Point-Counterpoint: Bear Trader and Bro Debate Economic Mess

from my brother C: IMO, the fundamental mistake that the 'economic theorist collective' has been making lies in a Keysnian system that only works when huge amounts of idle manufacturing capacity exists within a nation. The idea of increased demand works when more people are hired with a given country (EU is not a nation) and factories there reopen, increased wages are pumped back into the economy etc. When 40% of the economy is 'financial' and, maybe, 50% of the average person's domestic needs are being provided by Chinese factories, all printing money does is increase employment in Chinese factories. Both the UK and the US had a large industrial base that provided consumer items for the British Realm, and, the huge US consumer market, respectively, in the 1930s which would respond to federally triggered increases in domestic demand. In addition, I suspect, that the use of stategic tariffs, principly to protect domestic low ticket consumer item manufacturing, would respond to a nation 'pumping up the money' (Britain in the 1930s). I believe that much of the "Walmuck Sector" domestic manufacturing has been effectively destroyed by direct outsourcing and by retailers bypassing US manufacturers completely and dealing directly with manufacturers overseas. As I repeatedly tell those who will listen, an increase in sales of 10% in Walmuck US sales (less true in their food retailing) might add .1% to the net employment monies pumped into the economy by all US employees, and, add 1 or so percent to the Chinese manufacturing employment rate. 20 -25% of Walmuck employees receive food stamps). This gutting of US domestic low ticket consumer item manufacturing extends up the food chain, with the least erosion of market share in the almost handmade high ticket items, such as commercial aircraft, movies, and, weapon systems.. Unfortunately, these sectors, IMO, do not respond to printing money well, as the reduction in net consumer discretionary income reduces air travel, encourages at home media entertainment, and, the lowering tax receipt problem that triggered printing money in the first place, reduces monies spent on future weapons platforms, etc. I am struck by how off base almost all the arguments about what is happening to the US economy appear to be. Most people I talk to attribute problems to a sector of the total economy. Manyt of my aquaintances consider the problem to be the 'Wall Street White Shoes Gang', and, if I were to have to blame one sector for our current problems, I would agree. A far smaller, largely economically successful group, blames the federal government for regulations, laws, etc., for creating the environment where business was forced to outsource, etc. Another group, principly blue collar and often unemployeed, blames the decline on the non-whites who leech federal and state monies while getting preferential job treatment. A tiny group, which I do not have the opportunity to co-mingle with, believes that they (or their relatives) acquired their great asset base through skill, and, that the masses need to be disciplined. This group has disportionate power and no visibility. Lastly, I know a smattering of a very large group of tenured government employees in education, the military, and, various departments who, due to having job security, can have a active social agenda. As employees paid by levied taxes, the group, by definition is socialist, with the only caveate being that their conservatism is applied to those outside their group. Yup, as you inferred, the problem concerns us all, which reminds me of a thought I have been having a lot lately: "The last person under the bridge gets the worst spot." (Those that don't have enough paid for assets, etc., someday will have to compete with the long term poor on equal footing...) -C My reply -- Some thoughts - "Economic Theorist Collective" indeed. Morey McDonald, old acquaintance (Econ PhD, works in Academia), very decent guy, certainly intelligent enough, back in 2008 heard me out on my "the Emperor has no clothes" arguments. At the time the "economic theorist collective" was deeply shaken by the obviously hopelessly flawed models they had been using and more tolerant of skepticism. I pointed out that the economic crash of 2007 - 2008 had not only been widely predicted but that I could see it coming clearly enough to get out of the markets in August 2007. If the economic - econometric models couldn't predict the events of 2007 and 2008, I told him, then they obviously didn't have the relevant independent variables (same thing that is wrong with the Anthropogenic Global Warming models). I had been doing spreadsheet models at GM for some years that were Important (I could have been fired if the models didn't "work"). The most important thing about models is that the math blows up if you try to extrapolate the model into the future (essentially "divide by zero"); you have to use calculus and differential equations to handle this, but if you don't have the relevant independent variables baked into the pie instead of a working model you get a simple "curve fit", a "model" that simply identifies one of many possible "trend lines" carried forward into the future, essentially a statement that the future will recapitulate the past. Physicists long ago started making models with reasonably adequate independent variables, Isaac Newton being the most notable of the Ancients. The Economists have a screaming nutcase case of model envy here, they want their theories respected like physics models are. But they don't seem to know how to do this, they don't even see how ridiculously goofy the stuff they publish is, or how to get out the stupid hole they have dug for themselves, so I told Morey what they were doing wrong and how to get it right. He listened all the way through, almost an hour. Interestingly he increasingly works in areas where the models are better (not so swelled headed, Krugmanesque). Like I said, a good man. You point out that "all printing money does is increase employment in Chinese factories". That doesn't bother the Politburo a bit, but the dollar caused inflation does, notice the great political pressure to control food prices and apartment prices. The Chinese, to an extent, are importing inflation from the USA. "Bernankeism" is aimed at China more than the USA, although critical mass has been exceeded already in real estate - another bubble is strongly under weigh and will inevitably explode there - and real US inflation is not 2% but 6.5% - Pensions are blowing up, as are insurance companies (for the same reason) because of the very destructive over 5% negative real interest rates. Free money is not free, someone has to pay for it, and the guy who pays, by definition, is the little guy. You know, if you can't see who the sucker is at the poker table the sucker is you. As far as Walmart is concerned, they don't bother me any, they and their ilk are just an opportunistic infection, if you leave money around in great big piles, or tons of illegal drugs, or gang territories, some people will see the opportunity an take it. Such things are simply caused by mismanagement. The Feds have taken onto themselves the management of all such stuff, from Bernanke to foreign trade, so therefore the Feds are responsible for all of this - not Walmart. You want some simple stuff that will work? 1. An import tariff designed to raise Federal income (an"income tariff") of 5% on all imports, repeat ALL. Since we have so many layers of financial middle men getting a cut on imports these days, the 5% tariff is not on the cost of the overseas shipment but instead of the retail cost of the good when sold to the final user. 2.Get rid of Dodd - Frank. Chris Dodd was the Senator most in bed with the Big Banks. Dodd - Frank is set up to "prevent" another crash (hardy, har, har) while making sure The Too Big to Fail could get bigger, richer, more stupid, etc. You want to fix this, Glass - Steagall worked perfectly for sixty years until Clinton's Sec Treas Robert Rubin got Glass - Steagall repealed. Rubin was a Big Bank man to the core, ex CEO of Goldman Sachs. Clinton signed the repeal. I don't know what he got out of it, but more than $50 Million anyway. (Clinton got most of his money from the Chinese for selling them anything they asked for, including how to make ICBMs work, how to make American quality air-to-air and ground-to-air missles including declaring whole factories working full time producing these weapons "surplus" and selling them to the Chinese as well as the complete specs and prints of the W series missile nuclear warheads - state of the art stuff. (Ron Brown was involved in this stuff deeply and threatened to squeal if the Clintons didn't protect him from the Justice Department. Brown and a whole planeload of other people died by accident, of course.) These are real big changes. Glass - Steagall would break up the Big Banks. The Tariff would shift income from imports to domestic production, causing lots of mad Big Boys. Repeal Dodd - Frank. Reinstate Glass - steagall. 5% import tariff (Small tariffs work better than large. Besides you can always threaten to raise it in the future.) 3. These two things will cause a lot of bankruptcies. Get set up for this. Write off bad assets thoroughly. 4. Stop the Fed "quantitative easing". This is pure money printing. No more Fed buying Treasuries, no more buying Federal Mortgage Backed Securities. This will pop the Real Estate Bubble before it gets disastrously large. This will force the Treasury to pay market interest to issue government paper. (The Federal Reserve is buying more than 60% of new Federal Notes and Bonds.) This will force the various big spending factions in the US Government to eat shit. Breakfast of champions. Remember that Government is not productive but only consumes. The Government is overhead, not production. 5 Market interest rates are needed. Fed Funds rates should be raised to higher than actual consumer inflation, currently 6.5%. This one is dangerous. The current situation is like being surrounded by attackers while in your house, attackers who will shoot you dead if they can, and your house is burning. A delicate situation. - P