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337 comments on DrumBeat: November 8, 2008
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337 comments on DrumBeat: November 8, 2008
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This reinforces my feeling that trying to indirectly bail out the real economy with the financial economy is an inefficient and wasteful process which will not end up accomplishing its intended purpose. The government should focus on directly funding infrastructure and jobs that work on renewable energy and conservation.
I'm wondering what the actual "intended purpose" is. Clearly not creating jobs and boosting the economy or anything like that, or they wouldn't have structured it this way.
The way I see it, there are two possibilities.
1) They know a hard crash is coming, and there's no way to avoid it, so they're looting the country while the looting is good.
2) They're afraid our Chinese (and Japanese, Indian, etc.) overlords will cut us off if their investments aren't made good.
I am not quite as cynical as you are but I suppose what you suggest is possible. Another problem is that the so called real economy is pretty much hollowed out. Regardless, the only people bailed out so far are multimillionaires.
Reading the coverage of the bailout debate before it passed...there was concern among some congressmen about the fact that there were no controls over how the money was used. But when they voiced their concerns, Paulson said it was a dealbreaker. He insisted on no limits, no controls, or Bush would veto it.
Why? And why would congress go along with that? IMO, there had to be a compelling reason. It's not like they didn't notice or didn't know what would happen.
These are not mutually exclusive. If you have to go for (2) to keep the game going for a while longer, wouldn't you naturally go for (1) and get yourself and your buddies set up nicely?
My key belief is that those in high places saw the oil spike and financial crash coming, and probably see the recession quite vividly and have plans for that too, but many lower-downs even in the financial and oil industries are just scrapping for what they can get like most of us.
"Nobody could have seen this coming" said by officials is synonymous with "sucks to be you".
"Nobody could have seen this coming"
But... it's built in... Money as debt...
Take out a loan, new money and new debt are created. Debt pays interest as percentage per unit time.
Debt = (1 + interest% )no of years
Debt = e(No of years * ln(1 + interest %))
eix = cos(x) + isin(x)
If you're using credit/debt as money it IS going to come down. The fundamental nature of debt says so. Not only that, with all those cos and sin functions built in you are pretty much guaranteed a wild ride. Making debt money, doesn't seem like a very good idea to me, but then, I don't own JP Morgan.
Debt can be repudiated, it's nothing but agreements which last only as long as some power exists to enforce them.
Once the system crashes, the debt is repudiated, and the real assets, whatever they are, are all that matters.
Money is nothing but some force -- coercive or attractive -- that makes people do things.
The world will certainly be a different place in a few years, but it won't end.
It's highly misleading to suggest that these two equations are similar; their behaviour is completely and utterly different. Writing a complex number as (x,y), the equations become:
The first equation is the regular exponential function we're all familiar with, and quickly produces very large numbers; the second equation describes the circle of radius 1 centred at the origin. The results are not even remotely similar.
as long as we are picking nits, i believe the first equation should read:
d=p*(1+i)^t
where p is the principal , i is annual interest rate,fraction(not as %)
and t is time,yrs
example i = 0.05 t=5 then debt is p(1.05)^5
= 1.28p
If they do something like
d2Debt/dt2 = K - c*Debt
which shows Debt accelerating until it crosses some artificial limit, it will start oscillating, as the solution to this equation is a phased sin/cos equation.
Why this would happen, I don't know, but it is mathematically one way it would start oscillating.
I would think the debt would crash or reset before oscillating.
I would think that oscillating is actually the norm, and we will see much more of that before we see a crash or reset.
Don in Maine
The yearly deficit seems to oscillate a bit but the accumulated debt keeps on increasing.
Would not an oscillation in debt require a feedback loop and a gain of greater than one, as in classical control theory?
I know there are other theoretical modes that can drive oscillatory behavior, but I can't see what would drive a debt oscillation other than such a feedback loop consisting of changes in interest rate, regulation, and behavior. Likely any such oscillation would be on a very long scale -- to the tune of decades. Perhaps there is short-duration cycle overlaid upon a much larger generational cycle?
I am sure that there have been attempts to model economic theory in terms of overdamped and underdamped systems, with various input functions and signal paths, but the complexity would likely be intractable. A discrete simulation with enough interconnected but independently acting entities might be viable.
I imagine that social mores and emotional readings like "consumer confidence" play into any such mechanism, but maybe those could be quantified in some way as well.
You mean something like this:
http://www.thepiggybanker.com/wp-content/uploads/2007/04/interest_rate_c...
I think we had discussed, or at least mentioned, the L-V equation a while back, and I think it applies. Depending on the parameters, it can assume a nearly constant steady state, oscillate (almost- but not-quite- sinusoidally), oscillate wildly, or crash.
Just substitute fossil fuel for "prey" and the financial system for "predator".
I wasn't really suggesting they're similar I was just pointing out that exponentials are closely related to functions which form waves and are therefore likely to vary wildly.
When trying to measure the size, or value of an item, it really doesn't seem wise to use something which is itself likely to vary wildly. In fact, the very idea is ridiculous. Would you use an elastic band to measure the width of a door?
How can credit then be said to be a good way of measuring the value of something? How could anyone possibly reliably gauge the value of anything when the value of money itself is based on millions of loan agreements and debt payments.
I'm not at all sure 1 and 2 are mutually exclusive.
I vote all of the above. And then some.
Cheers
"...trying to indirectly bail out the real economy with the financial economy...?
I look at it differently.
The financial economy knows the jig is up so they have tapped into the real economy via the treasury to monetize as much of their virtual wealth as possible before total collapse.
So the real bitch here IMO is the fact that these smokers who have created vast amounts of digital dollar wealth without producing anything tangible but instead through creative accounting, financial engineering, basically dirty dealing, now get to turn their phony wealth into real tangible goods.
In other words they SUCK!
The only way to stop them is to drag them out into the streets. They have no shame, their ambition knows no bounds.
Congress has proved impotent to control it -- that is our "legal" recourse. Now we capitulate or we resist.
Absolutely, tstreet. Put people to work on much-needed projects, and let the bankers compete for their business as these people take their paychecks to buy what they need and do (also heavily subsidized) projects such as super-insulating homes, converting to low-energy appliances and the like.
A trickle-up recovery is the only recovery that will work.