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Old 27. Nov 2011, 09:12 PM   #11 (permalink)
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@eyeb

Well lets not underestimate the role of the bank. They are actually quite the pillar in facilitating financial growth in economies - trade, speculation, loans, securitisation, market efficiency...the list goes on.

I'm not sure what FDR stands for (im from syd) but from what you describe "create jobs that benefits everyone...paycheck which they use to pay off debt" Its a good and needed approach I would say, but again, its definitely not a magic bullet - the issue with the US is that they are living in debt, suffers from high unemployment and lacklustre spending (due to unemployment and the loss on market value - esp mortgage)

The projects will work well to address unemployment which then leads to higher spending and eventually pay down in debt levels. The problem however, is that aside from having to go into a bigger deficit first (which they are trying to cut down); the time required for people to regain skills, get the job takes time. More importantly though, is that the US economy relies mainly on domestic consumption; if people just don't spend, it doesnt matter if unemployment was 0%, growth just wont go with it. Of course, you may think as unemployment goes down spending goes up, which is true - but the govt projects will only make a small dent in unemployment; the bulk of employment still comes from the private sector where profits is dependent on how much the people are spending

Taking cue from China, they unveiled a massive budget focusing on the projects you just mentioned shortly after the financial crisis. It worked well to keep their firing up but eventually they need to rely on their own people consuming in order for growth to continue. To put into perspective:
1) China spends money on infrastructure projects (money comes from reserves)
2) Reserves comes from how much money they make from economic services and exports/imports
3) With US and Europe lagging behind, exports wont keep up indefinitely and reserves will eventually dwindle - assuming they continuing to pump money into the economy
4) As reserves slowly fall, spending must be cut and growth falls or they get their citizens to spend to achieve growth
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Old 27. Nov 2011, 09:59 PM   #12 (permalink)
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I'm not sure what FDR stands for (im from syd)
He means Franklyn D Roosevelt.

I kind of believe in Laissez-faire. So, no, govertments should not pay our bills or nationalize the financial system. I don't like (most) bankers but I like big government even less.

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Old 27. Nov 2011, 10:15 PM   #13 (permalink)
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Ah thanks bo.elam

Yeh I think Laissez-faire is really the best way, albeit all systems has their own flaws. Governments are useful in addressing the pains of market efficiency (unemployment) but when they take on too many roles; the last thing you'll want is the govt deciding how much you can eat sleep and think
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Old 27. Nov 2011, 10:36 PM   #14 (permalink)
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Shoring up all the money into their wallets might let them get out of it fine,
I'll like to point out most countries are in deficit; the money is shored up in China

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besides, any money they spend now can be obtained later in taxes... spend $ for a few years, when economy is better you get the same money back + interest for the taxes in the decades to come
That is generally how things work, although the issue is how long till things get better? Money we spend into deficit now comes either from borrowing from world markets or printing our own money. Of course, its hard to punish the US with high lending rates given US's significance and size; but for any other country, the world will punish you if your debt levels are too high (Greece, Italy, Spain, even France and Germany are going up)

Printing your own money is the other option, yes, theoretically it should boost economic growth but not without major problems.
1) Inflation will be a major issue if we pump too much money into the economy; people stop saving if inflation goes up too much and invest in risky assets to cover their own savings. (leads to bubbles)
2) Public debt is different to private debt; private is more focused on profits whereas public debt emphasises on social welfare (roads, transport, welfare payments etc etc). Economic growth is largely determined by private debt, it comes from people who borrow and invest with the aim to make a profit. Both forms of debt will result in growth, but only private is sustainable as it makes a return on itself whereas public tends to phase out or break even.

Which then leads us to the same issue, spending out of a recession has its merits but only if the private sector picks up on it. The US has done quantitative easing since 08 - the economy is slugging only.

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edit: clarifying my views a bit more, but I don't support giving money to "job creators" because 1 job creator can't create jobs that benefits the country, so if the money is from taxpayers, it should help the country so that's why I'd support public works projects. And it doesn't punish the people who did well because they'll be supplying the workers with their tools/food/etc.
In my opinion, any job created is a benefit to the country; but more so from the private sector than public. Again, public has its merits but its really a form of "forced" employment in that society wants to correct something and pays money to do so (transport, education, health, military, security etc etc). On the other hand, private employment is generated by supply and demand; it is sustainable in that it is based upon profits and with competition, leads to increased efficiency and productivity for the economy.
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Old 27. Nov 2011, 11:25 PM   #15 (permalink)
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I'm not disagreeing on the private sector jobs, I just mean if the jobs are being created from tax money, they it should be for the public sector. Even if a private company does get the money to create the jobs, the jobs should be public sector related.

I know the solar industry had that little bump with Solarera but I don't disagree with it funding these jobs since it is a public sector benefit. I'm not saying it Solarera shouldn't be punished for it but this 1 company shouldn't define the entire sector. What I didn't agree so much with even if it was a "success" was funding the auto industry with a bailout. I agree with the clunkers for cars program or whatever it was called where people were funded to buy new cars which in turn would have helped out the auto industry. So people got new cars=better for environment=auto industry jobs. But bailing out the auto companies so they could make cars but they still have no one to sell them too.

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public has its merits but its really a form of "forced" employment in that society wants to correct something and pays money to do so (transport, education, health, military, security etc etc)
I don't agree with this statement, or I'm not understanding your point completely. Why shouldn't society pay for it? Parents pay taxes so their kids get educated (even if they don't have kids they still benefit from it in the way of the adults that they work with that did go through it)... without public schools they would still pay someone to do it or do it themselves. Same for health/military defense/police. Taxes aren't really bad since they provide us with a way to get what we want done. Instead of paying 10 private companies with whom would have different standards, tax money goes into 1 pot and comes back as a return on what benefits you. I'm not saying that it is done 100% perfectly but just that I'm ok with taxes in general. The spending of taxes on the other hand can be fixed up but that's separate from just being taxes.

Hope I make sense :S just trying to say that I doubt the private sector alone can get us out, it isn't coordinated enough to do it. And that we can't be marketed out of the recession and thats what the private sector does to create demand.
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Old 28. Nov 2011, 12:17 AM   #16 (permalink)
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The main reason for bailouts is that most of the companies saved are "too big to fail", that is subject to much debate but the arguments for bailing big and major firms is that they either provide a crucial function for the economy (banks), are strategic (military) or they just hire lots and lots of workers that you know will be unemployed the moment the firm goes bankrupt (your automobile industry)

Tax money, i dont think it should be restricted to public sectors. Afterall, tax money comes from the private sector; businesses get taxed on profits and people working in the private sector gets taxed. There is no reason why tax money can't be used in the private sector as long as the outcome is enhanced growth for the overall economy - its a matter of achieving the right balance which is difficult

With my statement of "forced" employment, you caught my idea wrong. Public spending is good in that it reflects what society wants (or wants to correct); but the employment that arises from public spending is forced into the economy as it is unnatural from the free market's point of view.

Tax is a tricky thing. In a perfect world where everyone has access to the same set of information, everyone makes rational decisions, taxes are a major burden to society. But since we dont live in a perfect world, some tax is needed to direct funds to what we need. Too much isnt good though
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Old 28. Nov 2011, 01:01 AM   #17 (permalink)
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Two lessons from History.

A big war ends a Depression.

Two, leaders like Hitler might become attractive to some. This leaders who would never gain power if times were prosperous can achieve it now, in bad economic times. Have to be careful.

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Old 28. Nov 2011, 01:43 AM   #18 (permalink)
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As I see it there are several causes of our financial troubles perhaps more. The major reason for the economic woes of the USA are due to the home finance giants Fannie May and Freddie Mac. They reduced their standards to make home loans more available to people. Results were people getting home loans they couldn't afford or taking out interest only home loans and then not being able to pay once the principal kicked in or getting a variable interest rate. Frannie and Freddie then bundled these toxic loans and sold them to investment firms. As people defaulted on their mortgage payments the whole system fell like a house of cards (no pun intended)

The banks were knee deep in this mess as well. Giving questionable loans lucrative pay packages golden parachutes and other general greedy practices. While they picked lobster out of their teeth with the bones of the average person they flew to Washington DC in their private jets to ask for bail out money.

Major automotive manufactures crumbled from the crushing pension debt mostly squashing the common worker while top executives enjoyed lucrative severance packages. I pin allot of the problems on the United Auto Workers union demanding ever increasing pension plans and higher pay. Lets face it a floor sweeper shouldn't get paid $25.00 an hour, but they did. It should be noted Ford did not receive bail out money.

Last but not least it has to be said entitlement spending is out of control. 40% of the American population receive some sort entitlement money either welfare or food stamps. This is where I think we could make huge improvements. If you receive welfare you will have to work for it. Thats right, set the alarm for 5:00 am get out there and do some sort of public service. It will save tax payer money and it will get people used to being in the work force and hopefully they will look for more rewarding jobs in the private sector. One last requirement something I know the ACLU will fight over. If you receive public money you will be required to take random drug testing.

This mess is not only complicated but it has been in the making for many years. Its going to take time, courage and the resolve of our leaders to solve it.

Last edited by wdhpr; 28. Nov 2011 at 02:15 AM.
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Old 28. Nov 2011, 03:52 AM   #19 (permalink)
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i dont mind them having to work for the welfare idea... but then how is this different than the government just hiring people for public works? If they have to do public service for welfare money, might as well out right hire them for the job even if it is a temp job. plus it looks a bit better on resume for when they apply to other jobs. Instead of saying you are on welfare doing public service, say you are working as a public servant or something along the lines.

Or contract out the public works job to the private sector by subsidizing half the worker's salary. This way neither the private company nor the government is footing the entire paycheck but both gets something out of it. Then after say 18 months (what the unemployment benefit is?) the government matching isn't available for the person and the person couldn't go straight back into the unemployment line? Would encourage both the worker to keep looking for a better job knowing that they wont keep getting government pay and the employer would keep looking for new unemployed people to hire because they want that half of the subsidy. This way the government would not be stuck footing the unemployment bills. Figured this would be a win-win since (worse case, minimium wage is higher than unemployment) so people would want the job, and employer and government would both pay less for the person as well. Kind of like the payroll tax credit, but this would be more immediate and both sides know how much is going in, instead of waiting for the end of the year credits
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Old 28. Nov 2011, 05:25 AM   #20 (permalink)
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Or contract out the public works job to the private sector by subsidizing half the worker's salary. This way neither the private company nor the government is footing the entire paycheck but both gets something out of it. Then after say 18 months (what the unemployment benefit is?) the government matching isn't available for the person and the person couldn't go straight back into the unemployment line? Would encourage both the worker to keep looking for a better job knowing that they wont keep getting government pay and the employer would keep looking for new unemployed people to hire because they want that half of the subsidy. This way the government would not be stuck footing the unemployment bills. Figured this would be a win-win since (worse case, minimium wage is higher than unemployment) so people would want the job, and employer and government would both pay less for the person as well. Kind of like the payroll tax credit, but this would be more immediate and both sides know how much is going in, instead of waiting for the end of the year credits
I like your idea.

Another problem with government jobs is dealing with the unions. Unions have played a big hand in crushing state and city budgets. Don't get me wrong I want people to retire and reap the benefits they earned the trouble is the public employee benefits are much larger than that of most private sector packages and we just can't afford it any longer. Putting people on welfare to work doing non skilled labor government jobs should cut expenses considerably. I would also like to see education to teach these people skills needed for better technical jobs.

Second problem I foresee is a substantial number of people may apply for disability. There are many lawyers that know how to game the system and have a fairly good success rate for a considerable fee of course.

This all looks good on paper but its success will relay on our leaders having the courage and resolve to see something like this through.
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