Raise the Hammer

Ryan: When you really come down to it, it will be the people that will be struggling, those that have lost their jobs, those that may not be able to find work, standing in either the unemployment lines, the welfare lines, the foodbank lines.

It sort of reminds one the scene in the movie "The Corporation" when the elites are up in the tower eating cavier and sipping champagne looking down at the masses like their ants.

Conservative/liberal, same difference, they just wrap the package in a different paper, but is still the same gift inside.

Grassroots laments the downtrodden masses. When will those of you who feel so entitled ever get it through your pointy heads that money makes money and it does make the world go round. Capitalism is based on the notion that regardless of your wealth you can still grow it. That is why capitalists invest. Most of them do it honourably. Some of them do not. The Madoff's of this world are eventually found out..or the Conrad Blacks for that matter.

Look at what happens when those with money stop spending? It creates a recession or a depression, which is what we have now. And who has to bail the ne'er-do-wells out? Governments do by printing money. That is happening all across the world. Dialectical materialism doesn't work regardless of what Marx had to say. The concept of revolutionary change isn't forced by opposing pressures. In fact the re-definition of capitalism is now working its way through the system. Even bankrupt nations realize that free enterprise is the answer. So, stop moaning and get with the program and let's hope people, institutions and enterprises with money start spending again.

So our two options are crushing debt loads (I think the US is up to around $11.5 trillion now) or recession/depression??

Great system.

Ryan >> capitalism is emphatically **not** self-regulating, as the current economic crisis demonstrates amply

How would we ever know? As soon as the big banks started running into trouble, they called on the government to bail them out, which they did, by giving them 700 billion in taxpayer dollars. If the government had minded their own business and let the banks fail, depositors would have been taught a valuable lesson, don't give money to people you don't trust.

Furthermore, if government hadn't provided completely bogus inflation numbers in the first place, based not on owner's equivalent rent (which takes into consideration the cost of borrowing money), but on actual home prices, interest rates would have been much higher they they were. As a result, there would have been far less homes built in a short period of time and better appreciation for the true value of homes and not what a rapid growth in money supply led people to believe. Once again, government hand it's hand in this whole mess from the beginning.

>> the Golden Age of Capitalism: two decades of more or less continuous strong economic growth, dramatic reductions in inequality between the richest and poorest, an expanded middle class, greater socioeconomic mobility,

If your argument is that more government helps the economy, then how do you explain the fact that from 1950 - 1969, when growth was much more robust than we see today, non military spending as a % of GDP averaged 15.36%, while in fourth quarter 2008, it comes in at 31.56%. If you want to be completely accurate, your call for "more government?", should actually shrink spending as a share of GDP in half. What do you think, do you want to start calling for less non military government spending? You would if you want to help the economy.

I'm not happy about the bailouts, but deregulation and lack of oversight created behemoth institutions, which are realistically too big to fail. Your argument about letting them fail and see what happens is ridiculous.

What do you think would happen if Freddie Mac or AIG or Bank of America or JPMorgan folded (which all would have happened without intervention)? Do you honestly think oh well, some investors are out some money. The American economy would grind to a halt and what's going on now would be a welcome change. The top five investment firms' funds would have no value, all insured mortgages would be without protection and any bank that hadn't gone bankrupt would have a run on its deposits and since most are leveraged out to a ridiculous degree, that wouldn't last too long. Of course this would also destroy countless small businesses and erode the savings of numerous Americans. Of course, the government insures all bank deposits to a certain dollar amount so they'd be picking up the tab on those which would cost slightly more than the bailout. But by then it wouldn't really matter anyhow, since even if people were able to arrange financing through some new private financier, their currency would be worthless. And of course law & order, civilization going to hell, everyman for himself. Actually, it sounds right up your alley.

New companies might be able to emerge and be better, but not before the entire economy would be devastated and drag down most of the world with it. The bailout is a requirement due to allowing such incredibly massive companies a) form and b) over-leverage themselves.

Bluetory: Which way is the right way? Is it right or is it left? Well you can you answer that?

In my perspective, the rhetoric from both sides are the same, it is the level of corruption that is the question that needs to be answered.

Why should those, the people at the bottom suffer because of the ineptitude of our so called leaders who mouth the words that they are looking out for the interests of the people but in the meantime, the masses are left to there own devices, except for the few crumbs the government throws them in the form of social assistance and food banks.

Maybe you have been investing but if I was you I be asking hard questins as to why your investments have fallen flat? It couldn't be the greed, the non existant dollars that they keeping printing to bail out the super rich, who have more money then they know what to do with? As it is not about money but control!

But then if the people do rise up, then it would be the perfect opportunity for them to implement their martial law and have the military roaming around, shoving people into their "concentration" camps, now known as "Fema" camps, at least in the US and soon to be here?

Since our leaders have signed the paperwork to have the US military up here in times of civil strive, you know SPP. The corporations rule the world and they are the ones that have screwed things up royally with all their talk of free trade, which is really meant to enslave the people across the world and only make a few rich while the rest either slowly starve, work for next to nothing or they go in with their military and just blast the be-jesus out of everything.

But you keep on believing in the same old system, as it comes crashing down around you.

The winds of change are upon us.

Ryan's comment: "Who here is promoting dialectical materialism? You're attacking a straw man."

Grassroots in a fit of Marxist revolutinary spirit and paranoia all rolled into one says, "
But then if the people do rise up, then it would be the perfect opportunity for them to implement their martial law and have the military roaming around, shoving people into their "concentration" camps, now known as "Fema" camps, at least in the US and soon to be here?"

Ryan, do you think that the writers here are still neutral on the kind of system they are advocating?

The system is falling around us, but is it the proletariat's fault or the elite? Probably there is much blame to go around. The proles have long been living beyond their means, and the elite have been exploiting the 'system' for all its worth. The two forces are colliding with scorched earth impact.

If the system were left alone, it would sort itself out, rooting out the greed of the proles as well as the greed of the elite. The system works best when failure is punished and success is rewarded...and success spreads itself out to the whole table so everyone can eat.

Damnit Ryan! Stop being so reasonable and rational. You make it impossible for your detractors to pigeon hole you as the communist that we all know you are! ;)

That was much more eloquently written than my rant.

Not all regulations work, but an unregulated system is anarchy.

Ryan, I noticed you failed to address the numbers regarding the "Golden Age of Capitalism", namely non military government spending as a percentage of GDP. Are you calling for a return to less government spending and a larger private sector?

Furthermore, I would love to hear your opinion as to why, when marginal tax rates were 91% (1960), tax receipts as a percent of GDP were only 25.95%, while in the 3rd quarter 2008, receipts came in at 29.03%, even though marginal rates are only 35%. How do you explain this? Shouldn't lower tax rates lead to less money for government?

>> Finally, in the short term we desperately need both a fast, hard infusion of cash into the economy to kickstart demand, and a credible promise of stability and predictability so that investors feel safe to start cirulating their money again.

You can't cure problems brought on by over consumption by inducing more consumption. The fact is, nations can only consume what they produce, so unless you find a way to increase real output, you are simply borrowing from future consumption.

In the Golden Age of Capitalism (1950 -1969), the net savings rate in the U.S. was around 10.5% of GNI, and GDP grew at around 3.5-4%. Since 2002, net savings has fallen to around 2% a year and the economy has only grown at 2%. Therefore, if you are to believe the numbers, a better way to get the economy moving again would be for the nation to stop spending and start saving. Therefore, rather than send out quick cash, the government should start reducing the deficit.

Just to prove how important saving is to an economy, in 1929 net saving as a percent of GNI was 9.6%, in 1933 it was -7%. Therefore, unless the U.S. economy wants to destroy more wealth, the government should stop trying to spend itself to prosperity. Successful nations invest in the future and do not let their immediate wants destroy future consumption.

I agree society has gone to hell since deregulation became the new norm. You live in a dream world with a blank slate. If somehow how, your 'let them die and the market will sort it out' approach was taken, the events in my above post would occur. Total anarchy. The whole system is lousy, and it might die in the long run, but it will sure as hell die if you had your way.

I just re-read your last point. What does that have to do with anything? People were able to save money when unemployment was 3% but weren't able to save when the unemployment rate was 23 or 24% 4 years into the great depression. What a shock http://cache.lifehacker.com/assets/resou... If you think it was the other way around... well... I wouldn't be surprised based on how completely insane you've proved yourself to be the last few days. Here's someone that has a completely different viewpoint from you, using the exact same numbers. Using a few variables and assuming nothing else affects anything is like magic. http://www.huppi.com/kangaroo/Timeline.h...

Thanks Ryan for actually spending the time to read my words. Your analysis is correct that if the people do start to protest, then of course the system is going to step in. They did it in the Winnipeg General Strike and they will do it now.

I read the military may be patrolling in Barrie soon under the premise to control the unruly military crowd from the base near by.

JonC >> People were able to save money when unemployment was 3% but weren't able to save when the unemployment rate was 23 or 24% 4 years into the great depression. What a shock

Okay, then let's just look at the numbers we do have. From 1950 to 1969, the U.S. economy performed very well, averaging 4.29% in real GDP growth per year. During that time period, there were two wars, the Korean and Vietnam, marginal tax rates ranged from 70-90% and military spending averaged 10.68% of GDP. Non military spending averaged around 15% of GDP, as compared to 30% today. Furthermore, in this time period, government debt to gdp fell from about 95% to 37%.

In 1929, government debt stood at about 17% of GDP and by 1933, it was up to around 40%. In 1929, non military spending comprised 8.59% of GDP and by 1933 it had almost doubled to 16.49%. Military spending in from 1929 to 1933 averaged only about 1.2%.

What can we learn from these numbers? Well, it appears that if you want a strong economy, you have a large military budget (over 10% of GDP) a moderate non military budget and you make sure that debt to GDP does not increase.

How do you interpret these numbers?

With common sense.

If you can find a single statistician that would back up your 'facts' based on a few years of cherry picked data, they should be fired from whatever they're doing.

I could easily apply "it appears that if you want a strong economy, you have a large military budget (over 10% of GDP) a moderate non military budget and you make sure that debt to GDP does not increase" to North Korea. A fabulous economy by all accounts.

You can only grasp two maybe three variables at a time, I get it, but just give up that you ever have any hope of understanding statistics let alone economics. I highly encourage you to read up on statistics and once you have an idea of how actual models are derived, examine some of your ideas.

If there was a simple solution to a great economy, everyone would be doing it.

You can analyze all the facts and figures you want but the most important things that is missing from these numbers, that is the human element. Numbers are not people.

Ryan has become Grassroots apologist on the one hand, while simultaneously distancing himself from he/she: "In the interest of accuracy, I was attempting to *repeat* your argument, if not necessarily to endorse it completely".

The point is this. We are in a global economic meltdown. Deregulation isn't the answer to a 'market' economy, but neither is the strangling of individual incentives for businesses to invest and create jobs.

As we see in the US model, the government is having to step in and bail out a 'deregulated' system. Even at that AIG may not survive. The banks are on the verge of being nationalized and GM we are reading in spite of billions in bailouts cannot probably survive either.

Closer to home, US steel, the saviour of jobs and pensions for stelco has turned tail on the community.

Should all of these entities have been allowed to fail from the beginning? Tough medicine but in the end the result is the same. The only difference is in the public money squandered to attempt an artificial resuscitation.

Grassroots sees all good flowing from a radical, people centered revolution of sorts. He/she fears the system will stamp out this rebellion by the proletariat as it did during the Winnepeg strike or even the Hamilton steel wildcat strikes.

Let's say the system didn't interfere and the proles took over US steel as Rolf, the Marxist, wants to do. Now what? Who will the steel be sold to if no one is buying it? Who will the new 'fact cats' running the show blame now that they are the new corporate elites? Read Orwell's Animal Farm. It is instructive.

Toryblue: Yes we are in an economic meltdown but my question to you is what has caused it?

De-regulation, yes has caused much the issues we are seeing today but who advocated for those changes, was it not the big business lobbies, the multinational corporations? But isn't there more to the story then meets the eye?

Workers did fight for fairness in the workplace and we all enjoy the benefits of some of these battles of the workers before us. Is there room for reform within the union movement, of course there is. The unions themselves are at times big business units themselves that do not always take into consideration the workers, themselves on some issues. But having a collective of workers is better than having none at all when we look at what has happened in the job market with the expansion of temp work or precarious work which works hand in hand with the social assistance system that continues the cycle of poverty. Is it not the business community itself that has advocated for this as well?

To be honest, there should be more open dialogue to get those in the business community and workers engaged. As I asked you is the right or the left way that is the right way? Or should it be a combination of both sides to come to a balance?

JonC >> If you can find a single statistician that would back up your 'facts' based on a few years of cherry picked data, they should be fired from whatever they're doing.

Your opinion, nothing more.

>> I could easily apply "it appears that if you want a strong economy, you have a large military budget (over 10% of GDP) a moderate non military budget and you make sure that debt to GDP does not increase" to North Korea.

If you are saying that the economy of current day North Korea is the same as 50's-60's U.S.A, then you either extremely ignorant, or a liar, which one is it? Just to give you a head start on some research, 75% of the economy in 50's- 60's USA was in the hands of the private sector, do you think it's that high in North Korea today? More like 1%, if that. How can anyone take you seriously if you are willing to label completely opposite economic structures the same?

Furthermore, North Korea currently relies on China to subsidize large amounts of its oil and food (kind of like Hamilton), whereas the U.S. was a net creditor in their economic Golden Age. Once again, your arguments don't make any sense. If you want to make comparisons, they have be based on facts and not just your opinion.

>> You can only grasp two maybe three variables at a time,

E = mc2. This is a simple equation, with just a few variables, but so what? The point is that there are variables and then there are variables. The variables I reference, namely debt to GDP, military spending as % of GDP, non military spending as % of GDP, private sector spending as % of GDP, aggregate billions of individuals transactions and so they allow us to look at trends and basic correlations.

If you ate a piece of food that cause you to get sick, would you eat it again? I mean, the first time you ate it it was on Monday, but today it's Tuesday, maybe it wasn't the food, but the day you ate the food on, what about that? Or maybe it was the colour of the shirt you were wearing when you ate the food, maybe that's it. You could go on like this forever, but most people would be satisfied to place the blame on the food, why? Because it makes sense, it's not 100% proven, but most things that involve humans, like an economy, never can be. If you don't think that the level and type of spending that takes place in an economy is important, then what is? Tell me what is important?

>> If there was a simple solution to a great economy, everyone would be doing it.

There is a difference between knowing the solution and being willing to embrace the solution. That's why people make decisions they later regret. It's not a lack of knowledge, although in this case it probably is, it's that most humans don't want to sacrifice in the short term for long term gains. That's why people would rather spend than save. Even though they know it's unsustainable to build up credit card debt, they do it anyway. Everybody knows it's probably wise to build up a nest egg, but how many people actually do it? It's not a lack of knowledge, but willpower/discipline.

The same goes for building a strong economy. In the early nineties, Canada had little choice to reduce our government spending, our back were up against the wall. However, after Chretien and Martin slashed spending, the result was an economy that was one of the best in the world during that time period. Our discipline produced great results. Today, the opposite is occurring, everybody is whining about how bad things are, but instead of cutting government benefits, the American people are borrowing from China. The result is a stock market that seems to fall every day, wiping out retirement plans and people being put out of work.

In the golden age (50's -60's), the amount of money that American people paid in taxes (pain) was about 25-26% of national income, but the amount of non military goods and services (stuff like schools, health care, welfare payments, food stamps, housing) they received in return was only about 16-17% of GDP. Today, they pay 29.03% of national income in taxes, but get 29.66% back in non military goods and services. Therefore, in the boom time, the American people got much less back from government than they gave to government, whereas today, they actually get more from government then they pay in taxes. If you fail to see the significance of this, then you are blind.

Ryan, you're just frustrated because you realize that the boom period you were referring to (1950-69) was actually a period of small government. The numbers clearly show that non military spending was about half of what it is today, military spending was double and this ratio of spending produced twenty years of strong economic growth. Nor can you dispute the fact that when Chretien, Harris and Clinton cut social spending, those economies took off as well.

Just admit that you have zero clue what makes for strong growth, because if you did, you wouldn't have talked about supporting Bob Rae. Here's another unscientific correlation for you...

Bob Rae's economic policies = Worst economic performance in recent history.

RRRiiiiiigggghhhhttt...

or

Maybe this will blow your mind.

The worst economic conditions in history = Bob Rae's economic policies

You've got your cause and effect all backwards. By your reasoning the past 1.5 years of poor econmic growth has been directly caused by Barack Obama's Stimulus package that was just past in congress a few weeks ago.

Surely you must see this?

Be >> The worst economic conditions in history = Bob Rae's economic policies

Bob Rae had five years in office, in this period of time, "own source" tax revenues went from 35,861B to 38,432B, an increase of 7.2%. In the first five years of Mike Harris, the province saw own source revenues go up from 38,432B to 57,046B, an increase of 48.4%, almost SEVEN TIMES the amount as produced by the Rhodes scholar. Furthermore, under Bob Rae, the Feds increased their assistance to the Ontario government by 41.8% form 5,364B to 7,607B. Mike Harris on the other hand, had the Feds decrease their assistance by 22.6%, going from 7,607B to 5,885B.

So there we have it, both men had five years to work their magic. Mike Harris' increased revenue seven times as much as Bob Rae, even though he reduced tax rates, while Bob raised taxes and revenues stagnated. Furthermore, Bob Rae had more assistance from the feds and yet he still couldn't turn Ontario's economy around. Is five years not enough time to turn things around? Should we have given poor Bob more time? How long would have been fair, ten years, thirty years?

>> By your reasoning the past 1.5 years of poor econmic growth has been directly caused by Barack Obama's Stimulus package that was just past in congress a few weeks ago.

No, my reasoning goes like this, whoever is in office when the economy goes either up or down should get the credit or the blame. Therefore, the economic performance that has taken place from 2001 to 2008 goes to Bush II, not Obama.

If Obama can introduce policies that lead to better economic growth, whatever they may be, he will deserve the credit. Results are all that matter, so at least in the first 40 days or so, he is off to a bit of a rough start. He has 4 years to turn things around.

For reference, my North Korea example was tongue in cheek. Military expenditures being so high, that the remainder of government spending has to be low. Wasted joke.

"whoever is in office when the economy goes either up or down should get the credit or the blame"

Why blame Rae and not Mulroney? Because it suits your ideological view point.

Economic events are set into advance years and decades in advance. I know you don't get "things" but that's how it is.

When you compare the 90s to this decade, you are completely clueless that the wealth of the 90s and the early part of this year was created due to deregulation leading to inflated values. That unrealistic surge in value is directly responsible for the current economic crisis.

Comparing your hare-brained ideas (or any ideas about social sciences) to physics is idiotic. Hard sciences are verifiable and can be reduced to simple phenomena. Social phenomena (and economics is a social phenomena) can't. That you actually consider that you have the solution to every country's economic woes would be the stupidest thing you've said yet (if it wasn't for you implying God was extracting divine retribution on Hamilton and that the extension of the GO train into Hamilton was also directly responsible for closing of Stelco).

JonC >> For reference, my North Korea example was tongue in cheek. Military expenditures being so high, that the remainder of government spending has to be low. Wasted joke.

So are you admitting that the current North Korean economy has nothing in common with the U.S. economy between 1950-1969?

>> Why blame Rae and not Mulroney?

I have already acknowledged that Chretien (a Liberal), did a better job than Mulroney. Will you acknowledge that Harris did a better job than Rae?

>> Economic events are set into advance years and decades in advance. I know you don't get "things" but that's how it is.

So then the people blaming Bush II and Harper for the poor showing in the economy are also wrong? Should we actually be blaming Chretien and Clinton (they were both in control a decade ago). Furthermore, instead of blaming our local politicians for what is happening today, should we have to wait a decade before we say anything? I mean, how do we know if what they're doing is bad or not, if as you say, it takes decades to find out.

>> When you compare the 90s to this decade, you are completely clueless that the wealth of the 90s and the early part of this year was created due to deregulation leading to inflated values.

First of all, the growth I am referring to is real output (GDP), not stock market values or home prices. In the nineties, real output increased much faster than today. GDP refers to the overall goods and services produced in the country. What you are talking about are rising asset values based on an expansion of the money supply, two different things, do you understand the difference?

>> Comparing your hare-brained ideas (or any ideas about social sciences) to physics is idiotic.

This is what you said >> You can only grasp two maybe three variables at a time, I get it, but just give up that you ever have any hope of understanding statistics let alone economics.

How many variables can you grasp at one time? Furthermore, what is the optimal level of variables one should grasp at one time? Is it 5, 20, 1,000,000? How many variables did Bob Rae, or Barack Obama grasp when they made their spending decisions? Barack Obama had been in office about 35 days when he allowed congress to write his budget, was that a good idea? Was enough time given for the massive computer and statistical calculations to be done on every single spending proposal? How do you think the statistics accounted for a study on pig manure?

>> Hard sciences are verifiable and can be reduced to simple phenomena. Social phenomena (and economics is a social phenomena) can't.

So if economics can't be reduced to simple phenomena, they why are you so sure I am wrong? At most you should say my ideas are a possibility, but that no one knows for sure. Or how about tax rates? How do you know that lowering them will reduce revenue? I mean if these things can't be verified, then you have no facts to back up the argument against lowering them, right?

"So if economics can't be reduced to simple phenomena, they why are you so sure I am wrong"

Because you reduce it to simple phenomena. I'm smart enough to know I don't have all the answers. Teams of people with lifetimes of experience in the field don't have them. At best they can speculate, hope they turn things around. Your certainty is the greatest sign of your idiocy.

JonC >> I'm smart enough to know I don't have all the answers.

Really, did you not say these things...

1.)What do you think would happen if Freddie Mac or AIG or Bank of America or JPMorgan folded (which all would have happened without intervention)? Do you honestly think oh well, some investors are out some money. The American economy would grind to a halt

One more time..."The American economy would grind to a halt"

That sounds pretty definitive to me. Here's another thing you said...

2.)Of course, the government insures all bank deposits to a certain dollar amount so they'd be picking up the tab on those which would cost slightly more than the bailout. But by then it wouldn't really matter anyhow, since even if people were able to arrange financing through some new private financier, their currency would be worthless. And of course law & order, civilization going to hell, everyman for himself.

Once again, for someone who claims to not have all the answers, these are some pretty bold predictions. Here's another one...

3.)Economic events are set into advance years and decades in advance. I know you don't get "things" but that's how it is.

Once again you are lecturing the rest of us about how things really work. I like this part..."I know you don't get "things" but that's how it is." So according to you, I don't understand how things work, but YOU do. Really, based on what criteria? Here's another thing you said...

4.)When you compare the 90s to this decade, you are completely clueless that the wealth of the 90s and the early part of this year was created due to deregulation leading to inflated values. That unrealistic surge in value is directly responsible for the current economic crisis.

According to you, I am clueless about how deregulation caused the money supply to expand, which lead to increased asset values. First of all, what does deregulation have to with money supply? The Fed controls the amount of money in circulation and therefore the rate at which asset bubbles take shape. You don't even understand the basics of how the economy works and yet you feel confident in calling me an idiot. Take a look in the mirror my friend.

Once again, I have provided strong correlations that deal with a period of strong economic growth, if you don't agree, that's fine, but why such hostility? Here's a suggestion, lie down, soak up what I have been telling you and come back when you're not so angry.

By the way, I see you avoided answering every question but this one. Why is that?

>> Teams of people with lifetimes of experience in the field don't have them. At best they can speculate, hope they turn things around

Your problem is that you are listening to the wrong people. Stop listening to people who "hope" they can turn things around and start researching people who actually turned things around.

Those things would happen and still might. I don't have the answers to fix it and neither do you. Your continued insistence that you do is ridiculous. Your wasting your immense talents arguing with me on this message board, you should be advising world leaders, oh wise one.

As for deregulation and inflation. If the values of commodities rise according to market demand (Say housing increasing at 10% for a decade) due to poor regulation of lending practices, then deregulation leads to inflation. If you're going to blame the feds for printing too much money or interest rates, then bubbles would form in all markets at approximately the same time.

"Your problem is that you are listening to the wrong people. Stop listening to people who "hope" they can turn things around and start researching people who actually turned things around."

Have you been getting advice from that psychiatrist.

Follow up question. What do you think would happen if all those companies went under in a period of a few months?

That would be a dream come true for A Smith. A Smith thinks The Shock Doctrine is a self help book.

JonC >> What do you think would happen if all those companies went under in a period of a few months?

It's already happening. Take a look at the banking stocks or the banking index (BKX).

They still operate their day to day business for now. The major players would have folded months ago. This could all be a long drawn out version of what might have happened quickly, but letting everything fail at once would be a disaster.

If anyone is still reading his thread... A good article about how 600 trillion dollars were created in the past decade. http://www.villagevoice.com/2009-01-28/n... This is where the last decades of global growth were derived

"About $2 trillion in credit derivatives in 1989 jumped to $8 trillion in 1994 and skyrocketed to $100 trillion in 2002. Last year, the Bank for International Settlements, a consortium of the world's central banks based in Basel (the Fed chair, Ben Bernanke, sits on its board), reported the gross value of these commitments at $596 trillion."

That's more than 4 times the value of all printed money and 10 times the value of all the stock exchanges combined.

JonC >> This is where the last decades of global growth were derived

Printing money doesn't create growth, just take a look at Zimbabwe, they have 100 billion dollar notes and yet their economy produces less and less in real output every year. Real growth, the kind that people can actually enjoy, HAS taken place over the last couple of decades. We see this growth in the form of new products, such as the Ipod, HDTV's, smaller and cheaper P.C.'s, etc.

Furthermore, just because home prices have fallen, doesn't mean people have necessarily gotten poorer. As long as you didn't refinance and extract every dollar of inflated equity from your home in the boom years, your inflated equity values have simply come back to reality. Furthermore, for people who were conservative, they will now have the chance to buy up assets on the cheap, as long as the government doesn't try to artificially prop up home prices by once again increasing the money supply.

For people who were stupid enough to buy into exotic financial instruments, under the premise that they would eliminate financial risk, this should be a good and painful lesson. From now every should realize that things aren't free, so if it seems to good to be true, it probably is.

Before I start my response, I agree that a great number of people (too great a number) have over leveraged themselves at their folly. Greed is commonplace.

"just because home prices have fallen, doesn't mean people have necessarily gotten poorer." Yes it does. A house is an asset. Unless your debts are devalued by an equal amount, your net worth drops. That's as basic as economics gets.

"We see this growth in the form of new products, such as the Ipod, HDTV's, smaller and cheaper P.C.'s, etc." That's not growth, that's innovation in the world of technology. If you're talking a greater percentage of the average citizen's paycheck going into the purchasing of those items, see the next paragraph.

It's not printing money. Your Zimbabwe example doesn't correlate as people know (approximately) how much money they're printing and were able to devalue their dollar accordingly, whereas no one in charge of lending ever bothered to think that housing was ridiculously overvalued or that the derivatives were worthless (Rating agencies had them rated at AAA, but magically re-evaluated them to junk status). As long as everyone was getting paid, everything was great. What you don't acknowledge, is that both the overvalued homes and the exotic financial instruments had an over-stated dollar value and that real, actual money was loaned against them (as collateral) and this money was then injected into the economy. That money is no longer being introduced to the economy.

Again to reemphasize about the "people stupid enough". 600 Trillion USD in a decade. This isn't ordinary people taking a gamble, if every person alive was involved, that would be nearly a hundred grand each. This is wholesale fraud by the world's largest banks, trading houses, insurers and rating agencies. The purest, capitalist greed gone unchecked by the government.

Based on your comments, I assume that you didn't read the article.

JonC >> Yes it does. A house is an asset. Unless your debts are devalued by an equal amount, your net worth drops. That's as basic as economics gets.

This is what I said..."As long as you didn't refinance and extract every dollar of inflated equity from your home in the boom years, your inflated equity values have simply come back to reality."

Therefore, when the housing bubble was going on, if you simply paid your mortgage, you are no poorer now than you were before it began. However, if you borrowed against the value of your home based on inflated values, then I agree you are now poorer (more debt, less equity). However, for every person that borrowed against their house, or paid too high of a price for a home, is a business that sold to these people. Therefore, if you bought shares in the home builders when the boom began (2000), you are likely much richer. Wealth was transferred to people selling the "idea" that investing in a home was a great idea, from people who believed it would go on forever.

>> That's not growth, that's innovation in the world of technology.

According to the BEA, real GDP has gone from 6981.4B to 11,652.7B over the past twenty years.

>> What you don't acknowledge, is that both the overvalued homes and the exotic financial instruments had an over-stated dollar value and that real, actual money was loaned against them (as collateral) and this money was then injected into the economy.

I agree that banks made loans based on unsustainable home price increases. These banks who invested in the idea that home prices would increase forever, are now suffering the worst losses. In a free market economy, these banks would become insolvent and their assets (mortgages, homes for foreclosure) would be sold off and the proceeds would be given to depositors.

>> This is wholesale fraud by the world's largest banks, trading houses, insurers and rating agencies. The purest, capitalist greed gone unchecked by the government.

Just to be clear, where was the fraud? Are you telling me that all of these companies wanted to go out of business? If you are saying that the CEO's knew, but wanted to collect big bonuses, then you may have a point. However, the shareholders of these companies didn't believe the housing bubble was a hoax, otherwise they wouldn't have kept their shares.

But on further reflection, how did anyone, including the buying public, believe that price increases of 6-12% a year was anything but inflation. It wasn't as if the population of the country was going up 3-9% a year, while the housing stock stayed stagnant. If the government had used actual home prices in it's CPI calculation (not owner's equivalent rent), interest rates would have been much higher and far less money would have been loaned for home building.