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Author: EddieLuck Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 455830  
Subject: Why do people want a recovery? Date: 5/1/2012 6:28 PM
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So many people (including the latest METAR Sage) advocate various schemes for producing a "recovery". Why?

All that has happened is that GDP has lost the fraction of itself that was unsustainably produced by an absurd growth of private debt to levels beyond what the economy could support. Now that that debt growth has stopped, GDP has slown. Do we want to revive private debt growth to the levels of 2006/7 and have another almost-identical crash? Of course not. It would be much better to just resume normal economic growth from this lower level of GDP, once we got debt ratios down to a more normal level.

Wait though. The federal government has raised its rate of debt growth enormously in response to the 2008 crisis and the enormous deficits since then are holding GDP about 8% higher than it would be with a balanced government budget, even assuming zero knock-on stimulative effects of the deficits. Therefore, real or natural GDP would be 8% less than it is now if our debt incurred through our government stopped growing.

So what are we hoping for? Personally, I'm hoping for the rest of the slump to happen after we fall over the "fiscal cliff" and after the federal deficit is cured, so that we can at least reach a bottom from which we have a chance of growing. The recovery that the fed and others are trying to provoke would just be a return to insane debt growth, bankrupting the country, borrowing from the future: call it what you will. It's just insane, just like the idea of propping up insolvent, stupidly-run financial firms at taxpayers' future expense. Let them go and a lot of debt will be extinguished through default and bankruptcy.

The sooner our government understands that its deficits are anathema to our long term future prosperity the better. The sooner people realize that all this constantly- accelerating debt growth is reckless, childish, and certain to fail the better.

The sooner America understands that unlimited debt-fuelled economic growth is an adolescent fantasy, the sooner we can drop our GDP to its proper level and go back to building on that.

Well, you say, that would cause a depression. Sure it would. That's obvious. That is exactly what we have created by our personal and public policies, and that is the bridge (to the future) that has to be crossed before we can achieve anything that could be called "recovery".

Desperately trying to produce real, sustainable economic-expansion-through-debt-growth from where we are now is just ridiculous. What part of history shows that that is achievable? What is the logical basis for saying it is possible? Why wait until the entire world is sucked into the unsustainable-debt-growth vortex before coming to our senses? Why wait for the mass poverty, starvation, and war that will follow a wordwide crisis before calmly assessing the actual situation?

It seems so simple to me, so plain and obvious. Is everyone so emotional that they can't think straight when faced with a lower standard of living? The contrast between the fortunes of Japan and those of Iceland since their respective crises should make things quite clear, even for someone who doesn't believe history.

Ed.
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Author: WilliB Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390942 of 455830
Subject: Re: Why do people want a recovery? Date: 5/1/2012 7:52 PM
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The people who want the type of "recovery" that you describe are the people who hope to make a quick buck off of it, despite the longer-term consequences Those are the people who tend to run things nowadays, it looks like.

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Author: steve203 Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390946 of 455830
Subject: Re: Why do people want a recovery? Date: 5/1/2012 8:56 PM
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The irony is that a large increase in spending by the mob will be required, to offset the large cuts in government spending that are being advocated in some quarters.

Steve

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Author: soycapital Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390950 of 455830
Subject: Re: Why do people want a recovery? Date: 5/1/2012 10:45 PM
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<It seems so simple to me, so plain and obvious. Is everyone so emotional that they can't think straight when faced with a lower standard of living? The contrast between the fortunes of Japan and those of Iceland since their respective crises should make things quite clear, even for someone who doesn't believe history.>

Hey we are up today and there is an election coming are you trying to put out the fire or what? I'm sure the rubber will hit the road but when is the question?

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Author: jerryab Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390952 of 455830
Subject: Re: Why do people want a recovery? Date: 5/1/2012 11:11 PM
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All that has happened is that GDP has lost the fraction of itself that was unsustainably produced by an absurd growth of private debt to levels beyond what the economy could support.

The growth of debt is not the basic problem. The failure to create jobs and real economic growth to support that debt is the real problem.

Job creation began failing in 2002 and never really recovered.

If jobs had continued being created at the average historic rate of ~2-million additional jobs/year (i.e. not at the higher rate under Clinton), then there would not have been an unsustainable growth of debt. People with jobs can pay bills--so no foreclosure problem would have existed.

The US lost almost 70-million work-years of due to the loss of jobs from 2002-2009. At $40k/job, that is $2.8T in lost wages--then add the multiplier (~7?) and that is almost $20T in lost economic activity. Losing almost $2.5T per year in economic activity for eight years in a row explains why the Great Recession was so bad--and why it will take a few more years to begin to feel like a real recovery has taken place.

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Author: yttire Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390955 of 455830
Subject: Re: Why do people want a recovery? Date: 5/1/2012 11:57 PM
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There are a couple of rational responses to your post.

1) People want a recovery, and hope to get one that is not debt fueled. They are willing to "cross the debt fueled gap" to get there- that is the hope is a debt fueled initial recovery will lead to an organic recovery which is not funded by debt. Is it possible to have growth in GDP not funded by debt? Sure. Probably not as high as historic GDP growth which was debt fueled, but there still could exist a recovery. It would take place through increased efficiencies, new technologies, and increased productivity.

2) There is a way out of a debt sink hole. If you think we are really far in debt- to whom are we actually in debt? If you look closely at the numbers, the debt is not held by the Chinese, the Japanese, or any other foreigner peeking through your window. It is held by your parents, your grandparents, and the plethora of pension funds attempting to provide them a standard of living. It isn't held by a magical fairy. This means that if that generation gets reduced benefits, everyone else is off the hook. This is the reality of what is happening. Notice by pushing interest rates down to zero, the pension funds have no where to turn to for yield. The elderly have no where to put their money to get interest. What is happening? The elderly are being ripped off by pushing interest rates down. Or in other words- the nation is escaping its debt burden by making its cost go towards zero. If there is no interest on the loans, there is no real cost to the loans. Imagine if the yields go all the way to zero. What happens? Well, now the only thing that needs to be paid off is the principal The massive slew of pension funds are now going to getting very little for the money they have in play. The debt sink hole is being eroded by the policies of today. It is plausible it will be eroded further by targeted inflation. It seems very likely that interest rates will be held low, and we will be pushed into a low inflationary rate to essentially drive the debt away through Fed action.

3) The alternative to the above situations is massive social unrest. No one desires massive social unrest, except anarchists. There are going to be powerful players trying to find a way out which can avoid social unrest. Thus, a huge stick lies there. Then, there is a huge carrot that some influential players stand to make a ton of money by having the policies in play that are there today (namely, anyone playing massive leverage games). Combine a massive carrot and a massive stick- what do you get? Action. It may not be the action you want, but it is the action we get.

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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390960 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 3:01 AM
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The irony is that a large increase in spending by the mob will be required, to offset the large cuts in government spending that are being advocated in some quarters.

Well, that's only true if you believe that said offset is necessary.

Some of us think it is not only unnecessary, but a bad idea.

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Author: saunafool Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390962 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 4:19 AM
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The sooner our government understands that its deficits are anathema to our long term future prosperity the better

I think everyone agrees that excessive debts are bad for future prosperity.

There is disagreement about what level of debt is excessive. It has been repeated many times, but deficits and overall debt were much higher in WWII, and the country recovered just fine.

There is also disagreement about the best method for eliminating the debt. Austerity--which is being held up as necessary by parties on both sides of the Atlantic--clearly isn't working. It is making things worse for the U.K., Spain, Ireland, and the other countries who are pursuing austerity measures. Not only are their economies not hitting bottom, they are continuing to plunge. Tragically, the fiscal situations in these countries are getting worse, not better.

So, again I will cite the research of Rogoff and Reinhart ("This Time it's Different") and say that the EU and USA need to inflate inflate inflate.

As for Iceland, it was nice to know that someone let their banks fail--at least the international branches. They did bail out the domestic operations. Of course, their banks had become so huge that they had no way to fully bail them out anyway. And they did pay a massive price that would be severely destabilizing were it to occur across the U.S. or Europe--96% drop in the stock market (including a 77% drop in ONE DAY), massive currency devaluation, and inflation hitting 18%.

However, comparing Iceland to Japan is of limited value. Iceland has a population of 300,000. I could just as easily advocate the policies of Luxembourg--which despite being heavily dependent on the financial industry has barely experienced a recession. Luxembourg has repeatedly bailed out their banks.

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Author: MadCapitalist Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390963 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 6:28 AM
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The irony is that a large increase in spending by the mob will be required, to offset the large cuts in government spending that are being advocated in some quarters.

Steve


There has been a lot of research on this. This was recently talked about in this article.

Does UK Double-Dip Prove that Austerity Doesn’t Work?

"Lots and lots of papers* have now studied this question and the evidence is rather clear: the types of austerity that are most-likely to a) cut the debt and b) not kill the economy are those that are heavily weighted toward spending reductions and not tax increases. I am aware of not one study that found the opposite. In fact, we know more. The most successful reforms are those that go after the most politically sensitive items: government employment and entitlement programs. Lastly, there is evidence that markets react positively when politicians signal their seriousness by going against their partisan inclinations. In other words, the most credible spending reductions are those that are undertaken by left-of-center governments."

http://neighborhoodeffects.mercatus.org/2012/04/26/does-uk-d...

Here are some papers:

Fiscal Consolidations in Currency Unions: Spending Cuts Vs. Tax Hikes - http://ec.europa.eu/economy_finance/events/2012/2012032_fisc...

FISCAL CONSOLIDATION: LESSONS FROM PAST EXPERIENCE - http://www.oecd.org/dataoecd/21/33/38628499.pdf

It's funny that we followed an "austerity" budget in the early 1920s and quickly rebounded from a deep depression, and we increased spending dramatically in the early 1930s and entered the Great Depression, but we conclude that increasing spending is the way to go. We also have numerous other examples of failure at increasing government spending, but I guess it is important to reject anything that might contradict our desired beliefs.

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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390966 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 7:48 AM
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The growth of debt is not the basic problem. The failure to create jobs and real economic growth to support that debt is the real problem.

Jobs are incidental to economic activity, not the driver. Accounting 101 puts jobs on the cost side of the Income Statement for good reason. To be productive, business has to cut costs and that includes jobs.

The economy is driven by entrepreneurs willing to spend their time and put their capital at risk to advance whatever idea they have and this only happens when they believe they have some chance, however slim, to succeed.

As you say, debt is not the problem, but excessive debt certainly is. When the cost of capital exceeds the marginal efficiency it creates it becomes a drag on business. But worse is the fact that debt can become unstable. You can lay off workers but you cannot lay off debt except in bankruptcy.

A little bit of debt can help you build a sturdy house. Excessive debt will build you a house of cards.

Denny Schlesinger


I have never heard anyone (except politicians) say: "Let's hire some people to improve the economy." LOL

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Author: jerryab Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390972 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 9:51 AM
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Jobs are incidental to economic activity, not the driver.

There is no economic activity if there are no jobs. Jobs create (additional) economic activity because that is what jobs ARE (and do).

It is the desire to create beneficial FUTURE economic activity that creates jobs.

How the term 'beneficial' is defined is up to the entity desiring/funding the work being done. An individual might be doing it to try to earn a profit. A govt may be doing it for a public safety reason (higher guard rails on a bridge, for example, so it is harder for a car to crash over the side of the bridge). Both are economic activity and both require someone to work and be paid in order to try to reach the goal. If the jobs are not created, the goal can not be reached.

Jobs were not created, hence the goals could not be reached. The economy crashed as a result.

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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390978 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 10:02 AM
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Jobs create (additional) economic activity because that is what jobs ARE (and do).

jerryab


In that case you should hire a dozen workers to do some job, surely the economic activity will make you some money. ;)

Denny Schlesinger

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Author: jerryab Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390980 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 10:05 AM
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I have never heard anyone (except politicians) say: "Let's hire some people to improve the economy." LOL

That is no surprise. Do you know WHY?

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Author: MadCapitalist Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390981 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 10:06 AM
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Jobs create (additional) economic activity because that is what jobs ARE (and do).

jerryab


In that case you should hire a dozen workers to do some job, surely the economic activity will make you some money. ;)

Denny Schlesinger


Better yet, let's destroy all machinery, computers, and anything else that makes us more productive so that we will need more labor to produce anything. Just think of all the additional economic activity we will have! Prosperity! Hurray!

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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390982 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 10:08 AM
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Do you know WHY?

Yes.

The Captain

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Author: jerryab Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390983 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 10:22 AM
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1) People want a recovery, and hope to get one that is not debt fueled. They are willing to "cross the debt fueled gap" to get there- that is the hope is a debt fueled initial recovery will lead to an organic recovery which is not funded by debt. Is it possible to have growth in GDP not funded by debt? Sure. Probably not as high as historic GDP growth which was debt fueled, but there still could exist a recovery. It would take place through increased efficiencies, new technologies, and increased productivity.

Exactly. Those exist and have been documented within the US economy. Thus, the problem is not economic--it is political. One side wants to do it--the other side is violently opposed. Yet, the solution is one adopted by the US govt decades/centuries ago, accepted and used by tens of millions of people--and it is acknowledged it works. So, a Catch-22.

2) There is a way out of a debt sink hole. If you think we are really far in debt- to whom are we actually in debt? ... Notice by pushing interest rates down to zero, the pension funds have no where to turn to for yield. The elderly have no where to put their money to get interest. What is happening? The elderly are being ripped off by pushing interest rates down. Or in other words- the nation is escaping its debt burden by making its cost go towards zero.

True. But the reason interest rates have been held low for a long time is due to the persistent lack of generally productive economic activity to sustain higher rates. That is slowly coming back under Obama--but it was missing for most of 2001-2009.

3) The alternative to the above situations is massive social unrest.

Hence bread and circuses. It keeps the public distracted from the facts.

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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390984 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 10:23 AM
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MadCap, no need to be so destructive! Just lower the workweek to 20 hours without lowering pay and double the number of workers. Prosperity!

If that does not do enough, lower the workweek hours some more until it does work. When the workweek hours reach zero we'll all be part of the 1%. LOL

The (surely they have a job for me at The Fed) Captain

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Author: jerryab Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390985 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 10:28 AM
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In that case you should hire a dozen workers to do some job, surely the economic activity will make you some money. ;)

I am (and have been) doing precisely that.

Turned down a 7-figure funding offer from a NYC VC firm in Oct 2008 (yes, that date IS correct) because the funding was not adequate.

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Author: jerryab Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390986 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 10:30 AM
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Better yet, let's destroy all machinery, computers, and anything else that makes us more productive so that we will need more labor to produce anything. Just think of all the additional economic activity we will have! Prosperity! Hurray!

Looks like you hit your "silly post of the day" quota early today....

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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390991 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 11:02 AM
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I am (and have been) doing precisely that.

Turned down a 7-figure funding offer from a NYC VC firm in Oct 2008 (yes, that date IS correct) because the funding was not adequate.


Which came first, the hiring or the idea of a business? Would you have hired if you didn't have a project in mind? Please revisit my earliest answer to you:

The economy is driven by entrepreneurs willing to spend their time and put their capital at risk to advance whatever idea they have and this only happens when they believe they have some chance, however slim, to succeed.


The problem with the economy is that it is a chicken/egg type dilemma. Which came first? It is difficult to separate drivers from consequences. One way to arrive at the right answer is to take proposals to their ultimate exaggeration (limit), just like MadCap did. My preferred explanation of supply/demand side economics is:

Demand creates queues. Supply gets rid if them.

To get the economy moving someone has to start by creating a bit of surplus to trade for something else. Hiring someone to do nothing useful does not create such a surplus. Creating a surplus by yourself, or with the help of third parties (workers), is what gets the economy going. This is the essence of Say's Law. Supply creates its own demand.

Denny Schlesinger

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Author: MadCapitalist Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390993 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 11:12 AM
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Better yet, let's destroy all machinery, computers, and anything else that makes us more productive so that we will need more labor to produce anything. Just think of all the additional economic activity we will have! Prosperity! Hurray!

Looks like you hit your "silly post of the day" quota early today....


I was merely showing the folly of your ridiculous assertion.

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Author: WendyBG Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390994 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 11:13 AM
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<That is slowly coming back under Obama--but it was missing for most of 2001-2009.>

jerryab, you have posted some good ideas and you are welcome on METAR.

Since you are new here, you may not be aware that partisan politics (defined as mentioning any particular politician or political party) is FORBIDDEN on METAR. That rule was passed by 80% of METARs and is the only way to keep METAR discussion economic and not overwhelmed by partisanship. Post politics on Political Asylum. The Free-for-All Economics Board is also a place to discuss politics and economics.

Please do not post politics on METAR. I will FA political posts.

Wendy

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Author: voiceinthedin Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390998 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 11:27 AM
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The sooner our government understands that its deficits are anathema to our long term future prosperity the better. The sooner people realize that all this constantly- accelerating debt growth is reckless, childish, and certain to fail the better.


this guy and the 28 reccing readers are totally out of it.

Wendy can we drop the E from Metar? after all there are no economics being discussed here....only survivalists gold bugs own this board....and they are crazy.

Dave

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Author: voiceinthedin Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 390999 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 11:33 AM
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Jobs are incidental to economic activity, not the driver.

that is only true in supply side econ.

in demand side econ that is totally outdated thinking. Tax cuts for work done over time would create jobs, production and wealth for our nation. And when America gets over her cold the world gets over their pneumonia.

Dave....who sees only one way from here for the wealthy to get wealthier......

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Author: qazulight Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391000 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 11:34 AM
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Wendy can we drop the E from Metar? after all there are no economics being discussed here....only survivalists gold bugs own this board....and they are crazy.

Dave,

These "survivalist goldbugs" are really just Austrian School economist. The whole debate that gives METAR its life is between the Austrian School and the Keynesians.

To stop that debate would reduce METAR to bunch of people whining about what is happening with no sharp thought at all.

Cheers
Qazulight

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Author: voiceinthedin Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391009 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 11:57 AM
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To stop that debate would reduce METAR to bunch of people whining about what is happening with no sharp thought at all.


Qaz,

I basically see this board that way already because the "austrians" have no merit.....

on the other hand live and let live.....even if they are barely focused on real econ.....

Dave

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Author: WilliB Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391010 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 12:03 PM
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The US lost almost 70-million work-years of due to the loss of jobs from 2002-2009...and why it will take a few more years to begin to feel like a real recovery has taken place.

And why would a real recovery take place in a few years? From what I see locally, outsourcing is increasing, not decreasing, which means fewer jobs and/or lower salaries in the U.S.

Barring a huge surge of instability in the rest of the world, or full employment of the entire planet, I can't see where this U.S. recovery would come from.

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Author: voiceinthedin Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391012 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 12:11 PM
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Barring a huge surge of instability in the rest of the world, or full employment of the entire planet, I can't see where this U.S. recovery would come from.

WillieB,

I have enjoyed a few of your posts over the years.

You obviously have a reading list in mind without me on it.

So as Andy has been harping on for years you have this board's bias.

They dont know their arses from their elbows.

Dave

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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391028 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 1:55 PM
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Jobs create (additional) economic activity because that is what jobs ARE (and do).

jerryab

In that case you should hire a dozen workers to do some job, surely the economic activity will make you some money. ;)

Denny Schlesinger


According to this theory, is it actually necessary that the dozen workers do some job?

Or maybe we could have six of them dig holes and the other six fill those same holes.

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Author: rharmelink Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391041 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 6:01 PM
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Or maybe we could have six of them dig holes and the other six fill those same holes.

Tilling the soil can be a useful endeavor.

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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391043 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 6:10 PM
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A friend of mine wanted to get rid of a laborer when the law made it extremely expensive to fire anyone so he had him dig a trench. When the trench was dug he had the man fill the trench. The fellow quit in disgust. Problem solved.

The Captain

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Author: jerryab Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391045 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 7:00 PM
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And why would a real recovery take place in a few years? From what I see locally, outsourcing is increasing, not decreasing, which means fewer jobs and/or lower salaries in the U.S.

Because we are already part way into the recovery--but not all the way there.

What drives jobs? Demand for something (goods and services). Agreed?

There is currently a major shift underway regarding which goods and services will be demanded. Specifically, the retirement of the Boomer generation which began hitting FRA (Full Retirement Age) in Jan 2012 and will continue through the end of 2030.

Their retirement will create 2.5+million job openings per year--every year--for 19 straight years. Suddenly, the issue for employers is not a labor surplus but a labor shortage. Sure, there will a lot of automation and reorganizations of depts and companies to reduce the use of labor--but it will not be enough to meet the now-rapidly-shrinking available workforce. If "normal" unemployment is 5%, that is about 6.5-million people. With a "real" 20+million unemployed = ~14% (i.e. unemployment over say 5%) today, the labor surplus suddenly gets reduced very quickly when the economy needs to replace (net) 1.5-million boomers/year AND create new jobs in new industries on top of that. Figure a real labor shortage beginning 2015-2020....

Outsourcing is possible but only if it is outside the US (offshoring) or shifted to a supplier with lower costs and/or better production capabilities (= total lower costs) than the firm doing the outsourcing.

I have done both (offshoring and outsourcing) and both are a PITA when trying to work with a company doing it for the first time.

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Author: jerryab Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391046 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 7:38 PM
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Jobs are incidental to economic activity, not the driver. Accounting 101 puts jobs on the cost side of the Income Statement for good reason. To be productive, business has to cut costs and that includes jobs.

Fundamental error 101: How you account for something for tax purposes is not what necessarily makes a company profitable. If income > costs, then it is profitable. However, most newly created jobs are in businesses less than 5 yrs old. And job growth really drops off after a business 10-25 yrs. Apple? Not really. How many jobs does Apple create itself? Not that many. Lots of jobs in China, though--with suppliers to Apple....

The economy is driven by entrepreneurs willing to spend their time and put their capital at risk to advance whatever idea they have and this only happens when they believe they have some chance, however slim, to succeed.

Which means they create jobs FIRST--in order to make the product or deliver the service. Apple Lisa, for example. Their expectation is volume will be sufficient to make the venture profitable once it grows large enough (i.e. costs go down due to economies of scale). Ipad....

As you say, debt is not the problem, but excessive debt certainly is. When the cost of capital exceeds the marginal efficiency it creates it becomes a drag on business. But worse is the fact that debt can become unstable. You can lay off workers but you cannot lay off debt except in bankruptcy.

That is why the relevant point is not debt--it is productivity. If investing an additional $100k yields $1-million in additional revenue that is profitable, is it a good investment? If a $100k investment only generates $150k in additional profitable revenue, maybe that extra investment is not worthwhile. It depends how much of that extra revenue is profit (leveraging)....

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Author: jerryab Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391047 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 7:46 PM
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Which came first, the hiring or the idea of a business? Would you have hired if you didn't have a project in mind?

In order to consider if something is worth pursuing as a venture, one must first determine if the idea is viable as a business. And most of those are based on either new technologies or new/different uses for existing technologies.

Micro-processor leads to the desktop computer--and so on.

CRT leads to television, which leads to the current LCD screen/HDTV--which leads to current LED then OLED screens and so on.

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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391050 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 7:58 PM
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Fundamental error 101: How you account for something for tax purposes is not what necessarily makes a company profitable.

Who said anything about "tax purposes?" Accounting is the information system you use to manage your business. That the government hijacked accounting to steal your wealth is another subject.

Clearly we are not on the same wave length.

Denny Schlesinger

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Author: jerryab Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391051 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 8:01 PM
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To get the economy moving someone has to start by creating a bit of surplus to trade for something else.

This is correct. But the missing part is simply put: WHY create a surplus of something if there is no demand for it?

Hiring someone to do nothing useful does not create such a surplus. Creating a surplus by yourself, or with the help of third parties (workers), is what gets the economy going. This is the essence of Say's Law. Supply creates its own demand.

Supply does not create any demand. Never has--never will. History is littered with many millions of these failures.

Demand creates an incentive for someone to take a risk and create a supply. There are fewer failures when an existing demand is met with supply than when a supply exists with no demand.

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Author: jerryab Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391054 of 455830
Subject: Re: Why do people want a recovery? Date: 5/2/2012 8:42 PM
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Since you are new here, you may not be aware that partisan politics (defined as mentioning any particular politician or political party) is FORBIDDEN on METAR.

My reference to failed job creation 2001-2009 is a documented fact--not a politically-based theory.

Go ahead and graph actual BLS employment figures 1971-present and you will see this is true. Employment plateaus and falls starting in 2001, rises to 137-million from 2004-2007, then falls to sub-130-million.

In economic terms, the 2001 downturn was VERY minor--so a return to historic norms (in terms of employment and job creation) was not unreasonable. The resulting recovery was not based on productivity but on asset-stripping. Eventually, the Wall Street banks ran out of other people's money--and the house of cards (pyramid scam in housing loans) came tumbling down. It could have possibly continued--until the boomers hit FRA (Full Retirement Age) in 2012. Then the bottom would have dropped out anyway. There simply are not enough buyers of homes to keep the market going once the boomers are out of the market. Look at the millions of houses still not yet foreclosed. Banks simply refused to process more foreclosures because putting even more foreclosed houses on the market recreates the problems they initially created (low prices, no buyers, and banks paying the costs).

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Author: WilliB Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 391078 of 455830
Subject: Re: Why do people want a recovery? Date: 5/3/2012 10:20 AM
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Or maybe we could have six of them dig holes and the other six fill those same holes.

A lot of the work we do feels like that.

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