Posted this on another site in a thread where everybody know who was to blame for the economy.

I always find it funny that so many people know exactly what is wrong with the economy and exactly how to fix it.

So I’m going to give my opinion.

A countries economy has a natural state that it wants to be in from the amount of trade that goes on, the more manufacturing, raw materials being sold, or agriculture exported the more trade with a country happens. Manufacturing, exporting of raw materials and agriculture being exported are the only things that bring money into an economy. All of the oil we import and goods produced elsewhere being sold here make money leave our economy, sometimes for good. This is why we had to go off the gold standard in the 70’s because we would probably have no gold by now.

Now here comes the part that I dont think people want to hear. Since the early 90’s the government has done things to “stimulate” the economy thus making it operate above its natural state. Of course politicians who control this mechanism don’t ever want the economy to lag, even though sometimes it needs to just to get into the natural state that it wants to be in. Now over and over this happened so instead of the occasional small pain when things fell apart they really hurt, the fall was huge. This was cause by the stimulation being applied to often and probably too much, like a drug user going through withdraw in rehab.

The only thing going to help the economy is if things are allowed to reach their natural state, this natural state can probably be somewhat safely elevated by increasing manufacturing, increasing exports of raw materials, or exporting more agricultural items such as wheat and pork bellies.

To those saying that the government should provide more stimulation to the economy, did you forget that the housing bubble was caused by government stimulation by lowering the prime interest rate? This lowered the amount of money paid into interest, but people stupidly bought a house on payments and not on the cost and thus that allowed the cost to rise significantly while the paments stayed the same. This was compounded by people speculating and also using equity in their homes as income. I have several friends that took out home equity loans to buy crap, one bought a new laptop, a $1000 bicycle, and a new car with a home equity loan.

So my points are
1) the economy has a natural state it wants to be in
2) this natural state ebbs and flows, just let it
3) the only real stimulus can be made by bringing money in through agriculture, manufacturing, and exporting raw materials
4) using “paper money” to stimulate the economy is not a real stimulation and will just make matters worse at a later time
5) dont buy anything based on payments

dont buy anything based on payments

I control much more wealth now because I purchased things on payments :confused:

I control much more wealth now because I purchased things on payments :confused:

By "buying by payments" I mean like a car dealer tries to sell you a car by payments and not the price of the car. "oh Im buying a $20k car for $30k but the payments are less cause I have a 10 year loan.....great!"

Now here comes the part that I dont think people want to hear. Since the early 90’s the government has done things to “stimulate” the economy thus making it operate above its natural state. Of course politicians who control this mechanism don’t ever want the economy to lag, even though sometimes it needs to just to get into the natural state that it wants to be in. Now over and over this happened so instead of the occasional small pain when things fell apart they really hurt, the fall was huge. This was cause by the stimulation being applied to often and probably too much, like a drug user going through withdraw in rehab.

To those saying that the government should provide more stimulation to the economy, did you forget that the housing bubble was caused by government stimulation by lowering the prime interest rate? This lowered the amount of money paid into interest, but people stupidly bought a house on payments and not on the cost and thus that allowed the cost to rise significantly while the paments stayed the same. This was compounded by people speculating and also using equity in their homes as income. I have several friends that took out home equity loans to buy crap, one bought a new laptop, a $1000 bicycle, and a new car with a home equity loan.



The massive recession we just experienced was not solely caused by low interest rates. That was one, factor. Much more important in the equation were: 1. banks essentially eliminating all lending standards. 2. the elmination of very important banking/investment regulations 3. zero regulatory oversight of the mortgage market 4. the stupidity of the American consumer 5. failure of the ratings agencies to adequately vet the complex derivative products coming to market. 6. Lack of internal oversight in the banks themselves

There are many more minor causes to the last recession, but your assertion that it was caused solely by low interest rates is simply wrong.

As for stimulus, your assertions there are incorrect as well. The natural level arguement is silly as it ignores the depth of the problem we faced in 2008 and, to a much lesser extent, today, as well as the physcological/behavioral responses to a severe downturn.

Stimulus is required to combat a downturn...whether it is used to try to prevent or to stop a downturn. Stimulus (either in the form of direct govt spending or lowered interest rates) has long been proven to work...and it worked this time as well. Thank goddness for the Federal Reserve in 2008. They blew the runup to the recession, but their actions once things started to spiral downward saved our economy from massive depression worse than that of the 1930s. Congress was, as it has been, useless.

The massive recession we just experienced was not solely caused by low interest rates. That was one, factor. Much more important in the equation were: 1. banks essentially eliminating all lending standards. 2. the elmination of very important banking/investment regulations 3. zero regulatory oversight of the mortgage market 4. the stupidity of the American consumer 5. failure of the ratings agencies to adequately vet the complex derivative products coming to market. 6. Lack of internal oversight in the banks themselves

There are many more minor causes to the last recession, but your assertion that it was caused solely by low interest rates is simply wrong.

As for stimulus, your assertions there are incorrect as well. The natural level arguement is silly as it ignores the depth of the problem we faced in 2008 and, to a much lesser extent, today, as well as the physcological/behavioral responses to a severe downturn.

Stimulus is required to combat a downturn...whether it is used to try to prevent or to stop a downturn. Stimulus (either in the form of direct govt spending or lowered interest rates) has long been proven to work...and it worked this time as well. Thank goddness for the Federal Reserve in 2008. They blew the runup to the recession, but their actions once things started to spiral downward saved our economy from massive depression worse than that of the 1930s. Congress was, as it has been, useless.

Where did I say it was caused soley by low interest rates? This has been building since the late 80's. The housing bubble caused by the low interest rates were just the final straw. You didn't read what I wrote about a little pain now or a lot of pain later....

As for the natural state of the economy just throwing money at it will work temporarely, however for long lasting improvement you eventually have to make something to sell to an outside source whether it be food, cars, lumber, oil etc. Anything else is just putting a bandaid over a bullet hole.