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Highlighted
Senior Advisor

Re: Cheap cash!

I think you miss the point interms of 'cheap cash'. WHY is it cheap? Because almost nobody wants to borrow cheap cash just because. There is a reason it's cheap. What to invest this 'cheap cash' in? A new consumer goods factory? Consmers are restraining their buying impulse. Wall Street isn't investing in a bunch of factories or a surge in services for the common consumer because the consumer isn't increasing expenditures. On the whole they are paying down debt and trying to save for retirement.

 

Yes, the farmer can get and use 'cheap cash' because they and everyone involved counts on the government for the ultimate backstop. The common consumer not only can't count on that he is in line to get screwed again by the same ones who wouldn't use common sense regulation to keep the cowboys from driving into the ditch and having to get bailed out again by the people that encouraged them to do itm - using middleclass money.

 

People are struggling to get cash as wages have stagnated or gone down for many years. There is no future in aquiring debt under those circumstances. Cash is not 'cheap nowadays except for the financial sector and agriculture.

 

I contend national debt followed by debasement of currency and high inflation is CERTAINLY not our problem at the moment. The lack of balls to invest in a growing economy is not the same as a properly stimulated economy pays dividends. Equating frivolous debt isn't the same ball game.

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Highlighted
Honored Advisor

Re: Cheap cash!

I'll agree that the Dome of Debt is not the same ball game. I stand corrected. I was merely trying to express the point that it is a human problem. A problem of choices. The reason cash is free is that the liberal and conservative ruling classes have decided it is required to avoid the debts being defaulted upon which should of happened a long time ago.

 

You said cash was free. It is free. Why it is free is pretty simple. Government and FED  manipulation that is bizarrely expensive in the long view. (I know the FED is not the government but it is colluding with the gov and acting as one entity thus the tag works.

 

Cash is cheap because it is VASTLY OVER-SUPPLIED. The SUPPLY is what 10 Trillion in excess of demand globally? It is a very large number what ever it is. Less cash and higher rates to use it would probably increase economic activity at this point.

 

You said we can use the cheap cash because we count on the government for a backstop. No. We can use the cheap cash because it is cheaper than the profit it creates. Has nothing to do with a backstop.

 

It is cheap because of manipulated over-supply. Not because no one wants to borrow it. Total debt outstanding in the private sector continues to increase and at a fairly good rate. Total debt in the nation, public and private, continues to grow rapidly. Don't confuse over-supply with a lack of demand.

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Highlighted
Senior Advisor

Re: Cheap cash!

From a Keynesian point of view there isn't an over supply of cash (we're all Kenynsian, like it or not) because it isn't circulating fast enough. 'Free' cash exists in the financial sector (as the Fed trades it for poorer performing paper) but isn't going out and circulating - it's buying equities that doesn't really help the economy much because those equities aren't resulting in productive capacity or services  or increasing demand for labor and wages.

 

There is a reason there isn't enough inflation to indicate a healthy economy. People complained about the economic aspect of saving GM and Chrysler. Throwing good money after bad. The fact is that it turns out it was a bargain in terms of saving the economy and and jobs as it most of the money was repaid. Other aspects can be argued but not the economic efficiency of that effort. That turned out to be an invenstment of retaining an industry and jobs - therefore economic activity.

 

Debt is not automatically a bad thing. Depends on how it's used. Congress needs to get involved in investing in the economy instead of gridlock. Then the Fed could stand down and the investment could involve the middle class.

 

 

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Highlighted
Senior Contributor

Re: Cheap cash!

Sorry Pal, But there are those that are not keynesian including me!  Does not surprise me that a keynesian would not admit that manipulation by the fed and government is the root cause for the cheap money. Time:thetippingpoint has it exactly right!

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Highlighted
Senior Advisor

Re: Cheap cash!

Even the mantra of tax cuts for the wealthy has a Keynesian basis. So do tax rebates, etc.

 

If 'cheap money' is that which can be borrowed at low interest rates then you'll have to tell me that what we need is higher interest ??? If that is your answer then tell me how we get to higher interest. If low interest rates are good then tell me why consumers aren't spenfding the economy back to health - creating jobs and higher wages.

 

If you can do the above w/o using a Keynesian explanation I'll be very interested in it.

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