The Destruction of the Middle Class by Enriching the Super-Rich

[Hohn]

Wow, I didn't know Paul Krugman posted on INGO!!

He doesn't. You should have been able to tell from the cogent thought, reasonable argument, and ability to cite facts as clear indicators that it was NOT Krugman.

Feel free to enlighten us all with the *evidence* that says there are errors in the post above.


In other words, post a counter-argument or don't post at all.

 

[Hohn]

Thank you. Hohn has no clue.

Make your counterargument or stay out of it.

 

[HavokCycle]

Any advisor who has a client in bonds at the moment is steering them wrong, imo. With interest rates at historic lows, bonds have only one way to go, and that is down. They are better ways to get dividend cash (real estate being one, dividend stocks another).

real estate is the best investment and always has been, akin to any other tangible, durable goods. the only problem with these things are, you have to be able to keep it. there's really nothing preventing someone from taking what you 'own' unless by rule of law.

 

[Hohn]

Nonsense, the above is the single most ignorant pseudointellectual claptrap that I've ever read on INGO and that's saying something. We're all a little dumber for having read it.

I'm surprised to see that kind of response from you.

I personally thought you were more inclined to make a reasoned argument/discussion than just lob an ad hominem grenade and move on.


I was wrong, and disappointed. Oh well. Guess I shouldn't expect logic and evidence from fellow INGOers.

 

[Hohn]

real estate is the best investment and always has been, akin to any other tangible, durable goods. the only problem with these things are, you have to be able to keep it. there's really nothing preventing someone from taking what you 'own' unless by rule of law.

Please expand on your claim. Most times, real estate keeps up with inflation and does little better, if at all.

Of course, it depends on WHICH real estate you buy, now doesn't it? Manhattan, NYC real estate and Manhattan, KS real estate are not equally lucrative investments, yet they are both "real estate", are they not?

 

[Bummer]

Make your counterargument or stay out of it.

Gosh Your Most Reverend Eminence, we didn't notice the white smoke.

 

[Hohn]

Dave Ramsey is a good man.We all need to realize that we have been sold a Trojan horse,in that we seek to operate with a credit rating that allows us to live beyond our means...Credit is not to benefit YOU,but the banking system. If you cannot sell what you have and pay off everything you owe...You are BROKE! We are taught by media that we "need"many things that we do not! I like the article.It makes sense to me.

Dave Ramsey is the man! We are on baby steps 4,5,6.


Credit in and of itself is not inherently evil. It is just a tool. Credit that goes to fund pure consumption is bad.

But credit that goes into buying a new CNC machine or other pieces of capital equipment or into something that will make money can be good credit.

Without credit, many businesses that are contributing to our economy simply couldn't exist.


But even "good" credit can become bad. On paper, student loans would be "good" credit because a person should make more money over his lifetime as a result of paying for that college degree. But it ends up being bad credit because it creates a huge demand for higher education that drives prices up through the roof, taking away much of the economic value of the degree.

Higher education is the biggest bubble of all right now-- almost exclusively because of the Federal government and the desire of every politician to claim to be helping people get educated. In reality, they are not pro-education; they are pro-University.

Our major colleges are drowning in money-- so much money that they can open entire departments devoted to the study of things are the of dubious economic value. This, because the endless supply of credit and the belief that somehow college=education (which is NOT true) have created huge demand for education and endless credit to pay for it.

Short of being a Democrat fundraiser, what exactly does a "women's studies" degree equip you to do in terms of economic output?

Education is important, but the economic value attaches only when it produces a skill that someone else is willing to pay for-- engineering, medicine, law, whatever. Getting a $70k degree in art history is, imo, ill-advised in terms of economic value.

It may have value if you like art and appreciate art history-- but that's not economic value, that's a different kind of value.

 

[Hohn]

Gosh Your Most Reverend Eminence, we didn't notice the white smoke.

Drive behind my truck on a cold morning and you'll notice it for sure. The fuel is a little raw with all that timing in it

 

[Tsigos]

Here is a brilliant analysis of the impact of current liberal Democrat policies. They have destroyed the middle class, enriched the super-rich, and made permanent the impoverished reliance on welfare for poor. Is this the hope and change you voted for?

​

The Late, Great Middle Class | National Review Online

Hmmm. Seems left wing websites blame the Republicans. Daily Kos: Time to say this: Republicans are destroying civilization. Is it possible both share in the blame? They both appear to be serving the world elite as far as I can tell.

When billionaires control the agenda, financial systems, media and pay for the campaigns of our "representatives", who do you think comes out ahead?

 

[Hohn]

Fascinating:

[video=youtube_share;PHe0bXAIuk0]http://youtu.be/PHe0bXAIuk0[/video]

 

[deal me in]

I'm surprised to see that kind of response from you.

I personally thought you were more inclined to make a reasoned argument/discussion than just lob an ad hominem grenade and move on.


I was wrong, and disappointed. Oh well. Guess I shouldn't expect logic and evidence from fellow INGOers.

Maybe the fact that multiple people responded this way should tell you more about the quality of your post than your fellow INGOers. It simply wasn't worthy of a reasoned argument/discussion. On a positive note, I'm sure you could get a job at MSNBC.

 

[Hohn]

Yeah, and maybe the fact that so many Germans supported Hitler should tell us that he was right too. Truth by consensus-the Wikipedia effect.

 

[Hohn]

Deal Me In--

Attack the argument. Demonstrate the error.


Appeals to consensus are fallacious-- but I'm sure you knew that already.

 

[Mad Macs]

Maybe the fact that multiple people responded this way should tell you more about the quality of your post than your fellow INGOers. It simply wasn't worthy of a reasoned argument/discussion. On a positive note, I'm sure you could get a job at MSNBC.

That's complete nonsense. 1 sentence sarcastic responses don't make a debate, they make the person look simple. Multiple people doing it doesn't make them correct.

 

[churchmouse]

That's complete nonsense. 1 sentence sarcastic responses don't make a debate, they make the person look simple. Multiple people doing it doesn't make them correct.

This is a prime example of how we as a society have become conditioned to "Sound bite " responses to major issues.

Hohn made a few good points in the initial post. I do not see it as gospel but in the end....those who respond in this manner are possibly the ones he is speaking of.

Not sure but JMHO for what that is worth.

 

[traderdan]

Where are we going with all of this? I KNOW many people who are living high,wide and handsome,and they truly own nothing.They will never repay their college loans,never pay off the fancy autos that they signed for.They SURE cannot afford to invest in some up and coming stock.Our government has repeatedly bailed out large entities that it considered "too large to fail". I am a small businessman,and failure is not an option,so I do whatever it takes,no matter the extra hours my wife and I must labor to stay afloat.From my perspective,without a doubt our government and welfare system is heavily favorable to those who are very rich or very poor.You may believe in the strength of your investment portfolio,but it is all a over inflated balloon,and be sure that in the right situation,your assets will be absorbed by the socialists in power.

 

[BehindBlueI's]

You may believe in the strength of your investment portfolio,but it is all a over inflated balloon,and be sure that in the right situation,your assets will be absorbed by the socialists in power.

Maybe. History shows different, but maybe. However there's a lot of indicators its not going to happen in my lifetime. If you want to see what the country is going to look like in 30 years, look at Florida today. In a few decades, that's the demographics of the entire US. Lots of old people. Old people get what they want in this country. They vote en masse, unlike the working poor. Old people like entitlement programs that benefit them, like medicare. Old people like their retirement investments to be protected. No politician is going to get elected on a platform of screwing investors or cutting entitlement programs old people like. Old people like the status quo. There aren't many revolutionaries who decide they're taking to the street in their 60s. Young unmarried men tend to be the drivers of social upheaval. The demographics are perfect for revolution in the Middle East, but couldn't be worse in the Midwest. Nope, I'm going to be old with lots and lots of other old people, many of whom will be depending on their 401k and social security and will wield their political clout to protect it. I'm not terribly worried about socialism grabbing my assets.

There's a whole subforum here dedicated to preparing for when things to tragically wrong. I agree with that, you should prepare for such an event. However you should also prepare for when everything doesn't go tragically wrong.

 

[Hohn]

Perhaps I should undertake a little explanation as to why the Fed is, I believe, actually doing a good job overall (though it could do a lot better).

A central bank's job is to regulate the amount of money in the economy, and the amount of credit. Since these are closely related, but separate things.

The FED does this by setting the cost of borrowing (via interest rates). It also prints money (or fails to print as some is taken out of circulation, in effect 'destroying' money).


When the bubble of the mid-2000s occurred, the quantity of credit exploded. So did the money supply as a result. Because the government was guaranteeing the mortgages of the vast majority, there was no lender risk at all for writing bad mortgages, and there was no application quality control to catch the outright fraudulent applications. Why would a lender verify these facts if he has only interest in getting the paperwork done, not in mitigating risk? Risk is the government's problem, he's thinking. He just writes the paperwork and gets and automatic sale to Fannie or Freddie and collects his check. Easy money.

Because mortgages were backed by the gov't, they were perfectly 'safe' securities to bundle into securities for Wall St folks to trade. Remember-- risk mitigation is for suckers (i.e. taxpayers).

The demand for credit exploded as lots of people who couldn't afford houses bought them. Seeing the market boom, speculators came in and the flipping craze fed the boom. Just like that, it's the Dutch Tulip Bulb craze (google it) all over again.

But like everything that can't go on forever, it didn't. Eventually people realize that the 'assets' they held were worthless-- like owning a corporate bond from a bankrupt company. When your asset is someone else's liability and they can't pay, your asset is worthless.

The whole house of cards tumbled down--caused by, more than anything else, a terrible government policy of backing all mortgages (yes, the crisis we had was 100% the making of Washington, not Wall Street).

What happens when that crash happens? De-leveraging. Seemlingly overnight, banks begin failing. When a bank fails, it wipes out a chunk of the money supply (remember, banks create money "from thin air" when they make loans backed by deposits-- while the FDIC insures the deposits, all the other "Assets" of the bank (car loans, mortgages etc) get auctioned off. The bigger the bank is, the more money is wiped out when the bank fails.

Bank failures are highly deflationary. Deflation is a BAD thing. When a dollar is always increasing in value, spending grinds to a halt for obvious reasons-- you'll put off the spending because it's cheaper tomorrow. When spending stops, the deflation accelerates and the problem worsens.

This is why the peak (trough?) of the Great Depression was 1933-- not the actual stock market crash of 1929. It get even worse for 3 more years because the Fed did a terrible job of preventing massive deflation. It had to keep its powder dry, so to speak, for a "real" emergency. The economy muddled along all through the 1930s because of a throttled money supply and bad gov't policy-- all the New Deal socialism that FDR brought in.

WW2 broke us out of the Depression because the war borrowing expanded the money supply (and credit) to where the economy could operate again. It wasn't the war, per se, that ended the Depression. Rather it was the ending of bad policy as we switched to war footing that did.

Our recent financial problem is similar to 1929 in that we had credit bubble pop, and wipe out a lot of the money supply.

Here is a graph of the "money multiplier" which is the ratio of money the Fed puts in circulation (Base money or M0) to the money the economy creates on its own (like you going to the restaurant and paying with credit).

This ^^ is what deflation looks like. When the economy stops making it own money (multiplying the Fed base money) you get a disaster.


This is why the Fed can print off a ton of money and not have the economy notice that much. Here's the M0 money the Fed directly controls-- note the huge spike:

But here's the amount of money the economy sees:

Note the the huge collapse of the first chart and the huge spike in the 2nd chart are both gone and all you see is a mostly-smooth increase in money overall. This is the Fed keeping the change in money supply relatively minor.


When the "multiplier' recovers and the economy starts making its own money again, the Fed can stop keeping it on life support via cash injections.

Too bad the the awful Obama policies (obamacare, bailouts, subsidizing everything) are keeping the economy from recovering as well as it could. This is the lamest recovery ever becaus of bad policy.

H

 

[traderdan]

Maybe. History shows different, but maybe. However there's a lot of indicators its not going to happen in my lifetime. If you want to see what the country is going to look like in 30 years, look at Florida today. In a few decades, that's the demographics of the entire US. Lots of old people. Old people get what they want in this country. They vote en masse, unlike the working poor. Old people like entitlement programs that benefit them, like medicare. Old people like their retirement investments to be protected. No politician is going to get elected on a platform of screwing investors or cutting entitlement programs old people like. Old people like the status quo. There aren't many revolutionaries who decide they're taking to the street in their 60s. Young unmarried men tend to be the drivers of social upheaval. The demographics are perfect for revolution in the Middle East, but couldn't be worse in the Midwest. Nope, I'm going to be old with lots and lots of other old people, many of whom will be depending on their 401k and social security and will wield their political clout to protect it. I'm not terribly worried about socialism grabbing my assets.

There's a whole subforum here dedicated to preparing for when things to tragically wrong. I agree with that, you should prepare for such an event. However you should also prepare for when everything doesn't go tragically wrong.

I hope you are right,but I am not so optimistic.The "have nots" are growing and demanding more and more,the Federal beast is more powerful than ever before.With the proliferation of weapons technology,I believe there is a very real possibility of some catastrophic event that could destabilize our economy. I believe in being prepared...Fluid assets,ability to move,the ability to self sustain. I personally have no confidence in this monetary system.

 

[BehindBlueI's]

I hope you are right,but I am not so optimistic.The "have nots" are growing and demanding more and more

That's both true and false. They are growing, but what real push has there been demanding more? Occupy Wall Street? A bunch of disillusioned liberal arts majors who realize they wasted their education and have no job prospects with their philosophy degree sprinkled with some potheads? The McDonald's workers pushing to up their wage? While I'm sympathetic, the vast majority of people seem to either deride them or ignore them. I can demand all I want, but in the end America is still a pretty awesome place to live and I see no signs of a real revolution. Cheap or free entertainment, access to basic necessities of life, an aging population, and centuries of peaceful transition of power at all levels of government all say the have nots are not stirring, despite growing. Crime rates are continue to drop, again a sign that despite the growing divide people are generally content.

There's probably a breaking point somewhere, but then again some of the greatest economic divides in history were also pretty socially stable. All of the real indicators seem to say "status quo" for us in the foreseeable future, despite the constant screams of catastrophe and doom from the media (both mainstream and "alternative").