Keynes lit up

[Robert A Whit]

The funny thing about Democrats is their claim that deficit spending will jump start an economy.

Why is it funny?

Remember Bush?

Bush actually was spending. Spending like he was Keynes reincarnated.

Told us all to SPEND.

Remember how democrats mocked this?

Yet read them support Obama.

Obama makes government spending and I add that so does Bernanke, look routine.

Obama preaches Keynes. I personally am more persuaded by Hayek & then Friedman. What we call the Chicago school of economics.

If spending by the central government really worked, the economy going sour never would have taken place.

So, how to fix the problem?

I won't refer to the Romney plan because i plunge ahead on my own.

We know the root causes of the collapse. It was Greed on the part of FNMA and FreddieMac.

Democrats were told by Bush it had to be fixed. They denied it was either of them yet the first bail out by Bush was them. He took both over.

The source of the trouble being FNMA, the Obama team plunged in determined to make the market worse by regulation. FNMA couild use the tweaking, but not the rest of us. Obama crapped all over the housing industry. I will go into this more should somebody be interested.

[fj1200]

We know the root causes of the collapse. It was Greed on the part of FNMA and FreddieMac.

Disagree. The root cause in (almost) all bubbles is expansive Fed policies, the cause of the collapse IMO was mark-to-market being introduced.


But not since then. You have said that during the period from 2003 through 2005, the fed-funds rate violated the Taylor Rule by being too low.
Yes, at times by as much as three full percentage points. And that helped cause the financial crisis, as I have argued in my book Getting Off Track.
http://online.barrons.com/article/SB50001424053111903835404577347834076048076.html#a rticleTabs_article%3D2

Not that other specific housing issues didn't contribute.

[Robert A Whit]

Disagree. The root cause in (almost) all bubbles is expansive Fed policies, the cause of the collapse IMO was mark-to-market being introduced.

Then you also do not agree with reports I have read by the Fedeeral Reserve of Chicago. I agree that Fed policy, particularly under Clinton and his administration's law suits that he won that led up to loans to people who could not afford them, opened up the door for FNMA to set up brand new rules that then translated to a much more active subprime market system.

Those weaker loans was the sand for the foundation of our economic well being.
http://online.barrons.com/article/SB50001424053111903835404577347834076048076.html#a rticleTabs_article%3D2

Not that other specific housing issues didn't contribute.

Seems to me there perhaps is more agreement than you suppose there is.

[Robert A Whit]

I read the interview with Professor Taylor and agree with his views.

Look, some things one can simply know by intuition, provided you allow the common sense lessons of the real world guide you.

I wish Professor Taylor had spent more time discussing the velocity of money, a principle supported by Hayek, but alas we can't have it all.

Suppose one looks at the economy much like the carosel that was once more common. As you board the device and it rotates, you get to snatch the brass ring. Common sense tells you that to get more brass rings, speed up the carosel. Brass rings represent not only more tax revenue, but income for the public.

Keynes ecnomists in my opinion do not take that into account nor does the Obama team.

When you take action that speeds up the economy, the natural result is it produces more of everything. More taxes to the government. More jobs for the public. And it does not pick winners or losers.

Housing happens to be a velocity increaser. The explanation in part is that of all things produced, it produces a very wide variety of goods and services. Banking is speeded up. Sales is speeded up. Manufacturers gain advantage and make many more products. A home is a system. Take each part of the system into account and you can see right away that the variety is pretty huge.

Some will argue that we don't need more new homes. That the foreclosures will be the supply.

Since we still have some strong immigration as well as people moving away from parents into the economy, I believe the number of new homes can be increased. Given the low rates of interest and so forth, the major hold back is that as youth become edults, normally they are rather weak earners. But at the current low rates of interest, one would suppose that the cheap money would help to offset this.

The Obama team has not helped housing. Green energy is it's mantra.

Energy supply is vital to a strong economy yet rather than make use of what we currently have and use our proven energy sources, Obama plows a different field and takes a different path. He only pays lip service to all of the above reference energy supply.

The economy is actually worse than the low unemployment rates as published seem to state. While 8 percent (rounded) may seem pretty bad, the actual number of out of a job is a lot higher than that. Only by discarding some humans can the number be driven down to the posted numbers.

When a person wants to know who is behind the rules of the mortgage market, I explain that FNMA is. When people learn the truth, that the mortgage market runs on FNMA rules, often they don't accept it or flat deny it.

What caused the sudden upswing in subprimes?

FNMA jumped aboard it and of course if you wanted to sell loans to them, you followed their rules. They took a look at what Wall St had done and figured, it works for them, so wny not for FNMA? The law suits during Clinton tossed out all caution and we had a sudden upswing in poor loans. Everybody thought they found a new gold mine and of course the mine finally dried up. <O:p></O:p>

<O:p></O:p>

[fj1200]

Then you also do not agree with reports I have read by the Fedeeral Reserve of Chicago. I agree that Fed policy, particularly under Clinton and his administration's law suits that he won that led up to loans to people who could not afford them, opened up the door for FNMA to set up brand new rules that then translated to a much more active subprime market system.

Those weaker loans was the sand for the foundation of our economic well being.

Seems to me there perhaps is more agreement than you suppose there is.

That FNMA loans were the root cause of the run-up in prices and subsequent collapse? No. That they were contributing factors? Sure.

[fj1200]

I wish Professor Taylor had spent more time discussing the velocity of money, a principle supported by Hayek, but alas we can't have it all.

...

Housing happens to be a velocity increaser. ...



Some will argue that we don't need more new homes. That the foreclosures will be the supply.

Since we still have some strong immigration as well as people moving away from parents into the economy, I believe the number of new homes can be increased. ...

The Obama team has not helped housing.

I'm sure Taylor is well aware of velocity but isn't really the issue here. And to say that housing is a "velocity increaser" is a bit simplistic, growth in general increases velocity but then again so does inflation. The goal shouldn't be to increase velocity and especially the goal of the Fed should be monetary stability, it's only goal. Velocity will take care of itself.

That last part sounds like you would prefer some government intervention in increasing housing. If that was the problem in the '00s then it would become a problem again. In some respects housing becomes a drag on recovery and new growth in the economy because it acts as an anchor to many people from being able to move quickly, or at all, to accept a job in a part of the country that may offer a better opportunity.