Markets ARE the economy. However, you are correct. The stock market is not an indicator. Wall Street was stable throughout the 1930s...

Expect when higher rates are not predicable. Hence low output results...

http://research.stlouisfed.org/publications/review/85/05/Rational_May1985.pdf

 

Yeah, where are net taxes factored in? Lower taxes DO NOT ALWAYS effect aggregate consumption.

 

two salient points you missed.

1) Heavy industry was kicked into gear in 1938 (tanks, guns, steel, ships) because we were supplying British and Russian forces with all of the above. Heavy industry produces 10-12 related jobs as opposed to the works programs working on transportation infrastructure which produce 3-5 jobs in support, so you are trading 4 jobs up to 11. . .

2) Income taxes DIRECTLY remove Consumer purchasing power (the 'C' from E = C + B + G + (Ex-Im) * db). ALSO this is VERY commonly missed, the US has a PAYROLL tax that MATCHES your income taxes but is paid directly by your employer so YOU as the 'C' never see the missing money. Whatever your NATURAL prededuction tax rate is DOUBLE it and you have an approximate for your fed and state payroll taxes.
That means if DL has a good job making 100k (easy math for an example) and he pays a straight 30%. $100k - 30k in taxes = $70k. . . Right? but on the BACK side of that your costs to your EMPLOYER are $100k + $30k in payroll taxes (SS insurance etc) that they are paying making you COST $130k

If you had 130k in your pocket and faced a 5% consumption tax you would spend (IN CASH) like mad because you have an effective 90% pay increase from the $70K you bring home to the $130K you bring home w/o income and payroll taxes (It is not overnight because competitive wages would rise slowly as more people entered the work force etc)

 

This is fallacious. Who's to say that individuals wouldn't simply SAVE the money rather than consume?

http://www.dailyfinance.com/2010/09/16/rich-people-save-tax-cuts-instead-of-spending/

 

More SAVINGS IS NOT A BAD THING. . . The US is in this problem because our moronic population has been tricked into thinking that they don't have to take care of their own retirement savings since the 'great society'.

Taxes are taken from 'C' and 'B' (consumers and business) and applied to the 'G'

Consumption is based on cultural and economic incentives. The Chinese SAVE 50% because culturally they are cash based and economically they have little worth while spending their money on. The Americans have a NEGATIVE savings rate and instead accumulate debt because debt is (was) cheaper than saving given the ease of bankruptcy and and a lot of cultural conditions and aggressive 'you're not cool unless you have. . .' marketing. We also have the infrastructure in place to support our consumption of things like 'electronics' where a Chinese or African farmer/herdsman does not even have power.

 

um, yeah, you got that wrong. Consumption is variable for the aggregate economy. Consumers and producers alike.

Lemme fix that for ya':

Y = C+I+G+NetExports

 

*facepalm*

Do you want us to become like Japan? Just sayin'..

http://www.telegraph.co.uk/news/wor...eepens-as-families-adopt-savings-culture.html

 

so here we are again.

lets say johnny saves everything he doesn't need to survive. now johnny has money, does he put it under his mattress where a fire can destroy it all? or does he invest in some form of savings? or does he bank it?

1) if johnny invests in IRA/Mutual Funds, that is Investment in the economy allowing the growth of the LARGEST sector of the free market economy Business ('B'), they invest grow and consume, and johnny has a nice savings because he invested wisely for retirement. he doesn't add inefficiency to the economy in his old age by sucking money from productive members to support him. + / + on that

2) if johnny deposits EVERYthing he makes in a bank for safe keeping the bank takes those deposits of $100k and because of the 10% reserve rate can originate $1,000k worth of loans which are backed by johnny's $100k. those $1m worth of loans fund everything from new home purchases to factory expansions to new equipment purchaces that grow business. Johnny has a nice savings because he invested wisely for retirement. he doesn't add inefficiency to the economy in his old age by sucking money from productive members to support him. + / + on that.

What exactly IS your problem with private savings?

 

Man, go back to Econ101. Securities DO NOT equal economic investment.

EDIT: Ooops, wrong definition....

http://www.econlib.org/library/Enc/Investment.html

 

Since you are trying I'll save my snide remarks about a double face palm at your errors . . .

NetExports = "(Ex-Im)" = Exports - Imports (commonly known as 'balance of trade')

You forgot about the debt multiplier = * db (this has it's own monster thread)

I & B are interchangeable because I is infrastructure / investment, and that is what B does every time they are contracted to build a road or they improve a factory.

Consumption is based on cultural and economic insentives

 

You seem to have missed the business degrees I hold. You are also glossing over micro econ but I'll let that slide.

There are differences in definitions between 'individual investment' and 'economic investment'. But the money doesn't just magically disappear while it is invested. You are missing the secondary and tertiary effects of those funds in your analysis.

The currency savings of an individual is not important until that person LIQUIDATES those securities for personal consumption. Those FUNDS however are AVAILABLE for Banking and Business capitalization which IS the economic definition investment.

 

Okay. Fair enough. I never factor the debt multiplier into the GDP equation because it affects aggregate demand and I always assume it to be the inverse of 1-the marginal propensity to consume.

 

What good is all that capital if people do not consume?

Oh, and i respect your Business degrees. Think of this as an opportunity to take me to school....

 

So who agrees that the global economy is headed into recession? Back a couple of years ago, when we were deep in recession (now we're just skirting it) the global economy was robust in many places, China, Japan, Germany and Scandinavia come to mind here. People at that time predicted that as the US came out of the recession, these other markets would slip into one themselves.

Does anyone else see the benefit to the US from a recession in those countries? Cheaper goods, less pressure on our currency, but more importantly a speed bump in the China/India economic express.

This is my opinion, waiting for someone to enlighten me on the fallacies in it.

 

Not being an economic whiz like everyone.. and the fact my fisrt name is Jonathan so I can be "johnny"

This Johnny saves his money, knowing a portion of his wages are already being put into a pittance retirement fund for when he's 65..
Having watched the Global recession from this side of the border, seeing financial institutions getting bail outs, major corporations getting hand outs with tax payer moneys, and the "free market" allowing the rich and affluent to get away with damn near anything. I save it.
I do not buy new. Primarily because most products come from overseas, made in less than minimum wage sweat shops simply so the Major Corporations and shareholders can make more money by ripping off the consumer.
I boycott Big Box stores like Walmart, as it is well documented when such stores set up shop, local home grown stores go tits up as they can't compete with the cheap, shittily made merchandise found in stores such as Wall smart. I buy localy grown foods and as for foreign merchandise, only from countries who believe in fair trade and fair payment to the producers.

I pay my taxes dutifully knowing my Government, whom I have elected, as this is a democracy, is spending it on roads, schools, health care and social systems to help the needy and less fortunate. And that they are, for the most part accountable with Access to Information and the Government Oversight office.

I strongly support the idea of Government regulations as an oversight, the notion that if you are making gobs of cash, you can afford to pay more taxes than the person who is making less than minimum wage and is forced between paying the rent or buying groceries. This is only fair and just.
I am not talking about taxing small business heavily, I am talking about taxing multi-billion dollars industries. Tax the bejeezuz out of them, if they want to open up shop in my country, pay less than a fair wage and deduct benefits? Tax the hell out of them.

This notion of "less government"? Yeah that REALLY helped during the last recession.. peoples savings went right out the window... yet somehow Governments could find the cash to bail out companies..which promptly led these companies to start moving jobs elsewhere to countries that do not have minimum wage laws.

Like I said.. i do not have the College education of finances etc etc.. I have been a blue collar worker all my life.. not being able to afford college, as I had rent to pay..nor do I resent the homeless and poor for getting whatever help they can with my taxes. I've been there, and it wasn't through laziness that I was poor and homeless, it was because the companies decided to "outsource" to a cheaper place and "downsize" the expendable worker. Free markets.. pffft.. the wealthy can be sure that THEY get paid before their serfs do, that's for damned sure.

 

You're doing better than anyone else here who has ever tried to argue economics and finance with me. You are at least pointing out when I flip between Finance and Econ.

It has to do with double entry book keeping in accounting. This makes most people's heads hurt but it walks through where the money goes. . . I'm simplifying the names from debits and credits because that really makes people crazy.

holder: outflow / inflow

Johnny : -$100k (cash) / +$100k (IRA or Bank Deposit) (Both are assets)

First National Example Bank : -$1,000k (loan) / +$100k (cash at 10% reserve rate)

Dominic's Pizza Place : -$1,000k (equipment) / +1,000k (loan)

Dominic's conducts business with a 3:1 ROA or 'return on assets' (Finance term). Dominic's Pizza makes $3,000,0000 every year that he is open. But he has to hire people to run it because he can't make that many pizzas himself. So out of that $3mil Dominic makes a decent living and hires 7 people to help him, because Dominic can't make enough pizzas to support that 'airline' employees next door (support personnel required for every job created, econ). Dominic's is a light / consumer business meaning that his 7 employees plus himself ( = 8 ) have 3-5 people in support to 'fix the ovens, deliver sauce etc. Economic growth. . .

Johnny and Dominic are in business for 30 years through the bank (and don't even know it) and Johnny decide to retire. . . He calls on his savings and slowly starts to pull his $100k out, to live out his remaining years.

Reverse the first three steps for Johnny to reclaim his savings. While johnny is doing that someone 'younger' is starting to save and putting their money into the bank replacing the reserve rate that the bank holds so Dominic's can keep working.

In this simplified example Johnny's 100k 'created' $3m PER YEAR for the economy in Dominic's Pizza alone. It was not a direct effect but a tertiary effect.

That is why most people can't even begin to understand the relation between savings and economic investment. In fact, Marxist theory discounts it all together stating that everyone should work for the G and there should be no savings because it is not 'their money' to save.

This doesn't account for taxes which reduce that $3mil and Dominic's ability to pay for those employees (which means he can only hire '5' instead of '7', and the number of people in the exampled 'aerospace' who have discretionary funds available to spend on 'pizza' for lunch. That 'taxation' ripple effect has it's own results at every level, because everyone after Dominic now has fewer people they can hire (forward and backward economic linkages) and some of those people end up on 'unemployment' that the gov't administers with great inefficiency which increases the demand for bureaucrats and 'G' spending, resulting in demands for higher taxes, which further reduces the number of people Dominic can afford to pay for and his customers can buy less pizza etc.

This is why I'm closer to the Austrian school. The less Gov't interference (in the form or taxes and silly regulations) the better because lots of social problems solve themselves with sound economic policies. But they don't play well from the political podium, it sounds nicer to 'care for people' then to kick their asses into gear and send them to work, 'Good Economics is Bad Politics'.

 

Recessions last 2-3 years. This is a Depression, it started in 07

 

In order to regulate 'fair and just' an omniscient understanding of the infinite economic and financial transactions is required.

That also implies an innate assumption that a government entity has a 'right' to regulate the allocations of wealth in an economy, which is a Marxist (centralized control) economic theory. That implies that those who work hard and generate the wealth have no right to keep it, because it belongs to 'society'

If in my example someone is in a 'shitty' job that has pay below minimum wage and no benefits and 'Dominic's Pizza Place is paying better that means that Dominic hires that person away from the asshole. Eventually the asshole either is FORCED to pay more or go out of business because the MARKET forces will put them out of business. If that person stays in the shitty job and likes being abused because they expect someone else to help them that is their own fault for choosing that masochistic path.

If you don't like where you are, get off your ass and change it. The definition of insanity is doing the same thing over and over and expecting a different result. If someone is in a shit job and keeps going back for more abuse and expecting things to change they are insane. . .

 

Okay Mr financial Whiz..
What do you do if you have to stay in that shitty job as it is the only one hiring at the moment, you can't afford to go "back to school" as that means you have to cut your hours and not make payments on bills?
What do you say to those people?
I just love how I see these ads on TV that tell you can study while working, 9 times out of 10 these "certifications" aren't worth the paper they're printed on. People who didn't have parents who set aside cash to send their kids to school.. people who have to make the hard choice of working in gods awful places or go homeless? They sure as hell can't afford books and tuition so they can get 'out" of these shitty jobs..
What do you say to them? How does the "free market" help them?

From what I have seen a Free market only benefits the Rich,
the Rich get richer and the poor get more poor.

Your Dominic Pizza Place example is fine for someone who still lives at home and can get by on less than minimum wage.

Fortunately in THIS country it is illegal to pay someone less than the established minimum wage, but they are still required to have 2-3 jobs just to pay the bills, have a place to stay.
The MARKET is the personal playground of the Affluent, not for the average blue colour worker.
The Market should be regulated by elected representatives chosen in a free election.

 

Not too many economists agree with you on this. We have had a bumpy ride for 4 years, but not to the degree of calling our present financial situation a depression.

But we are definitely working on it, the two main ingrediants in a depression are debt and fear. We certainly have the first part covered and we are talking ourselves further into the second every day. Witness origen, he sounds petrified, IMO most of his fears are without merit. (sorry origen, but you do sound panicked)