven to be relatively insensitive to tax changes, and the magnitude of the Federal debt - not today but tomorrow - is so huge that there isn't any way to tax your way out of it. IMO, in the final assessment, we can't tax our way out of any of these problems, we can't borrow our way out, and we can't play little games with the currency. There is only one way out of this mess in the global economy of the 21st century. We have to compete head to head, and we have to produce more value than China, Japan, Europe or... the middle east. It's all about productivity and being smarter and harder working. Whoever does that will end up on top. Whoever doesn't want to get their hands dirty (figuratively speaking) making stuff will end up with the low paying service industry jobs. Right now, this is the direction that the United States is heading and has been heading for 40 years. We are being urged by those profiting from the current situation to maintain "free trade" and allow our markets to be pillaged, while our global competition (who call themselves our trading partners) restrict access to their markets. In the meantime, with every plant that closes and every product that is ONLY available as an import, the United States of America inches closer and closer to world irrelevance. make no mistake about this.... the world has embraced capitalism, and in that game there are winners and there are losers. Our parents and grandparents handed us a winner. We haven't done well with it, allowing our industrial leadership in the world to be sold off for pennies on the dollar, one industry after another.

                      So no, I don't think we should should allow the Fed to devalue the dollar, anymore than we would allow them to take 10-15% out of our bank accounts. It amounts to the same thing.

                      Moreover, I don't think we need the Fed at all. It should be abolished. We have the Treasury Department which should be setting monetary policy, with full accountability to Congress and to the We The People. The Fed represents interests from around the world, they make monetary policy and they control the money supply. Do we all realize that right now the Congress, BY LAW, has very little (almost none, really) insight into the actions and working of the Federal Reserve, and that the Fed is not accountable to ANYONE? Why would be so naive as to think that they were looking out for our interest when they guard their privacy so vigorously? And of course, they are costing the taxpayer money! It's nothing more than a hotbed for corruption, and certainly THE most powerful special interest in the entire world. Most importantly, whether you agree, disagree or don't care... no one can argue that the Fed has kept the US economy strong and healthy.

                      IMO, enough is enough, already!


                      • #12
                        Re: Quantitative Easing Explained

                        Originally posted by DuckButter View Post

                        There is no realistic way to return manufacturing to America, not when every product we own has "made in China" stamped on it somewhere and the price of fabrication incorporates a Chinese worker who can afford to work for $1 per hour or less, there's no turning back.
                        This is where we disagree. It is not only possible to build in the US, it is essential... and very achievable.

                        The cost of doing business in China is not simply a question of their labor rate v. USA rates. There are many costs incurred by US companies going to China or other geo manufacturers. Many estimates place the actual advantage of outsourcing production to China to be, at the bottom line, 10 to 20% when all costs are included. It's not overwhelming, but it is a strong motivation for a company to offshore manufacturing.

                        This includes the savings realized by the US company that does not have to pay FICA, Medicare, SDI or other payroll taxes... or provide benefits, for that matter. And, the Governments of our competitors have always done a very good job of protecting and incubating target industries. That's how Japan was able to achieve their leadership position in optics, electronics, automobiles and machine tools. We held the lead in production of three of those four (optics was taken from the Germans)...

                        What is true is that short term quarterly irientation of American companies, as well as a stifling regulatory environment, has lead to a situation where USA companies find it more profitable to build modern state of the art factories abroad than they do to invest in those same plants in the US. Nevertheless, foreign auto makers ARE in fact investing in US plants... and have been doing so for some time. If they can find it profitable to build here, that speaks volumes.

                        The key to a resurgence of USA manufacturing is to rethink the end-to-end product process. If we in the US continue to think in traditional terms of manufacturing products, we will continue to be at a disadvantage. But, the US has the technical ability, and, for the time being at least, the capital resources to completely change the basic manufactufacturing paradigm. We must no longer think about manufacturing products... we must focus on making the systems that manufacture products. This is not limited to factories. Robotic, lights-out factories are in service today. We in the US need to elevate and streamline the integration between engineering and manufacturing by orders of magnitude. The opportunity exists -- there is huge opportunity for this.

                        They are starting to look at these possibilities in other countries. Guess who is paying for it? Right. All those Wal Mart shoppers.

                        The problem is NOT that this can't happen here... it is that this can't happen here overnight. It can't happen this quarter, and it can't happen this fiscal year. So under the current rules of the game, American businesses would rather get the quick buck by outsourcing and exploiting cheap Chinese manpower.

                        Time to change the rules of the global game to favor what the US is good at.


                        • #13
                          Re: Quantitative Easing Explained

                          Andy, let me reiterate it's refrreshing to chat economics with someone who has a grasp of the topic.

                          The frustrating aspect of this topic is that the more in depth the discussion gets, the more verbose the posts get...and holy cow, we're proving it.

                          A couple of points to address, abolishing the Fed, though an appealing idea, it isn't possible for the U.S. to do when every other developed or emerging economy in the world has their own CB, hopefully this makes my point, we'd be swimming in the shark tank without teeth, the functions if the Fed would have to be transferred to the government in order to counter foreign CB policies and regulate currency.

                          Could you really picture Congress handling the complex economics of rate policies or trade balances? God man, I wouldn't let these guys do my kids homework!

                          This is why I think you're point of transparency has merit, but even then the Fed has a reply that many of it's unseen actions are proprietary, classified for the posterity of the country....I'll take that as hogwash and meet the idea halfway with the idea of transparency.

                          As for your thoughts on manufacturing coming back and the idea that American ingenuity can make it happen.

                          Ingenuity is no longer solely an American trait, the IT and engineering sectors in China or India is proving this, I also applaud your understanding of foreign trade, but I suspect the estimates on cost savings you cite might be off, \

                          Though I agree regulatory issues in America do hinder profits, I prefer my kids toys free of lead and my drywall not to sicken my family.. a catch 22 there.

                          The simplest way for me to unfold what I suspect will happen to America as we evolve into our newly increased levels of globalization is to take from Nobel prize winner Paul Krugman's New Trade theory of globalization.

                          While Krugman elaborates on Ricardo's theory of comparative advantage, that even a country with no actual cost or efficiency advantage can prosper in foreign trade, he also states that country will have to adjust.

                          A single word, adjust, lies our future and I suspect the adjustments are going to have to be radical in terms of our standard of living.

                          I also agree on your mention of taxation to the higher income brackets, but for the lowest income earners the volume of revenues generated from any tax increase really wouldn't amount to very much for the fact that, as is, 35% of all wages are earned by the top 5%, 25% of all wages is earned by the top 1%, then on the other end of the spectrum 28% of American households survive on $25K or less, I suspect increasing taxes to this group would serve more as a hardship and a deterrent to consumption than the revenues generated would justify.

                          We definitely need to revamp the tax code, unfortunately from what I'm seeing currently, it seems like the same caricaturisations of opposite extremes are at play, those who think with their hearts and those who think the we ought just "stop spending, cut taxes" for the sake thereof.

                          Finally, one thing I absolutely agree with you on -

                          Originally posted by Andy_M View Post
                          Time to change the rules of the global game to favor what the US is good at.
                          Last edited by DuckButter; 12-03-2010, 12:43 AM.


                          • #14
                            Re: Quantitative Easing Explained

                            Agreed, it's a complex subject and the posts do tend to get too lengthy. As Einstein said, and I may be quoting loosely, "Everything should be made as simple as possible. But no simpler".

                            I would never suggest that Congress take over the function of the Fed. I do suggest that the function needs to be visible to and accountable to Congress. The Treasury Department is the right agency to dispatch the function, without the benefit of international bankers that we have now. We don't have to have a semi-private consortium of international interests running the Military, do we? Monetary policy is every bit as critical to National Security, so why should it be any different? The financial industry's leaders being involved with global economic policies of most other nations really only attests to the fact that they're particularly good at gaining control.

                            The US Military is a great example of how a properly operated branch of government can and does do a world class job at their specialized task. A perfect job? No, it would be silly to suggest that. It is expensive, but the United States Military, including the Pentagon program offices responsible for development of the most sophisticated weapon systems ever devised,
                            does an extraordinarily fine job. IMO the Treasury department can assume the role of the Fed. With proper accountability to Congress and thus the taxpayer... they might even get something right once in a while. Which would be an improvement.

                            I agree that India and China are improving in terms of innovation and technology. But, and I speak from direct experience, the fact is that it is still American engineers that are teaching these people essentially everything they know, designing many of their production facilities and dicatating their manufacturing processes. There remains a very substantial knowledge gap. Part of the very large cost of doing business in China or India is the extensive expense associated with training - in essence, teaching - them what to do and how to do it. I do agree that the advantage will not be ours indefinitely... it is not our birthright.... and the competition is dedicated to closing that gap while we apparently are dedicated to American Idol, Survivor and Twitter. All the more reason to to make this happen soon, while we still have the wherewithal. I estimate that our technical advantage will remain viable for 10 to 15 years. After that, we will suffer brain drain as the domestic technocrats retire while, at the same time, the hard work being put in today by our competitors will start to pay off for them.

                            Regarding regulation, I see no catch 22. I agree that much of the regulation faced by US manufacturers result in valuable safety and environmental advantages. The problem is, the products aren't coming from factories subject to such regs. They are coming from China. Hence, you're getting the very lead paint and (depending on where you bought it) drywall you and I want to avoid. I don't think we should eliminate these regs on US manufacturers... but I do propose that all imports to the United States be conditioned on their meeting identical consumer protections imposed on products of domestic origin. The (foreign) manufacturer should bear ALL costs associated with compliance, including government inspectors, as a cost of doing business. Such a policy would level the economic playing field (a little, anyway) in addition to providing protection against toxic and/or unsafe products. Isn't it just a little insane that such protections are not fully implemented today? Melamine in edibles? Huh? If the goals of regulation is to protect the American consumer, then it should apply to all products, irrespective of country of origin... and the inspections need to be implemented.... on the foreign manufacturers' nickel.

                            I also propose extending this approach to add a (stiff) duty to all imports that are not manufactured in compliance with US environmental, OSHA, child labor, and other similar US laws and regs. A level playing field needs to be level. Note that we would not be imposing any requirements on foreign manufacturers that we don't impose on our own domestic manufacturers. Sounds fair to me. No, it sounds... level.

                            The top 5% of Americans earn 35% of all wages, but that same 5% pays slightly over 50% of all income taxes. On the other hand... I mispoke in my earlier post. It is actually half of the US households that pay no income tax, not the lower half of the income spectrum. That means that half of the country - what, 150 million people or thereabouts? - is getting a free ride. Not so good. I don't suggest that those below the poverty line should bear a huge tax burden, or any burden at all. But we have a problem when half of all citizens aren't paying anything. This group also tends to use most of the services, such as college financial aid (which is overwhelmingly need-based) as one typical example.

                            I agree fully that adjustments are in our future. We need a serious wake up call in this country. We need to start producing more scientists and engineers, and stop subsidizing political science, communication and sociology majors. The name of the game in the 21st century is bringing technology into industrial production, and if WE don't win at that game then WE will be the ones working for the equivalent of a buck an hour. We also need to stop being a global doormat, allowing unfettered access to our market by "trading partners" that don't reciprocate. We need to let the free market regulate interest rates and prices rather than let the Fed print money to artificially control them (a stated objective of the Fed is to achieve price stability... kinda runs counter to the notion of a free market, no?). And...Americans need to start living within their means. This doesn't mean we can't have a lot, it just means that we have to earn it... not charge it. Going to a job every day is simply not enough. It's not that simple or easy. This means that if we want to drive a fancy car or live in a fancy house, or send our kids to a fancy school, we -each of us - needs to put at least as much goods and services into the economy as we take out. A novel concept to some, I suppose.

                            Funny, it wasn't so novel when our grandparents told this to our parents.
                            Last edited by Andy_M; 12-03-2010, 02:30 AM.


                            • #15
                              Re: Quantitative Easing Explained

                              Andy, as for the Treasury, that's one idea.

                              My concern is that the Fed has a long tradition through trial and error, it has become specialized at what it does and historically we have always hired the creme de la creme of Ivy League economists for the task.

                              Though I don't dislike the treasury idea, I think the ultimate solution is transparency regardless who handles the task, but I differ from you in that it should be more transparent to the public than just Congress.

                              As for the regulatory processes on foreign trade, I think maybe you misunderstood me, I completely agree with everything you said, we absolutely must even the slates, the whole drywall conundrum perfectly illustrates a big part of the problem, but we should not ignore the wage differentials and underlying costs of living that reflect wages, though on a positive note China's wage standards are gradually increasing.

                              Much of what you suggest reminds me of Peter Moricci, a conservative talk circuit pundit and economics professor, but I think Peter tends to put too much focus on what China's doing wrong and not enough on what we can do here, though I largely agree with many of his points.

                              With regard to household incomes, as I read your mention that 50% of all households pay no taxes it occurred to me that even at full employment 40% of the total population doesn't work, I'm not sure if you'd factored that.

                              With regard to free markets self regulating, I cannot agree there, not fully.

                              We used the same thinking back in 1999 when Gramm, Leach and Bliley eliminated Glass Steagall, I suspect you understand just how much that contributed to the scandal we're now paying for.

                              Removing a law created as a result of the Great Depression to prevent a repeat apparently led to a repeat of an almost identical circumstance.

                              As Plumbus mentioned about, we're into a long term cyclical regime change, the death of an era.

                              The government, and our social behavior has historically taken complete changes in direction, very often from one extreme to another, I suspect the words "free market" could become a bad name at the household level for a while.

                              In Social-political terms, we're roughly back where we were 80-100 years ago, I even looked up old newspaper headlines from the period to find headlines like "Roosevelt is a socialist!", and other tax related rants for big business.

                              Just thirty years ago, a Republican would almost look like a Liberal compared to a contemporary Democrat, and this pattern of shift is nothing new.

                              Again, Teddy Roosevelt was a champion for the progressive tax cause.

                              I chuckle hearing semi-literate, self proclaimed "Tea Party" politicians, or Glenn Beck cite him as an example on how to run the country, then in the same breath refer to higher taxes on the upper class as a terrible idea.
                              Last edited by DuckButter; 12-03-2010, 09:13 AM.