[Kristen]

Dear Forum members,

I have to give a persuasive speech on how to solve the economic crisis but I don't know where to start. Ban the federal reserve? new currencies? calling debt even and making it a public utility are my three main points I've decided so far. What do you think?

-Kristen

[Maddog78]

Wow, that's a helluva assignment.
Good luck getting advice here since many think we are farked.
When you're done your paper you should send it to the new POTUS.
He can use all the help he can get!

[Kristen]

$this->bbcode_second_pass_quote('Maddog78', 'W')ow, that's a helluva assignment.
Good luck getting advice here since many think we are farked.
When you're done your paper you should send it to the new POTUS.
He can use all the help he can get!

[Kristen]

one more thing i should mention is that its for a college course I have to take for my degree.

[blukatzen]

$this->bbcode_second_pass_quote('Kristen', 'o')ne more thing i should mention is that its for a college course I have to take for my degree.

[Carlhole]

$this->bbcode_second_pass_quote('Kristen', 'D')ear Forum members,

I have to give a persuasive speech on how to solve the economic crisis but I don't know where to start. Ban the federal reserve? new currencies? calling debt even and making it a public utility are my three main points I've decided so far. What do you think?

-Kristen

[Gerben]

$this->bbcode_second_pass_quote('Kristen', 's')olve the economic crisis

[Schmuto]

I'd start at Marbury v. Madison, but that'd be a long speech.

How about this:

There is no "solution" to the crisis, and the almost universally held belief that there is a "solution" is the most damaging part of the problem.

The 1900s were 100 years of exponential growth based on cheap energy. You can do a simple mathematical example to show that, if the DJIA were to grow at 7.2% every year, it would have to be at 128,000 by 2050.

Exponential growth was only possible because we gobbled up the lion's share of the one-time energy boost known as fossil fuels during the "exponential growth" of the last 100 years.

Now, however, the free ride is over, and we are facing a solid ramp up in energy prices for the next 100 years. The faltering economy, the sub-prime crisis, the "credit crunch" - these are all red herrings. They distract from the larger issue, which is overpopulation and resource depletion.

As the per unit cost for energy increases, so too must GDP decline.

Understand that truism, and you're on your way to understanding why there is no "solution" to the "problem", unless by "solution" you mean - "adjusting to having ever less, because that's all that's going to be available."

[nero]

There is no "crisis" if by "crisis" you mean a sudden problem that needs to be addressed quickly. The economic problems have been compounding for a generation while we have delayed working our way out of debt. The deleveraging that is going on right now is painful but necessary.

Talk about solutions to the "financial crisis" are mostly about how to quickly halt the deleveraging which is exactly the opposite to what we need to do. The government needs to speed up the write downs and facilitate the clearing out of the hard to price assets that are stinking up the banker's books. Speed up the process of forclosure; speed up bankruptcy; then speed it up even further by devaluing the currency. Once the debts are mostly destroyed by either write-downs or by being paid off with a devalued currency, then people will be able to profitably start rebuilding the financial industry.

This may take a few years to do, and it will be very painful to equity and debt holders who will see their false paper profits disappear as if they had invested with Madoff; but it will in the end benefit people who work for a living, the very people who have failed to benefit from the last 20 years of productivity growth.

[mefistofeles]

The solution to the economic crisis is quite obvious: just let it run its course.

By allowing the market to sort things out we allow the system balance itself out.

The problem we had is that home borrowers in the United States,UK and Ireland accumulated too much debt.

By allowing all the borrowers to go under we allow the system to cleanse itself of any excessive debt.

Actually realistically the best solution is what's known as a Haircut . Lenders simply to have to accept whatever the borrowers can pay them.

The problem with all our bailouts is that the banks and financial institutions are going to go bankrupt anyway because their underlying "assets" (commercial and residential mortgages) are bad. Giving banks more money only means that they will tread water for a longer period of time.

That's the problem with Paulson's original TARP proposal. Is that even if you buy distressed mortgages they're still distressed mortgages, in other words a turnip is still a turnip is still a turnip now matter how many billions of dollars you pay for it.

If the TARP program had gone through as original envisioned the bad assets would have simply moved from the private sector's balance sheets' to the government's. Homeowners would still be unable to make their mortgages and the mortgage market would still be in crisis.

Aside from massive inflation the only way to take care of this problem is to tell the companies,governments and central banks that bought all these mortgage backed securities that they need to take a loss. At this stage things aren't too bad so I can't see lenders eating more than 25-30% of their investment. In Argentina bond investors had to take a 73% haircut so the situation could be much worse.

Of course writing down mortgage backed securities 25% will ruin the pensions funds,insurance companies and all the other people who bought these products. Ironically this would probably be the least painful course of action.

The other solution ,which the Obama administration seems dead set on is hyperinflation . So far the demand for Treasury assets seems quite strong so for a while America can keep on borrowing to spend more money.

After a while however at some point foreign investors will tire of Treasuries. At this point the Federal Reserve will become the buyer of last resort for US Government bonds. Right now the Fed has the right to engage in open market operations . Where it goes into the marketplace and buys bonds,injecting liquidity into the economy.

At some point if there aren't enough foreign buyers for US bonds the Federal Reserve may become the buyer of last resort.

In the meantime I expect further government intervention in the banking sector and an effective Nationalization of the entire banking sector. The government's becoming too impatient with the banks unwillingness to lend and will eventually take them over and use them to force feed the financial system. Maybe they'll buy "shares" but in effect the government will take over the banks. The United States will follow in the United Kingdom's steps and nationalize the entire banking sector .

The end result will be massive Zimbabwe style inflation.

So in the end a depression and a massive reordering of the financial sector isn't such a bad thing,compared to the alternatives.

[nero]

I think mefistofeles analysis is very good, the only place i would take real exception is the jump to hyperinflation. Hyperinflation isn't the inevitable form of inflation. 1970s 10% a year inflation wasn't hyperinflation and didn't lead to hyperinflation but it did do a job on the debt held by consumers. My Dad bought his house in the early 70s for 35,000, now it's worth $250,000. Inflation only leads to hyperinflation if the government starts relying on it to finance their spending. The United States has a large ability to reduce spending(axe the military in half and it would still be the mightiest force on the planet) or increase their tax rate (one of the lowest in the developed world), so at some point once the inflation has resolved the debt problem the US should be able to rein it in. There isn't any painless solution, you get to choose between the pain of getting kicked in the crotch or the pain of gettiing a limb hacked off.

[evilgenius]

$this->bbcode_second_pass_quote('Kristen', 'D')ear Forum members,

I have to give a persuasive speech on how to solve the economic crisis but I don't know where to start. Ban the federal reserve? new currencies? calling debt even and making it a public utility are my three main points I've decided so far. What do you think?

-Kristen

[Sixstrings]

$this->bbcode_second_pass_quote('', 'W')e need to use critical thinking to solve the problem, its mathematical

[mattduke]

Let me boil it down for you:

1. Gold standard.
2. 100% reserve banking.

BTW, economics is a social science. Attempts to treat it mathematically only obscures the principles. What would you rather have, an apple or an orange? See Hayek's Nobel acceptance speech, "The Pretense Of Knowledge".

[pablonite]

Hello Kristen.

I would think just giving a persuasive speech on the "economic crises" leaving out the "how to solve" is more...persuasive.

"Your" ideas for solving the "crises" have been bandied about but you being a student and seeing the monetary system for what it is...

Debt is a weapon and interest is the ammunition so operating inside a monetary system a student is just as likely a target as a third world country.

A mass awakening to what should be known as economic slavery or some such term needs to happen years before the problem can be solved. Do you think the big hands holding the debt gun are just going to put it down because you want to solve a problem?

By the way, those big hands most likely have a very firm grip on your educational institution which is why most of your classmates will be completely ignorant of how their monetary system even works. A kick in the arse is all your really aiming for.

[errorist]

$this->bbcode_second_pass_quote('mattduke', 'L')et me boil it down for you:

1. Gold standard.
2. 100% reserve banking.

BTW, economics is a social science. Attempts to treat it mathematically only obscures the principles. What would you rather have, an apple or an orange? See Hayek's Nobel acceptance speech, "The Pretense Of Knowledge".

[Kristen]

$this->bbcode_second_pass_quote('blukatzen', '')$this->bbcode_second_pass_quote('Kristen', 'o')ne more thing i should mention is that its for a college course I have to take for my degree.

[Kristen]

$this->bbcode_second_pass_quote('Carlhole', '')$this->bbcode_second_pass_quote('Kristen', 'D')ear Forum members,

I have to give a persuasive speech on how to solve the economic crisis but I don't know where to start. Ban the federal reserve? new currencies? calling debt even and making it a public utility are my three main points I've decided so far. What do you think?

-Kristen

[Kristen]

$this->bbcode_second_pass_quote('Gerben', '')$this->bbcode_second_pass_quote('Kristen', 's')olve the economic crisis

[Kristen]

$this->bbcode_second_pass_quote('Schmuto', 'I')'d start at Marbury v. Madison, but that'd be a long speech.

How about this:

There is no "solution" to the crisis, and the almost universally held belief that there is a "solution" is the most damaging part of the problem.

The 1900s were 100 years of exponential growth based on cheap energy. You can do a simple mathematical example to show that, if the DJIA were to grow at 7.2% every year, it would have to be at 128,000 by 2050.

Exponential growth was only possible because we gobbled up the lion's share of the one-time energy boost known as fossil fuels during the "exponential growth" of the last 100 years.

Now, however, the free ride is over, and we are facing a solid ramp up in energy prices for the next 100 years. The faltering economy, the sub-prime crisis, the "credit crunch" - these are all red herrings. They distract from the larger issue, which is overpopulation and resource depletion.

As the per unit cost for energy increases, so too must GDP decline.

Understand that truism, and you're on your way to understanding why there is no "solution" to the "problem", unless by "solution" you mean - "adjusting to having ever less, because that's all that's going to be available."