Cynthetiq

Okay, I consider myself relatively intelligent, up on the news and historical information. I've been watching Alan Greenspan on the TV now for a little more than an hour, and he's being questioned by Senators.

But WTF is he babbling about? I have no idea... I don't understand how it all relates to everything and how he has no checks and balances to his position.

anyone care to explain just what he's and the Senators have been discussing today?

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Rodney

Man, that's a hard one. Partly because he's discussing the bond market, and bond trading is kinda counterintuitive. I can get it straight for about five minutes, and then it slips away.

Basically, Greenspan is saying that he expects the economy to start growing at a good clip in the second half of the year as all the tax cuts kick in. He knows he's been wrong about a turnaround before (like for the last couple of years) but he REEELY REELY means it this time, so all is well. And a recovery means that there'll be more economic activity, more inflation, more demand for money, and so interest rates will go back up.

This is a good thing, because a lot of people have taken money out of stocks and putting it into the bond market as a safe harbor. If the interest rates rise, the yield on existing bonds will drop and so will the market price of those bonds; so people will be encouraged to pull their $$$ out of bonds and put it into the stock market or somewhere else where it will stimulate the economy.

Greenspan and the Fed have been trying hard to convince investors that this scenario will happen, and in fact there was a selloff in the bond market today after his announcement from people who think they'd better get out before economic growth pushes interest rates up.

What the Fed is really afraid of is deflation -- falling prices, and the expectation of more falling prices in the future, which will encourage people to wait and buy things later, instead of now. Greenspan said, as he has been, is that deflation is really absolutely probably not going to happen here, and if it does there's plenty the Fed can do but it probably won't have to because.... That's one of the reasons he's not whining about the growing federal deficits, short term -- he wants more money in the economy, because he wants to trigger inflation to fight deflation.

Got that? Good. There'll be a test.

bermuDa

deflation is what I want... I'm so sick of paying more and more for products. One would think that a more valuable dollar and lower prices would prompt consumers to buy more, since they could afford more. But nooo, we want to print as much fucking money as we can to keep prices from going down.

I forsee a future where we'll regale our grandchildren with tales of 99¢ hamburgers and $8 movie tickets.

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Rodney

I kind of like the idea of deflation myself. But if you're carrying a lot of debt (like about half of everybody), deflation will hit you in the shorts. Because you'll be paying back your debt with dollars are worth more than the ones your borrowed. Say a dollar bought a hamburger when you took out your loan but, after deflation, that burger can be had for 75 cents. You borrowed dollars that could each buy a hamburger, but under deflation you're paying back the loan with dollars that can buy 1.33 hamburgers. Not a good deal for you.

seretogis

Add to that, the fact that what you took your loan out for most likely depreciates in value anyhow.

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bermuDa

to make things fair, wouldn't that lead to lower interest rates, which would lead to more loans being taken out, which would help the economy, right? the only ppl getting screwed are those who took out loans before the deflation.

sigh... economics gives me a headache. i wish i could get to the point where i could transcend this materialistic lifestyle that's been thrust upon me by society =\

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rogue49

The problem that most people are having is not the initial cost of things, which deinflation would affect,
but the fact that we are getting fee'd to death.

Most people I know are scrambling to pay for deposits, penalty, rates, services & etc.
Which most figures & reports do not take account of.

I wish there could be an investigation into how fees factor into everything.
Deinflation really only hits the corporate community.

The common man is drowning.

sportsrule101

rogue49
Drowning in his own greed, and that of his fellow men.

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JumpinJesus

Ignore Alan Greenspan. Nothing he says is of any consequence in the scheme of things.

If you want to know who truly dictates the economic forecast, read up on the World Bank, IMF, and GATS.

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Ace_of_Lobster

the World Bank, IMF and WTO (formerly GATT) have nothing to do with it.

The WB and IMF lend money to developing countries, this does not include the USA.

The WTO promotes international trade, this can only benefit the US.

Stop giving the left a bad name.

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giblfiz

Don't ignore Greenspan, the man knows what he is talking about, not that I really know what hes talking about. You can tell that he knows his shit because he has lasted so long, through so many administrations and is always respected and listened to. You don't really see that often and its usually a sign of someone who both apolitical and really the best at what they do.

As to what hes talking about, well economics is a pretty screwed up Field. A close friends father is chair of the department of economics at a nearby university and to quote him "the answer to basicly ever question in macroeconomics is either 'not enough data' or 'supply and demand'" anyone who can actually come up with answers is a very impressive man.

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Dragonlich

Deflation is NOT good at all. Look at Japan to see what it does: people simply stop buying expensive consumer goods because they'll get cheaper anyway.

If the US were to suffer the same fate, a lot of people would stop buying computers, VCRs, TVs and such, simply because it'll become cheaper in a month's time, and the current model is still working.

This directly affects companies, with factory production dropping, and people being fired all over the place. This leads to less income for everyone, and even less incentive to buy consumer goods...

And as you can see in Japan, it takes forever to get out of that cycle...

Rodney

Under some circumstances, deflation can be a good thing. Or at least a necessary working-out of technology/economic changes. For example, the United States had steady deflation from the Civil War through the turn of the century, a period of about 40 years, because the industrial revolution made manufactured goods cheaper and cheaper to buy.

But I will agree that the above kind of deflation is not the kind we'll get. In our case, it'll probably come just because people stop buying as much -- either because they're too deep in debt, or because they've lost a job, or they're afraid of losing a job. I think some kind of adjustment is inevitable; people keep buying consumer items, and the amount of consumer debt in this country keeps increasing to handle it. That can't go on. At some point people will no longer be able to take on more debt, and they'll start buying less. The only thing that would stave it off would be some technological advancement (really cheap energy, say) that gave the entire economy a shot in the arm. And that's always possible.

Also, one thing you don't hear about Japan is that some people are really, really happy with deflation: the retirees and other people on fixed incomes. Their pensions are worth more every year. So if deflation does happen here, no matte how painful to some, it will have its defenders. It'll be an interesting political situation.

JumpinJesus

Ace of Lobster,

The United States owns 51% of the World Bank, so it does have a very high stake in what it does. We are the major party lending the finances to developing nations.

International free trade, or globalization, is highly tied into the World Bank and IMF because of its "Assistance Plan" which requires the privatization of developing nations' energy companies to foreign corporations, many of which are American, as conditions for the loans.

Now, consider which would seemingly have a greater impact on our nation's economy. One man, who, granted, is very intelligent, forecasting interest rates, or billions of American loan dollars flowing into other nations and the privatization that follows.

And lastly, though I appreciate your assumption that I'm giving the "left a bad name", I find it at the same time highly presumptuous of you to assume you know my political affiliation based upon 2 sentences.

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Ace_of_Lobster

If you are right wing, then I apologize for my assumption. Usually the right is more restrained about attacking capitalism.

Alan Greenspan doesnt just predict the interest rate, he actually sets it.

As for the rest of your post, perhaps you could help me connect the dots. I cannot see how you would use privitization in developing nations, or World Bank/IMF Assistance to developing nations to get a clearer picture of the US economy.

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luckynumber

Alan Greenspan is an economic genious. I don't support his favoring of the wealthy, but still, just listening to him talk for fifteen minutes will make u want to give him your first born. This guy lives and breathes economics, and in fact... what he says does have an effect on the "scheme of things"

mrquackers

That's part of the reason he's so hard to translate. After the "irrational exuberance (sp?)" comment of a few years ago, he's made an effort to be a little less clear. He realized his words can start a mild panic.

JumpinJesus

I guess I should also clarify myself in some way. I don't mean to imply that Alan Greenspan doesn't know what he's talking about. What I meant is that people place too much emphasis on him as a forecaster of economic times. Sure, the man is an economic genius. As others have stated, he wouldn't have lasted as long as he has if he was an imbecile. However, many people - not on the boards here, mind you - believe he is the Wizard of Economic Oz.

My comment had to do with the fact that, while the United States is the economic powerhouse in the world at the moment, the world's economy, and thus ours, is more a factor of the goings on of the World Bank, IMF, and GATS.

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JumpinJesus

Ace of Lobster,

When the World Bank and IMF make a loan to a developing country, there is attached what is called an Assistance Plan, designed to help bring the country back from the brink of disaster. Of the provisions of the Assistance Plan - of which the WTO plays a part bolstered by the GATS treaty - are the privatization of public services and open markets to foreign trade. If the developing nations to not agree to these conditions, they do not receive the loan.

The United States and Britain are the two nations who benefit the most under these provisions as nearly all the corporations who buy control of these services are American and British. One would think that this should have an influence on the American economy, otherwise, why would the United States control the majority of the World Bank? The United States is not in the business of philanthropy to developing nations.

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Ace_of_Lobster

Mr. Jesus
Even if I accept everything you are saying, it still doesnt paint a better picture of the US economy. Energy (i assume this is what you mean when you say "public services") is just one part of the US economy, (an important one to be sure) there are alot of other factors that need consideration. In addition, the Energy part of the economy is not made entirely of resources from developing nations, it comes form a number of places.

What im saying is that you cant just look at IMF and WB loans and then predict the US economy. If only it were so easy!

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smooth

Ace_of_Lobster,

JumpinJesus is pretty much on the money. In this scenario, "public servcices" refers to things like air transportation (planes--not pigions ) and land transportation. Energy is one component, but so are things like education and hospitals. Many of these things have been nationalized in foreign nations but have been forced into the private market through Structural Adjustment Programs (SAPs)--the umbrella of JJs points.

Now, without getting into ideological debates, when a market segment is opened to private investment wealthy corporations and individuals are the ones with the capital to buy the particular means of production--leaving impoverished members of the society in the lurch--or at least leaving them to cater to the capitalists' demands. There are arguments from both sides of the ideological spectrum as to whether this will be ultimately beneficial to the citizens or not.

The main problem with SAPs is that they were based on a cookie cutter approach (at least initially--there has been mounting pressure to reverse that trend). That is, a program in Venezuela obviously won't necessarily be beneficial to the population and economic system of Jamaica--but the same program was used none the less.

A second problem is that in order to meet the growing debt (based on both the priciple but exacerbated by ballooning interest rates) the SAP calls for drastic cuts to education, public health, and other social net services--things that don't produce income (at least not in a short investment cycle) and can't return a quick and sizeable return on the investment. Hence, the loan can't be paid on and the bank doesn't get its money.

This relates to our economy in regards to the fact that in a global, capitalist economy where the States are the power brokers and investers, the main players are primarily US parties. Creating and opening private sectors allows corporations to have one leg over here as well as over there (read today's NY Times for the latest news regarding Ford's proposed closure of four new plants).

Job instability as well as foreign plants allows corporations to extract higer productivity from their workers without investing in advanced technologies or hireing more workers--at least not US workers (which is what we desperately need right now unless our society is ready for a dramtic shift in our modes of production and the types of goods/services we will continue to provide as a whole).

I hope that helps the discussion a bit.

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Ace_of_Lobster

Im hoping Mr.Jesus returns again to clarify what he was talking about when he said public services, usually people complain about Western companies taking resources from the developing world, not running the bus system.
Either way, it still doesnt paint a very clear picture of the US economy. What you are talking about is American and Multi-national (WB, IMF) investment in developing countries, when what we want to look at is more domestic investment in the US and foreign investment in the US.
Im not saying there are no connections between all tese things, but if you want to know about hte US economy, its best to start in the US.

As regards to the "cookie cutter" problem, I think you are over stating a bit. Economics tends to come up with solutions for a given situation, and if the situations are similar, employs a similar solution.
Example: If your government is in debt, cut government spending. The Bush administration could also use this advice.

This is not some conspiracy to keep the worlds poor poor, its just common sense!

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smooth

lol, Ace_of_Lobster,

No one said anything about a conspiracy--what I wrote is similar to what a former head guy in the World Bank wrote.

If Argentina has a problem and the IMF tells them to cut education spending by 10% it doesn't necessarily hold true that Jamaica should cut education spending by 10%. The fact that they are both in economic trouble doesn't change that position at all, unless you think that two countries are in "similar" situations simply by virtue of their impoverished status--that's a pretty broad brush, however.

Likewise, if Argentina's main export is one thing and the IMF and WTO "encourage" them to change it to lumber or beef, for example, tt doesn't hold true that Jamaica should switch to beef exports.

This was the "cookie cutter" approach I referred to which the Brenton Woods orgs have received flack for and have since attempted to clean up.

You asserted that I was over stating a bit, yet you use the vague reference to "if government is in debt, cut spending." What I may not have made clear is that the SAPs indicate where govs should cut spending, not just that they should. One plan for reducing expenditure for a particular reason is not going to necessarily (as I said the first time, although one such plan might work). Much of the debt has been incurred as a result of scandal--in short, the country never used the money, it went into someone's pocket. I'm not going to get into a debate with you over who should pay that money back--that's way OT.

Regardless, what both JJ and I are stating is that without taking the global picture into account one can not understand the US economy.

Focusing on the US economy alone or even primarily (as you suggest) is not going to give an accurate picture of our economic outlook. In direct answer to the thread:

Greenspan is "babbling" because he understands who is in power and he can't give a straight answer--fingers are crossed but our long term security is at severe stake. He'll do what he can to prime the pump for investment but the real truth of the matter is that our economy is going to have to adapt or crumble--no amount of interaction by the Fed is going to stop that.

Our dependance on foreign trade is more critical and interrelated than people admit--possibly even to themselves. If people don't start feeling a moral obligation to invest locally then our current system is going to divest of itself--it's too expensive.

Investment in a capitalist system does not take into account morals--merely the bottom line. People might take a moral outlook on investment--but capital does not. Capital chases the bottom line in a rational persuit of profit. If the greatest return for one's investment will occur in Bangladesh, then Bangladesh is where the money flows--regardless if that reduces jobs in the US or even if it utilizes child labor.

I'm not making a moral judgement on such action but am claiming that people must place a moral demand on themselves (or the gov must place strictures on people and we aren't willing to do that just yet) if they want our way of life to continue.

Many people are realizing the various levels of value. That is, spending an extra dollar here and ten over there to patronize a loca shop keeps those dollars in the community longer than spending them at, say, Wal-Mart where the revenue flows out of the community to the market and seeks the best return for its investment--wherever that may be and despite whatever harmful side effects to the local community it may have (for example, the eventual closure of said Wal-Mart if the local economy collapses).

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smooth

What we are talking about is the realization that if investment and development in foreign countries is less expensive (or has a higher rate of return) than domestic investment barring a realization of other types of value than the bottom line, then investers will make rational decisions to invest elsewhere despite speculation to the contrary.

Ace_of_Lobster

Joe Stiglitz perhaps?

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smooth

That's the person I was directly referring to, yes. Also, my professor (and friend) for Sociology of Third World Affairs completed his dissertation on SAPs in Jamaica.

Have you read Globalization and Its Discontents by Stiglitz? Another interesting read is Promises Not Kept by John Isbister which more clearly outlines the connections between global investment/expansion and our economy.

Ace_of_Lobster

I havent read his book, but I did go to school with his daughter. Keep in mind that he is selling books by writing about his former employer. Im not suggesting that its rubbish, but that some of it may need to be looked at objectively. Like I said, I havent read it.

However, I do think I have a modest understanding of economics.
Im interested in where you are comming from on these issues:
In general, do you think industries should be nationalized?
Do you like protectionist trade barriers?
Do you think anything should be done about world poverty?

I realize we are getting a bit OT but this has been an interesting discussion.

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smooth

No prob,

My understanding of Stiglitz is he is a leading expert in his own right and his book speaks to the errors the actions of the Brenton Woods orgs exacerbated--he isn't writing about bones he has with his ex-employer but rather about the consequences of the policies they implemented on foreign nations.

edit: I realize that doesn't quite answer the claim regarding his bias. As the chief economist and senior vice-president this scenario isn't analogous to a disgruntled employee. Without knowing the full details of his departure my understanding is he was pretty much the top guy who left--not dismissed.

Here are a few reviews of his text:
http://www-1.gsb.columbia.edu/facult...litz/press.cfm

I am a critical conflict socioligist (that means I believe social inequality is both unnecessary and can be eradicated or at least alleviated). I do not think that industries should be nationalized wholesale. Yet, I am also opposed to the idea that deregulation and privatization are the boons to economies they often are touted to be.

I think that one rationale for profit (as opposed to the Marxist claim that profit is extracted from the workers) is that investors provide the capital and risk of expansion and, therefore, they should reap the rewards. In our society, however, government subsidies and grants provide the impetus and bulk of investment ventures and provide a safety net for wayward investments.

Despite this, however, our taxpayers receive very little return on _their_ "investment." One example of this is the development of drugs. Taxpayers provide substantial economic aid to the development of new drugs yet still pay a hefty premium when they need those same drugs. Airline corporations' recent activiities illustrate this concept further. We have given them substantial economic boosts yet fail to realize any reduction in the price of the services we subsidize.

I think that if we are going to subsidize development that is fine, but we should implement mechanisms that provide a return for our investment (however slight it may be). I think government should regulate a minimum standard for essential services and allow the market to compete against that line.

I am not necessarily in favor of protectionist trade barriers. To be honest they are not within my field of expertise and I am only writing about my perception of what they entail. However, I feel that if we advocate the free movement of capital then we ought to allow for the free movement of labor as well. I'm not in favor of that scenario (because I'm not in favor of capitalism) but I understand it to be more consistent with the tenets of a free market than our current system.

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Ace_of_Lobster

Stiglitz is certainly an expert, but I wouldnt be surprised if he left his job because he felt nobody was listening to him. He has made some comments about his former coworkers that hint at his frustration.

You mention that you are not in favor of capitalism. It seems reasonable that you are not interested in seeing capitalism spread throughout the world.

The WTO and the Bretton Woods institutions are closely tied to the spread of capitalism. Keep in mind that nobody is forced to take a loan from these institutions, they choose to. If they want to set up a socialist utopia witout loan, they can do so. If they want financial assistance from the IMF or WB they must move their countries towards free market capitalism at a reasonable rate. Im sorry that you dont agree that ultimately it is capitalism that will improve the lives of the worlds poor.

I agree that subsidies for airlines and drug companies are harmful, not only to consumers but to the economy as a whole.

I dont understand your complaint about subsidizing development however. Do you mean that there should be no aid unless a return can be guaranteed? Have you considered that alot of the companies that are responsible for developing infrastructure are Western based, and thus there is a return on the investment almost directly back to the West? This is sometimes a complaint, infact, that too much of the money goes back to the west, instead of encouraging local firms to do the development.

Personally I think the free movement of labor would be great, but its not really politically feasable in most of the world. Even the EU is having trouble with that one.

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smooth

Actually, speaking from a Marxist perspective I would argue that capitalism would improve the lives of the world's poor and, as a necessary engine of growth, I do encourage its spread throughout the world. The issue, however, is whether it is "ultimately" the best economic system; rather, it will not ultimately make for an equitable society and will have to be dismantled or altered before the persuit of various values can occur.

Granted, some capitalists are realizing the resulting loss in productivity and/or destruction to our environment and altering their behavior. One major critique of a communist society is that people are fundamentally greedy and/or lazy--a position Marx argued against and blamed on the hidden forces of capitalism. If true, however, those same attributes should be applied to workers and owners in a capitalist society and corrections should be made by the society's government to correct for such behavior--that is, we should expect that capitalists will not work for the common good of society nor is there a market mechanism that will compel them to operate in the best interests of the very system they operate within.

I am considering that a lot of companies are responsible for development in the Western world. I' claiming, however, that they do it with tremendous government aid at the expense of taxpayers without a return on the money. The opposite occurs--taxpayers subsidize the develoment and then pay a premium for the services they subsidize.

I'm speaking mainly about domestic development and subsidies at this point but you carried my argument to development in foreign nations. I'm arguing for a mechanism that would operate like this:

We give a pharmaceutical 1 billion dollars to research a new drug. We do this with a stipulation that after the R & D is complete the lender will receive a 10% return, for example, on the profit until either the 1 billion is returned or 1.1 billion is returned (driving for a 10% return overall). This idea is less severe than private lenders (who normally would seek an ~30% return before even lending the capital and would require a subsequent return even if the venture failed) and still provide money for venture capitalists. Our subsidies aren't aid, they are corporate welfare and such companies that receive them are treating the taxpayer like a chump lender--no bank would operate like this without going bankrupt yet our government does this all day long.

Without going to far away from home we can see the detriments (or contradictions) of the free movement of capital while restraining the free movement of labor. That is, corporations can move freely between Mexico and the US yet Mexian laborers can not freely follow capital (and to a certain extent, US workers, as well). I recognize the dangers of such a system but am morally opposed to such a contradictory system that grants capitalists access to low production costs without granting workers access to high wage industries.

edit: also, I realize that no one is force to take the loans. Yet, countries are forced into repaying loans that corrupt politicians (some of whom operated with US assistance) have squandered and stolen. If we loaned aid (either monetary or military or whatnot) to Saddam thirty years ago do we have a moral right to demand the Iraqi population repay that loan--even if they haven't benefitted from it and may have actually been harmed by it? If we propped up a dictator and turned our attention elsewhere while he used the aid for the detriment of the country and is later deposed by the population, how can we then turn to the population and demand recompense? Failing the affirmative in both cases, since the aid given came out of tax coffers would it be prudent to aruge for a vote concerning whether tax payers could rescind the obligation of a foreign nation to repay it after they clean up a corrupt government adminstration if we felt the aid was given under duress or had been stolen?

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"The theory of a free press is that truth will emerge from free discussion, not that it will be presented perfectly and instantly in any one account." -- Walter Lippmann

"You measure democracy by the freedom it gives its dissidents, not the freedom it gives its assimilated conformists." -- Abbie Hoffman

Ace_of_Lobster

I agree with you very much about coroprate welfare and the free movement of labor. There is alot of "cherry picking" going on, especially among the so-called pro-buisness elements of government. I say so-called because by helping one type of buisness through subsidies you are infact hurting other buisnesses by distorting the flow of resources.

Agricultural subsidies are even worse, especially for the developing world.

Unfortunately it is very easy to persue these policies from a political standpoint. You just say you are "protecting jobs" and thats the end of it.

The problem though, is not free-trade, but that the trade that exists already is far from being truly free. This is why organizations like the WTO are very important, not just for Western buisnesses, but also as a way for developing countries to achieve better acess to western markets. Unfortunately, it is a slow process.

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smooth

This is where we get to the conspiracy part

I understood the WTO to be an organization that protects the interests of wealthy corporations rather than a means of access for impoverished nations.

We've latched on to some very sticky subjects and this has been a pleasant conversation--even though we veered way the hell OT! But no one's complaining and this has been a dramatic shift from the way almost every other convo I see in here goes.

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"The theory of a free press is that truth will emerge from free discussion, not that it will be presented perfectly and instantly in any one account." -- Walter Lippmann

"You measure democracy by the freedom it gives its dissidents, not the freedom it gives its assimilated conformists." -- Abbie Hoffman

front4uk

Lads, I wholeheartedly recommend Jim Rogers book Adventure Capitalist for read re: NGO's , WTO and access to developing markets... at least he has been around the world (now 4 times) and seen the markets working or not working from country to country, unlike Stiglitz who is an "expert academican"....

Cynthetiq

i think that the original topic was just the tip of the iceberg. In today's economy it's not as simple as just within your borders. I think that the conversation should go the direction it has... please continue. I'm learning alot... it's still a bit over my head, I never took economics...

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