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Senior Contributor

OptionEye....June 21st

Good morning.

 

Market likes the rain...corn, beans and wheat all lower this morning. Not sure if it is anywhere near enough but the headlines will mean the sellers are out.

 

Fed policy meeting seemed to disappoint by just a tad but market shrugged it off fairly well. Dow settled about 12 lower yesterday and is trading 9 higher as we type. Hardly market moving at all.

 

Operation Twist 2.0 is just more of the same. Kicking the can down the road. The significant news will still be Europe and China. Europe will try and find a 'Federal' way out of its mess with some sort of bank deposit insurance and the like but ultimately harmony will be EXTREMELY hard to achieve. Does anyone really think that Ireland can keep its 12% corporate tax while France lowers its retirement age and Germany pays for it all? The market will like a 'plan' but will ultimately be disappointed by its execution.

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9 Replies
Senior Contributor

Re: OptionEye....June 21st

There is no way to fix this economic mess UNLESS you stop spending, increase interest rates.   That is what is going to be forced to happen anyway.   the more bandaides you place on this the more its going to hurt when you pull them off.   

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Senior Contributor

Re: OptionEye....June 21st

highyields - policy decisions have been used successfully to moderate directions in the economy. These interactions do work much of the time. Your broad brush condemation of any fixes not working is just not true. Usually we see government encourage or restrain economic growth through interest rate modulations. When things become severe in either direction other policy interactions are used including loans, export/import tariffs, subsidies, government projects, and so on. All these things will have impacts. Unfortunately none of these on its own is perfect or guarantted to work and they often take months or sometimes years to show results. To suggest there is nothing government should do is just not proven by history.

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Senior Advisor

Re: OptionEye....June 21st

I agree with you 100%. One has to look at history, not ideology, to evaluate the relative effectiveness or wisdom of economic policy. When a person uses the terms 'always', 'never', 'must' and the like and can't or won't look at the historical record it becomes a matter of what one is comfortable believing, not concern for solving problems.

 

An example: The modern idea of what the 'founding fathers' actually believed is frequently very misrepresented in an attempt to 'recruit' them for someone's cause. Often the representation of the 'founding fathers is dead wrong and the person representing them has not researched and doesn't care to research the actual facts - intentionally.

 

Would anyone be surprised that some of the well known and respected of the the 'founding fathers' voted for compulsary health care for sailors in US fleets and required owners to provide it ?????? Whatever one believes in the modern context, this is a true fact.  I'm not interested in debating it. They either are the facts or they are not. I will say I was surprised. It may go to prove they were not as ideological as those today who want to convince you that they represent tho 'only true way'.

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Honored Advisor

Re: OptionEye....June 21st

Examples of actual effective economic change brought about by federal programs are hard to find.-----------Claims of responsibility are as plentiful as political grass, but little proven change.  Unless you count an act of war as a stimulus program.

 

 

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Senior Contributor

Re: OptionEye....June 21st

Effects of governemnt intervention are actually pretty easy to find. But there is much more written about a policy's negative effects than its positive effects. Criticism sells newspapers, doesn't it? One that you have probably noticed is the impact of gradually reducing the tax rates for the upper bracket earners that began in the 80's. Prior to that the highest rates were in the 50 to 90% range. What outcomes have we witnessed since that policy change? A few that come to mind include the widening gap between rich and poor, the growing need for more welfare and food stamps,  more demand for subsidized college loans, etc. The inruiging thing that happens with almost every government policy is it will have a negative effect on some. The challenge is identify policies that provide for the greater good. Unfortunately not all policies accomplish that.

 

One that has withstood the test of time (until recently) is the federal transportation policies. They sponsored the interstate system, mass transit in cities, safer vehicles and fueled economic growth by enabling the free flow of goods and economical commuter alternatives allowing companies to hire quality employees from further away. Slashing these efforts as proposed by the current house of representatives would be disasterous to the economy in the long term.

 

Tax breaks on home interest over the past 40 years has enabled the home building industry to thrive and more of our countrymen to be able to live their dream of owning their own home. This is a pretty big deal. What will the next big idea be? I don't know yet but if you shut down the role of government to aid in long term effctive policy guidance we may never find out.

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Senior Contributor

Re: OptionEye....June 21st

Scott, sorry to hijack your thread but I couldn't let the earlier comment go unanswered.

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Honored Advisor

Re: OptionEye....June 21st

Does government involvement get a pass on the collapse of the housing bubble they helped create?

 

The american dream came with a good chance of forclosure.

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Senior Advisor

Re: OptionEye....June 21st

Isee this discussion falling right back into the hole of ideology again. The idea the government was 'the cause' of the housing bubble is way overstated. For ideological reasons. Wall street - and others - had a money machine going on fraudulent loans that were commodified into dubious securities and sold around the globe. $Trillions. Then they had the audacity to sell 'insurance' to those who bought the securities through CDS. Wall street was NOT regulated for these mortage base activities. They also weren't insured by the government as they were not 'consumer' banks. Wall St collapsed. Why did they collapse as independently and largely unregulated entities - the very status advocated by those who think the markets should be 'left alone? Alan Greenspan made one VERY large concession after the collapse. He stated that he did not realize businesses would act against their own interests. He saids he was wrong to believe this.

 

Government could have curbed the excesses earlier and didn't, and they didn't need Congress blessing to do so. I know what you'll want to say. It was Fannie and Freddie. They were complicit as private companies. They were also victimized because as they were squeezed out of market share bu Wall St they even bought some of the mortgage securities Wall St was selling.

 

Largely unregulated business on Wall St made the housing bubble what it was. Some 'consumer' banks got in on it too, like Wamu. One mortgage contract execs job rating was 60% based of getting a high volume of sub prime mortgages.

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Highlighted
Senior Contributor

Re: OptionEye....June 21st

Most of the people that are rich can be called a lot of things but typically stupid isn't one of them.  Most of the rich people did not pay 50-90% in taxes as they opted to put their investments in nontaxable bonds.  It can be very comparable to corporate taxes here.  Supposedly, we have the highest corporate tax in the World at 32%.  However, the average rate they pay falls in around 16% because of the massive loopholes.  Rich people donate lots of money to politicians.  They don't do it to get taxed more.  They do it to get loopholes and to protect what's their's.  

 

Fannie and Freddie have never been the problem.  They both were promised gov't aid back in 1998 when Clinton went on a crusade for home ownership for all.  They were promised taxpayer money if loans went south.  There is a lot of blame that can be thrown about with regards to the housing bubble, but it all started in 1998.  Banks were forced to loan on properties in certain districts.  If they did not, they were threatened with losing their FDIC insurance.  

 

It must also be noted that when income taxes were so high, even the poor paid 20% in tax.  Considering they didn't have much extra income other than basic necessities, I highly doubt they were buying many/any nontaxable bonds.  

 

There is a wide gap between the rich and the poor.  However, if one goes back through history I highly doubt decades ago that the poor enjoyed all of the perks that the poor do today.  In a lot of countries, the rich have cars.  In the U.S., the poor have cars; cell phones; cable tv; computers; etc.  Our poor don't know what poor is.  If they did, we wouldn't have such an influx of illegals crossing the border.