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Thread: Andrew Huszar: Confessions of a Quantitative Easer

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    Andrew Huszar: Confessions of a Quantitative Easer

    http://online.wsj.com/news/articles/...83680751473884

    I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.

    Five years ago this month, on Black Friday, the Fed launched an unprecedented shopping spree. By that point in the financial crisis, Congress had already passed legislation, the Troubled Asset Relief Program, to halt the U.S. banking system's free fall. Beyond Wall Street, though, the economic pain was still soaring. In the last three months of 2008 alone, almost two million Americans would lose their jobs.

    The Fed said it wanted to help—through a new program of massive bond purchases. There were secondary goals, but Chairman Ben Bernanke made clear that the Fed's central motivation was to "affect credit conditions for households and businesses": to drive down the cost of credit so that more Americans hurting from the tanking economy could use it to weather the downturn. For this reason, he originally called the initiative "credit easing."
    An interesting article (blog? apology?).

    Unfortunately it kind of makes me wonder....are all the people running our economic system stoopid? How in the world could anybody look at the feds actions over the last several years and not come to the immediate conclusion that this was all a massive giveaway to wall street that was not likely to help main street at all??

    In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing.
    That is what happens when you pay face value for bonds that were trading for pennies on the dollar the day before.

    It wasn't long before my old doubts resurfaced. Despite the Fed's rhetoric, my program wasn't helping to make credit any more accessible for the average American. The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn't getting much cheaper. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash.
    OMG!! You threw a bunch of money at wall street and they KEPT IT? Amazing.

    Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.
    Possibly a larger intervention that all previous interventions in the history of the world combined...it depends on if you assume that the entire GDP of socialist nations are one big government intervention or not.

    As for the rest of America, good luck. Because QE was relentlessly pumping money into the financial markets during the past five years, it killed the urgency for Washington to confront a real crisis: that of a structurally unsound U.S. economy. Yes, those financial markets have rallied spectacularly, breathing much-needed life back into 401(k)s, but for how long? Experts like Larry Fink at the BlackRock investment firm are suggesting that conditions are again "bubble-like." Meanwhile, the country remains overly dependent on Wall Street to drive economic growth.
    Bubble like? How can that be...the dow has set multiple records this year while our economic numbers pretty much look like garbage.

    Its another jobless recovery!! AWESOME. Those always work out really well!!
    If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen. —Samuel Adams

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    First of all, thanks for posting! I was writing this same post but got distracted arguing about "math" vs "maths".

    Secondly,

    An interesting article (blog? apology?).

    Unfortunately it kind of makes me wonder....are all the people running our economic system stoopid? How in the world could anybody look at the feds actions over the last several years and not come to the immediate conclusion that this was all a massive giveaway to wall street that was not likely to help main street at all??
    And it terms of the article, how can a simple "my bad" make up for this mess?

    And I have a hard time believing these people are not smart. I'm sure this makes you sleep better at night because the alternative is that they are purposely doing this which is pure evil. I suspect the later with justifications in their own minds such as "people's 401k's are in the stock market and we can't have the middle class going broke". And this reasoning works because people buy it. I was listening to the radio a few months back and the radio host is a finance guy and talking about the state of the economy and how it is really not better but just kind of fake. A caller gets on and goes "how can you say the economy is bad when the stock market is at record highs?" The radio host was a little bit speechless as he didn't think anyone was stupid enough to think the stock market reflects the state of the economy. After a few awkwardly silent moments the radio host explained that people are flooding the stock market with money because there is no where else to put it is just changing the problem from real estate to equities. The person naturally got confused and hung up.

    OMG!! You threw a bunch of money at wall street and they KEPT IT? Amazing.
    Not only that, it just changed the way banks make money. Banks are getting out of the risk business with loaning money and changing to a fee structure. They will comply with all the regulations to make the loan and then sell it off to the fed. Brilliant. Frankly, you can't argue the free market doesn't work based upon this example. Banks adopted new money making strategies with lightening speed to get around legislation...like water finding the path of least resistance to make a stream. Too bad the net result is wall street and bankers doing great and the middle class taking it up the tailpipe yet again. No worries, fake economies will eventually work themselves out.

    Bubble like? How can that be...the dow has set multiple records this year while our economic numbers pretty much look like garbage.

    Its another jobless recovery!! AWESOME. Those always work out really well!!
    The economy hasn't moved anywhere. It hasn't gotten any worse but it really hasn't gotten any better. It's our "lost decade" to say the least.

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    Quote Originally Posted by Steeeeve View Post
    First of all, thanks for posting! I was writing this same post but got distracted arguing about "math" vs "maths".
    You would think the British would have a better grasp of English grammar than that......





    And it terms of the article, how can a simple "my bad" make up for this mess?

    And I have a hard time believing these people are not smart. I'm sure this makes you sleep better at night because the alternative is that they are purposely doing this which is pure evil. I suspect the later with justifications in their own minds such as "people's 401k's are in the stock market and we can't have the middle class going broke". And this reasoning works because people buy it. I was listening to the radio a few months back and the radio host is a finance guy and talking about the state of the economy and how it is really not better but just kind of fake. A caller gets on and goes "how can you say the economy is bad when the stock market is at record highs?" The radio host was a little bit speechless as he didn't think anyone was stupid enough to think the stock market reflects the state of the economy. After a few awkwardly silent moments the radio host explained that people are flooding the stock market with money because there is no where else to put it is just changing the problem from real estate to equities. The person naturally got confused and hung up.
    I don't understand how the public can miss these shenanigans and more importantly how they manage to not be enraged by them. I think I may well have been the first person to ever point out to Freedom that the federal reserves stated policy of ensuring that price inflation outpaces wage inflation is literally a policy that guarantees that workers get shafted. I am sure you remember during the bank bailouts when the fed refused to release the names of the banks that it was bailing out through the discount window. Their excuse, which I actually heard people repeating as if it made sense, was "if people knew they might lose faith in those institutions". Yea....lose faith in them...because your bank....the folks holding your money....is insolvent.....because they bet all your money on insane mortgages. It is like the fed was saying "We are afraid that if you knew how crooked and foolish your bank was, you would not keep sending them your money". Apparently I am one of only 3 or 4 people in the country that had a problem with this.

    Not only that, it just changed the way banks make money. Banks are getting out of the risk business with loaning money and changing to a fee structure. They will comply with all the regulations to make the loan and then sell it off to the fed. Brilliant. Frankly, you can't argue the free market doesn't work based upon this example. Banks adopted new money making strategies with lightening speed to get around legislation...like water finding the path of least resistance to make a stream. Too bad the net result is wall street and bankers doing great and the middle class taking it up the tailpipe yet again. No worries, fake economies will eventually work themselves out.
    I cant help but wonder...when the current stock market bubble pops, is the fed going to start buying equities?

    The economy hasn't moved anywhere. It hasn't gotten any worse but it really hasn't gotten any better. It's our "lost decade" to say the least.
    I disagree. I think it has gotten worse. Virtually all of our improvements in unemployment numbers have been due to people leaving the workforce and we all know that the vast majority of them will never make it back in. I cannot remember ever having negative real interest rates for this long and the federal reserve has basically been directly monetizing our national debt for the last few years. I think we are all just so used to "bad" that the slight backward slide we are still seeing seems normal.
    If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen. —Samuel Adams

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    Quote Originally Posted by daewoo View Post
    I don't understand how the public can miss these shenanigans and more importantly how they manage to not be enraged by them. I think I may well have been the first person to ever point out to Freedom that the federal reserves stated policy of ensuring that price inflation outpaces wage inflation is literally a policy that guarantees that workers get shafted. I am sure you remember during the bank bailouts when the fed refused to release the names of the banks that it was bailing out through the discount window. Their excuse, which I actually heard people repeating as if it made sense, was "if people knew they might lose faith in those institutions". Yea....lose faith in them...because your bank....the folks holding your money....is insolvent.....because they bet all your money on insane mortgages. It is like the fed was saying "We are afraid that if you knew how crooked and foolish your bank was, you would not keep sending them your money". Apparently I am one of only 3 or 4 people in the country that had a problem with this.
    With a straight face they said these things. "We can't tell you what is in your food because if you knew we are slowly poisoning you with food you wouldn't eat it". That's how I explained it to some folks back when it was going on.

    The thing is, I honestly think the folks at the Fed and in DC all think the sh*t they are shoveling on us is pure gold. I read an article yesterday on why single men should be required to have maternity coverage. The entire premise is that "I know what is better for you than you do". This is EXACTLY what the Fed and most of our federal government believes. "You want to keep your money in your failing bank; you are just too stupid to realize that". WRONG! They are too stupid to realize that the fed is ripping them off and putting their money at risk for some delusional reason.

    If you boiled down every single problem with our government over the last 50+ years it comes down to the above premise. Literally every conversation you and I have had is a direct result of someone thinking they know how to control the actions of 300 million people. I'm not sure what childhood issues caused such arrogance but you and I can both agree that it is not sustainable in the long run. People are predictable, not controllable.

    I cant help but wonder...when the current stock market bubble pops, is the fed going to start buying equities?
    HA! I never thought about that. I think it depends. QE was really unprecedented; who knows what they fed will come up with next. I could see a scenario where they end up like Berkshire Hathaway...only 100 times the size.

    My biggest worry are the nonprofit organizations that rely on endowments. I work with schools/universities that have billion + endowments which make up 30-50% of their operating budget. Once the equity bubble goes boom many of them are SOL.

    I disagree. I think it has gotten worse. Virtually all of our improvements in unemployment numbers have been due to people leaving the workforce and we all know that the vast majority of them will never make it back in. I cannot remember ever having negative real interest rates for this long and the federal reserve has basically been directly monetizing our national debt for the last few years. I think we are all just so used to "bad" that the slight backward slide we are still seeing seems normal.
    Maybe. I see it more like we are bouncing along the bottom.

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    Quote Originally Posted by Steve
    The Trayvon Martin killing case was mildly entertaining when it was going on because it was blatantly obvious Zimmerman was not guilty but that case has come and gone. Now it just seems awkward to bring it up all the time. The only reason I'm responding to this thread is that no one on this forum responds to the Economic posts (Daewoo aside...but we agree too much making it a little boring).
    Surprise... I came here at your suggestion from the Travon thread to see If we could engage in some stimulating debate on this subject, however it seems we agree on the issue. Guess I'll mosey along then.
    faith is what you cling to when reason points out the fallacy of what you believe

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    Along these same lines:

    http://www.pbs.org/newshour/business...janet-yel.html

    Folly of the Fed: Why Janet Yellen May Be a Dangerous Choice

    The pending appointment of Janet Yellen as chair of the Federal Reserve Board of Governors gives me great cause for concern. By all reports, she is highly intelligent and, in the opinion of her peers, highly qualified for her new role.

    However, we've seen errors in monetary easing set off a bubble in asset prices and the worst recession since the 1930s, proving that at least one other quality is essential for the job she is about to undertake: the intellectual integrity essential for sound judgement.
    None of these people have any intellectual integrity.

    Debt levels have barely fallen since 2008, notably in business, where massive buy-backs of shares, running at around 3 percent of GDP per year, have reduced corporate equity and thus kept up leverage, which shows that it is nonsense to claim, as many have, that the low level of U.S. business investment is driven by a desire by companies to deleverage.
    I did not actually realize there was a debate on this. No, companies are not deleveraging, and even if they were, low levels of business investment are at best a sign of stagnation over the short to medium term and, if the trend is not reversed, recession in the long term. A business that is not investing in its future is not going to grow. That is pretty much common sense. And since equities are essentially a claim on future profits, rising equity prices in the face of reduced investment is wrong. Even if all those companies (which are obviously preparing for slower times) are wrong and business picks up, they wont be able to fulfill increased demand because they are not investing in new capital goods (equipment, etc) or raw materials.


    I and many others are therefore concerned that the Fed's policy of quantitative easing (QE), in which they currently purchase $85 billion a month of Treasury securities and mortgage bonds, has driven up asset prices, in both the bond and equity markets, to dangerous levels. (See David Stockman's similar assertion on this page.)
    Gee...you think?

    Yellen could legitimately defend quantitative easing in a number of ways. She could, for example, argue that the risks of high asset prices are counterweighed by QE's intended benefits, including the prevention of deflation. But, instead, she's defended the program with meritless arguments to claim that equity prices are not at dangerous levels.
    I would have ended the argument here by saying "Which is clearly ludicrous" and assume that any thinking person would immediately agree. Instead the author goes on for another 1100 words explaining exactly why it is ludicrous. And in all this he seems to miss the mark because by the end he has made his point, and it is pretty clear that her logic is flawed, but he seems to fail to grasp the fact that it is not about flawed logic, it is just more of these jokers blowing sunshine up our asses while they figure out how to suck as much wealth as they can out of the system before it fails completely.

    These folks have got it made. They seem to have managed to reach a point where they just toss out big "economicy" sounding words and people smile and nod because they dont actually understand what is being said, but they dont want to look stupid by disagreeing even when what is being said is complete and utter foolishness.
    If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen. —Samuel Adams

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    Quote Originally Posted by daewoo View Post
    I did not actually realize there was a debate on this. No, companies are not deleveraging, and even if they were, low levels of business investment are at best a sign of stagnation over the short to medium term and, if the trend is not reversed, recession in the long term. A business that is not investing in its future is not going to grow. That is pretty much common sense. And since equities are essentially a claim on future profits, rising equity prices in the face of reduced investment is wrong. Even if all those companies (which are obviously preparing for slower times) are wrong and business picks up, they wont be able to fulfill increased demand because they are not investing in new capital goods (equipment, etc) or raw materials.
    Don't you run a business? What's going on with that?

    On my end of things, I'm a little worried about an equity bubble. A lot of the universities I work with have rich endowments that supply 30-50% of their annual budget. Should that go south they are basically up the creek. A lot of the nonprofits I deal with are in the same boat. It's all but over should the stock market burst.

    Quote Originally Posted by Article
    She could, for example, argue that the risks of high asset prices are counterweighed by QE's intended benefits, including the prevention of deflation.
    And what's so bad about deflation? I realize that is is not optimal but I've read the arguments and it seems like "it would hurt the rich people" is at the top of the list when you strip away the bullsh*t. Seems to me deflation is a self-correcting issue that would stink for a bit but in the long run have value...what am I missing?

    I would have ended the argument here by saying "Which is clearly ludicrous" and assume that any thinking person would immediately agree. Instead the author goes on for another 1100 words explaining exactly why it is ludicrous. And in all this he seems to miss the mark because by the end he has made his point, and it is pretty clear that her logic is flawed, but he seems to fail to grasp the fact that it is not about flawed logic, it is just more of these jokers blowing sunshine up our asses while they figure out how to suck as much wealth as they can out of the system before it fails completely.

    These folks have got it made. They seem to have managed to reach a point where they just toss out big "economicy" sounding words and people smile and nod because they dont actually understand what is being said, but they dont want to look stupid by disagreeing even when what is being said is complete and utter foolishness.
    I do wonder if they believe the BS coming out of their months. I read Krugman from time to time and I just have a hard time believing a man with that level of education could actually believe what he says.

    Honestly, I think they just rationalize what they are saying because they believe telling the full truth will do more harm than good. In the short term this is probably true but in the long run I think it creates distrust and leads to fraud. But let's face it, anyone that thinks it is their job to regulate an economy of 300 million people is arrogant enough to think these terrible policies are actually working.

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    Quote Originally Posted by Steeeeve View Post
    Don't you run a business? What's going on with that?
    Ironically enough....deflation....which is requiring increased capital expenditures in order to capture more market share. Consumers are becoming a lot more price conscious as the market shrinks, so being able to undercut the competition has become critical. Right now we are investing in new automation technology so we can cut production costs. Example....we are bringing a new generation of robotic drills online that will be able to drill and break rock 20 hours a day (4 hours is required for refueling, charging, and maintenance), 7 days a week. We also brought a bunch of automated processing equipment online this year. I expect sales to double next year.

    BUT

    My last business was basically designing and building industrial equipment, and my current business is an industry that BADLY needed updating (my competitors are literally using bronze age technology). I looked around at where we could realistically modernize and then it was not a big deal to design and have built the equipment I needed. My competitors are not so lucky. 3 went out of business this year, and I expect at least 2 more to go under next year because my retail price is about 30% below their production cost. Overall the industry is shrinking, so it is all just a battle for market share.
    On my end of things, I'm a little worried about an equity bubble. A lot of the universities I work with have rich endowments that supply 30-50% of their annual budget. Should that go south they are basically up the creek. A lot of the nonprofits I deal with are in the same boat. It's all but over should the stock market burst.
    In your case, I would be a lot worried about an equity bubble. There is just no way that equity markets should be where they are at. It is insane.

    The reality is that we have ended up in a situation that is both unsustainable and almost impossible to get out of without a massive crash. How does the fed unwind its position at this point? The minute they sell a bond or raise interest rates even a hair, thats it. At the same time, they have been running negative real interest rates for years now and frankly the negative effects of that are starting to show. If they keep doing what they have been doing, we are all screwed. If they stop doing it, we are all screwed.

    And what's so bad about deflation? I realize that is is not optimal but I've read the arguments and it seems like "it would hurt the rich people" is at the top of the list when you strip away the bullsh*t. Seems to me deflation is a self-correcting issue that would stink for a bit but in the long run have value...what am I missing?
    The bolded portion is it. That is the only real down side to reasonable deflation. Deflation is basically the side of the monetary cycle that is supposed to actually help the consumer/the little guy. They have basically erased the side of the equation that does not help rich people. It isnt good. The argument for avoiding deflation is that people will just plain stop buying because they will sit around (apparently starving in the dark in a field) waiting for prices to continue to drop...Why buy today when you can buy cheaper tomorrow". That, of course, completely ignores everything we know about consumer behavior and works from the assumption that everybody is doing a cost-benefit analysis and TCO analysis every time they buy a loaf of bread. If that was actually the way consumers purchased things, we would all have foodstuffs stashed everywhere we could fit them in our houses because the way food prices have been increasing, that would save you a bunch of money in the long run.

    I do wonder if they believe the BS coming out of their months. I read Krugman from time to time and I just have a hard time believing a man with that level of education could actually believe what he says.

    Honestly, I think they just rationalize what they are saying because they believe telling the full truth will do more harm than good. In the short term this is probably true but in the long run I think it creates distrust and leads to fraud. But let's face it, anyone that thinks it is their job to regulate an economy of 300 million people is arrogant enough to think these terrible policies are actually working.
    It seems clear to me that the people running this show are basically just looking out for the top 0.5%. The federal reserve has apparently become an arm of wall street. David Stockman had some interesting ideas about how to deal with it:

    http://www.pbs.org/newshour/business...-to-avoid.html

    But as he points out, the odds of it actually happening are slim to none:

    I would say slim to none because the whole system is geared the other way. It's geared to bailouts, it's geared to easy money, it's geared to entitlements for lots of people that don't need them and [which] we can't afford. It's geared to massive intervention in the private market which shouldn't happen.

    So, as long as we are run by a political system that's based on money, and PACs, and organized special interests, I don't think the American people can ever reclaim their democracy, and if they can't reclaim their democracy, and if we can't reclaim control of the Fed, which is basically a tool of Wall Street, that's the nub of it, then, I don't see how any of the items that I've mentioned could happen. I mention them only as kind of a standard to show how far we are off in the other direction.
    If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen. —Samuel Adams

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    Quote Originally Posted by daewoo View Post
    Ironically enough....deflation....which is requiring increased capital expenditures in order to capture more market share. Consumers are becoming a lot more price conscious as the market shrinks, so being able to undercut the competition has become critical. Right now we are investing in new automation technology so we can cut production costs. Example....we are bringing a new generation of robotic drills online that will be able to drill and break rock 20 hours a day (4 hours is required for refueling, charging, and maintenance), 7 days a week. We also brought a bunch of automated processing equipment online this year. I expect sales to double next year.

    BUT

    My last business was basically designing and building industrial equipment, and my current business is an industry that BADLY needed updating (my competitors are literally using bronze age technology). I looked around at where we could realistically modernize and then it was not a big deal to design and have built the equipment I needed. My competitors are not so lucky. 3 went out of business this year, and I expect at least 2 more to go under next year because my retail price is about 30% below their production cost. Overall the industry is shrinking, so it is all just a battle for market share.
    Isn't this how it should work? Demand is lower causing the weak to fall. You're doing better than your competition so everyone else goes under and you thrive until you do something stupid and someone else takes your place. It's a self-regulating economy.


    In your case, I would be a lot worried about an equity bubble. There is just no way that equity markets should be where they are at. It is insane.

    The reality is that we have ended up in a situation that is both unsustainable and almost impossible to get out of without a massive crash. How does the fed unwind its position at this point? The minute they sell a bond or raise interest rates even a hair, thats it. At the same time, they have been running negative real interest rates for years now and frankly the negative effects of that are starting to show. If they keep doing what they have been doing, we are all screwed. If they stop doing it, we are all screwed.
    This is how it should not work. I'm not worried because it is inevitable; I tend to be more worried about the unknown. Talk about two industries that need a little bit of house cleaning; higher education and non-profit organizations are right up there.

    I'm not sure how much you read up on the industry but Moody's released a survey not long ago showing massive misses on enrollment targets. Moody's only does the survey for people they rate. Think about that; to be rated by Moody's you have to have a large endowment, steady income, and strong financials. That means it is the top 50 schools that are missing the targets and missing big. Harvard posted a deficit the last few years. All this means is that tuition revenue and fee revenue are going down. The other sources of revenue are endowment, grants, or auxiliary (sports, housing, dining). Auxiliary is tied to tuition for dining and housing so that's out. Sports revenues are not self-sufficient so they rely on tuition. Research grants are a massive money suck on universities with most institutions having large amounts of debt related to the buildings that will have to be paid soon. That leaves endowment earnings. Most people don't realize that endowments are mostly money you can't use that generate money you can use. Should the stock market go down to where it should be those endowments won't produce a damn thing. So that's it; your local private institution is done overnight. Fed inflation the only thing keeping many of these places afloat.

    I'm just going to come out and say it; universities are a great demonstration of liberal ideals (U.S. liberals). They offer a product no one can use at a high price that automatically creates "haves" and "have-nots". They are run using all the ideas you hear from our most beloved liberal thinkers. I hate to be that black and white about it but it's sadly true. The exception to the rule is community colleges which are the only educational system in our society that works extremely well. As a quick aside, full time at a community college is cheaper per student than K-12 education per student.

    So when the bubble pops I'll be there to help clean up the pieces it leaves of US higher education system. Like your industry, it's bronze age technology that needs to grow up.

    The bolded portion is it. That is the only real down side to reasonable deflation. Deflation is basically the side of the monetary cycle that is supposed to actually help the consumer/the little guy. They have basically erased the side of the equation that does not help rich people. It isnt good. The argument for avoiding deflation is that people will just plain stop buying because they will sit around (apparently starving in the dark in a field) waiting for prices to continue to drop...Why buy today when you can buy cheaper tomorrow". That, of course, completely ignores everything we know about consumer behavior and works from the assumption that everybody is doing a cost-benefit analysis and TCO analysis every time they buy a loaf of bread. If that was actually the way consumers purchased things, we would all have foodstuffs stashed everywhere we could fit them in our houses because the way food prices have been increasing, that would save you a bunch of money in the long run.
    See, that's the way I feel about this entire thing. People don't wait to buy a damn thing even if the price might be a little lower in a year. If I need a new car today, I'll buy it today. At worst, I'll wait a few weeks if I think there might be a better deal or newer product coming. Does anyone wait a year for the IPhone 5 to drop in price? Hell no.

    Krugman actually lays out three reasons: 1) Less willing to spend and, more importantly, BORROW. 2) It worsens the position on debtors. 3) Wages have to fall

    1) That doesn't seem like a bad thing...aren't we over-leveraged as it is??
    2) Same thing. Seems to me it would encourage people to get out of debt
    3) No they don't. They tend to be stable.

    Japan has had deflation for the last few decades and they seem to enjoy having an increased standard of living at the same wage.

    From one article on Japan:
    Quote Originally Posted by Article on Japan
    But, as far as I can see, what’s usually portrayed as the biggest problem of all in Japan, deflation, only really hurts the government. And that’s only because the “real” value of all the hundreds of trillions of yen that it owes (mostly to its own citizens) goes up every year.
    Ha! Maybe this is why we are fed a bunch of BS all the time.

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    Quote Originally Posted by Steeeeve View Post
    Isn't this how it should work? Demand is lower causing the weak to fall. You're doing better than your competition so everyone else goes under and you thrive until you do something stupid and someone else takes your place. It's a self-regulating economy.
    That is how the economy would theoretically work all the time if consumers were always logical. In the real world the lowest price does not always bring in the sales. I have been doing the quarry thing for several years now and I have just started picking up customers who have known about us for years, and who knew that our prices were lower, but they kept buying from their old supplier because it was what they were used to. It has taken the downturn to make prices important enough that they have to go with the lower prices.

    That is what is so screwed up about our current system and the idea that deflation is a negative. In reality, deflation should be a constant in a capitalist system as producers work diligently to find cheaper, faster, better ways to provide goods. That is what the japanese are actually seeing...capitalism at work. They have constant price deflation as companies work to provide better goods at a lower price, thus earning their customers business. That is why their consumer prices keep falling, but their standard of living has shot through the roof at the same time.

    This is how it should not work. I'm not worried because it is inevitable; I tend to be more worried about the unknown. Talk about two industries that need a little bit of house cleaning; higher education and non-profit organizations are right up there.
    It used to be that endowments were big bond customers, or purchased dividend paying stocks. Today with the fed distorting the bond markets so badly a lot of them seem to have turned into little hedge funds. There are no safe investments that provide reasonable returns anymore.

    I'm not sure how much you read up on the industry but Moody's released a survey not long ago showing massive misses on enrollment targets. Moody's only does the survey for people they rate. Think about that; to be rated by Moody's you have to have a large endowment, steady income, and strong financials. That means it is the top 50 schools that are missing the targets and missing big. Harvard posted a deficit the last few years. All this means is that tuition revenue and fee revenue are going down. The other sources of revenue are endowment, grants, or auxiliary (sports, housing, dining). Auxiliary is tied to tuition for dining and housing so that's out. Sports revenues are not self-sufficient so they rely on tuition. Research grants are a massive money suck on universities with most institutions having large amounts of debt related to the buildings that will have to be paid soon. That leaves endowment earnings. Most people don't realize that endowments are mostly money you can't use that generate money you can use. Should the stock market go down to where it should be those endowments won't produce a damn thing. So that's it; your local private institution is done overnight. Fed inflation the only thing keeping many of these places afloat.
    I was reading an article the other day about Harvard ending up with like a $30 million deficit?? I always figured that the sports were significant positive revenue sources and were self sufficient. If they are not, I think a lot of colleges need to consider cutting them.

    I'm just going to come out and say it; universities are a great demonstration of liberal ideals (U.S. liberals). They offer a product no one can use at a high price that automatically creates "haves" and "have-nots". They are run using all the ideas you hear from our most beloved liberal thinkers. I hate to be that black and white about it but it's sadly true. The exception to the rule is community colleges which are the only educational system in our society that works extremely well. As a quick aside, full time at a community college is cheaper per student than K-12 education per student.

    So when the bubble pops I'll be there to help clean up the pieces it leaves of US higher education system. Like your industry, it's bronze age technology that needs to grow up.
    I agree....including the fact that universities mostly seem to suck at their jobs, which is to teach kids useful life skills.

    IMO we have reached a breaking point when it comes to higher education in this country and it seems like changes are coming. Universities have worked really hard to price themselves out of the market, and the old myth that there will be a good, high paying job for you when you get out so you can pay off those student loans is wearing a little thin. It seems like people are becoming a lot more cost conscious when they look at their education choices. I dont know how universities are going to adapt....or survive....

    Part of the change seems to be a shift in how companies are hiring. Over the last 10 or 15 years companies have moved to a model where their HR department does most of their hiring. There are all kinds of theories floating around the HR cloud about the best way to do this. They put thousands of resumes into databases and perform increasingly complex key word searches. They ask ridiculous questions at interviews that are designed to give them a peak inside a prospective employees head. None of that BS works, and companies are starting to figure that out. American corporations used to recruit. At one time they put a lot of time and money into finding the best people they could because they understood that their success or failure was ultimately going to come down to the quality of their people.

    We have ended up in a situation where on the employer side we have a massive talent shortage while on the employee side, we have a massive talent glut. It turns out that HR departments are just really, really bad at their job, which is to dip into that talent glut and find people who can and will do the jobs that they need done. An HR employee does not know anything about engineering so when they go to hire an engineer they use metrics they can understand, like the perceived quality of the school they got their engineering degree from. They have no idea whether the guy is actually a good engineer or just a really good student (trust me, it is possible to be one but not the other).

    Companies are starting to go back to the old way of doing things. If they need a new engineer for their special projects group, they advertise the position and then drop the applications they receive with the head of the special projects group and from there it is on him.

    IMO that is already putting major pressure on traditional schools and will continue to do so for the foreseeable future. Example....there are a couple of second tier schools out there that basically force their engineering and IT students to compete in a bunch of robotics competitions. They have gotten REALLY good at winning them. To somebody in HR, a guy with an engineering degree from Harvard but no other real accomplishments on his resume is naturally going to win out over some kid from a second tier school with an entire page detailing the 20 robotics competitions he participated in. As an engineer, you put those two resumes on my desk and I might not even call the guy from Harvard.

    What it comes down to is that to an HR department, the paperwork is what is most important. To those of us who actually do USEFUL work, practical application trumps an expensive degree every time. A kid who worked his butt off putting himself through a community college is probably going to be a better employee than one who drank and screwed their way through a 4 year government funded party.

    See, that's the way I feel about this entire thing. People don't wait to buy a damn thing even if the price might be a little lower in a year. If I need a new car today, I'll buy it today. At worst, I'll wait a few weeks if I think there might be a better deal or newer product coming. Does anyone wait a year for the IPhone 5 to drop in price? Hell no.
    That is exactly it. People are not that rational. If people were actually rational, the entire credit card industry would be belly up.

    Krugman actually lays out three reasons: 1) Less willing to spend and, more importantly, BORROW. 2) It worsens the position on debtors. 3) Wages have to fall

    1) That doesn't seem like a bad thing...aren't we over-leveraged as it is??
    2) Same thing. Seems to me it would encourage people to get out of debt
    3) No they don't. They tend to be stable.

    Japan has had deflation for the last few decades and they seem to enjoy having an increased standard of living at the same wage.
    I think Krugman has adopted the standard "we all need to be in debt up to our eyeballs for this to work" attitude. Our system has become so screwed up that debt and economic growth are basically the same thing. At the end of the day we all work for the bank. Companies do not worry about making improvements to make their products more affordable because they don't need to because somewhere along the way "I can afford to buy it" and "I can afford to make the payments on it" have gotten mixed up. Affordability does not matter as long as they are willing to finance it, or somebody else is.

    I told somebody the other day "the best thing an 18 yr old kid can do for their future is get all the credit cards that they can, max them out, then declare bankruptcy". I am about convinced that starting out by trashing your credit so you learn to live on a cash basis for a few years is a good idea.

    From one article on Japan:

    Ha! Maybe this is why we are fed a bunch of BS all the time.
    I think it is because as affordability goes up, borrowing goes down, which means that wall street makes a lot less money, and since they are actually running everything, it isn't going to happen.
    If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen. —Samuel Adams

  11. #11
    Join Date
    Jan 2004
    Posts
    8,178
    ROTFLMAO

    I just opened my google news page and these 3 headlines were right at the top:

    Stocks: Nasdaq closes above 4000
    USA TODAY - ‎2 minutes ago‎

    NEW YORK -- The Nasdaq composite finally reached 4000 and then blew past it, closing well above that milestone in trading Tuesday.



    US consumer confidence falls to 7-month low
    The Courier-Journal - ‎27 minutes ago‎

    The private Conference Board said Tuesday that Americans' confidence fell to a seven-month low in November. Consumer spending drives 70 percent of the U.S.



    Among American workers, poll finds unprecedented anxiety about jobs, economy



    Equity bubble? What???
    If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen. —Samuel Adams

  12. #12
    Join Date
    Mar 2005
    Posts
    11,660
    Quote Originally Posted by daewoo View Post
    ROTFLMAO

    I just opened my google news page and these 3 headlines were right at the top:

    Stocks: Nasdaq closes above 4000
    USA TODAY - ‎2 minutes ago‎

    NEW YORK -- The Nasdaq composite finally reached 4000 and then blew past it, closing well above that milestone in trading Tuesday.



    US consumer confidence falls to 7-month low
    The Courier-Journal - ‎27 minutes ago‎

    The private Conference Board said Tuesday that Americans' confidence fell to a seven-month low in November. Consumer spending drives 70 percent of the U.S.



    Among American workers, poll finds unprecedented anxiety about jobs, economy



    Equity bubble? What???
    My question is "where does the money go?". If you have an equity bubble it means you have lots of money in equities. That money has to go somewhere....seems like we have a lot of money not being productive. Any thoughts on if this is because it is less risky, easier, and more profitable to invest money than to actually build something?

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