Government should invest massively in new energy system. kill two (or more) birds with one stone. (actually this is what obama is already planning to do).
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How do you stop deflation?
- Thread starter peilthetraveler
- Start date
Quote from achilles28:
When prices stay artificially high, consumption and investment is held back. Shit is too expensive relative to income. IOW, the debt-to-income or cost-to-income ratio is too high. Prices need to deflate if wages stay stagnant.
Right prices have to come down relative to wages, makes perfect sense.
Tough to control prices when you buy so much that's imported.
Tougher still when real income is down close to 50% due to the dollar.
Then again, none of it matters if you're one of the people who've been down-sized or your job was outsourced and now make half of what you used to.
Its designed that way from a "political" perspective.
Thanks, I feel so much better that this was all planned and not the result of short-sighted, self-centered greed at the expense of others.
Not that it matters. I have it on good authority that an alien is coming to visit on 12/12/08 and he's going to tell us that this isn't our planet and will help us to get our act together for good.
Quote from jprad:
Decent idea, if everyone's mortgage was still held by the local bank. Then again, if they did, we wouldn't be in this situation.
Anwyay, how do you pull that off when mortgages are packaged up and sold as fixed-income debt instruments to the UK, Germany, Japan, China, and so on?
A 30% haircut on the mortgages, as impossible to do in this current situation would leave banks with a 30% haircut on their portfolios. It's true that this could work, for example HSBC has been doing this where they could so that they don't get as many foreclosures, they were very quick on this crisis.
And that's where the second punch comes in, a mexican illigal immigrant with a $500,000 mortgage won't suddenly be able to pay for it now that it's $350,000. People never intended to pay for them, it was a bubble pure and simple. Whether their value was $400,000 or $2 millions.
Any foreclosed house that blows up then means the subprime debt can never be repaid again.
And that's where the scales of thing is truly scary. The money will have to be well spent, for example spending it on compensation will accomplish 0 of the intended goals to clean up the balance sheets. Some banks will have to fail, and we should also allow the deleveraging process to proceed like in any other recession, just that we have to be careful the banks can eventually put the past behind them. Maybe do some innovative debt to equity swap.
Why would you want to stop deflation? It gives the little guy a chance to catch up. Our worthless fiat currency got us into this mess, now you want to fix the problem by creating more of it.
I have a solution to the budget deficit, cut spending. We can start by ending the war, stopping our overseas empire, getting rid of the Department of Education, Homeland Security, and Energy. Problem solved.
Let me see $4 or $2 for gas. Hmmm. That's a tough one. As a bonus all those financial firms that have been screwing the little guy for years, are now losing billions.
I have a solution to the budget deficit, cut spending. We can start by ending the war, stopping our overseas empire, getting rid of the Department of Education, Homeland Security, and Energy. Problem solved.
Let me see $4 or $2 for gas. Hmmm. That's a tough one. As a bonus all those financial firms that have been screwing the little guy for years, are now losing billions.
Quote from Renegen:
...for example HSBC has been doing this where they could so that they don't get as many foreclosures, they were very quick on this crisis.
I bank with them, sound management with sane mortgage lending standards.
Any foreclosed house that blows up then means the subprime debt can never be repaid again.
We'll be lucky if it ends with subprime, but I think option ARMs in the ALT-A segment over the next 9-12 months is the next wave in this mess.
Maybe do some innovative debt to equity swap.
Can't remember who brought it up, but the gist was to have the government pay off the mortgage and extend a 4-5 year period where the owner essentially pays rent in order to give them time to get their financial situation turned around.
If they can't qualify for a mortgage to purchase the property at the then current value they'd have to leave and the property would be put on the market.
It seems to be the most pragmatic way forward I've heard so far.
it might be a little easier than you think. while the government can't force foreign companies to lower prices, the fed could contract the money supply, having the immediate effect of lowering the ratio of the price of imported goods to domestic wages.
Quote from jprad:
Right prices have to come down relative to wages, makes perfect sense.
Tough to control prices when you buy so much that's imported.
Tougher still when real income is down close to 50% due to the dollar.
Then again, none of it matters if you're one of the people who've been down-sized or your job was outsourced and now make half of what you used to.
Thanks, I feel so much better that this was all planned and not the result of short-sighted, self-centered greed at the expense of others.
Not that it matters. I have it on good authority that an alien is coming to visit on 12/12/08 and he's going to tell us that this isn't our planet and will help us to get our act together for good.
Quote from Sandybestdog:
Why would you want to stop deflation? It gives the little guy a chance to catch up. Our worthless fiat currency got us into this mess, now you want to fix the problem by creating more of it.
That would be true, except that the little guy will lose his job and has no savings for the most part in the US. There's the crux.
Quote from bellman:
it might be a little easier than you think. while the government can't force foreign companies to lower prices, the fed could contract the money supply, having the immediate effect of lowering the ratio of the price of imported goods to domestic wages.
Isn't contracting the money supply exactly what the Fed did at the beginning of the great depression. Didn't work so well.
Question for you guys..
What is the best way to watch deflation on a day to day basis?
I have heard the deflation scares have been rampant for 2 days now with the moves in tresuries. Running into treasuries even with no expected returns.... so on. And what I have read so far, says in deflation everyone hordes cash, ..simple enough.
So is Treasuries what I look at? anything else?
How do you look at treasuries or other instruments to gauge this situation?
For example - shouldnt gold be losing value in deflation?