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Fed buys 600 Billion of debt

Discussion in 'Political Discussion' started by STFarmy, Nov 4, 2010.

  1. STFarmy

    STFarmy Rookie

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    So, we've all probably heard that the Fed announced yesterday that they will buy 600 billion of American securities (basically debt as I understand it). It will print more money, and interest rates will be lowered. What are the thoughts on this?

    I suck at economics, so I asked my brother-in-law, who works in finance. He stated that this is the Fed's last ditch effort to stimulate the economy by weakening the dollar further, which will lower the price of American goods in the world market, thus increasing demand. Apparently it's never been tried on this scale before, so who knows what will happen. Anyone economic gurus here know what to think (PR, I'm looking at you!)?

    Fed to buy $600 billion in bonds in effort to boost economic recovery
  2. patsfan13

    patsfan13 Hall of Fame Poster PatsFans.com Supporter

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    Oil over $85, Gold over $1370, Silver up sharply. Dollar being destroyed as government begins monitizing debt.
  3. PatriotsReign

    PatriotsReign Rookie

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    Most economists don't believe this will help our economy. As a matter of fact, there are more who believe it hurt it more than help it.

    THE Problem with our economy is that banks and American citizens continue to struggle with debt. Consumers still aren't spending...that is one of the keys to our economic doldrum. If the dollar LOSES value, it will make it tougher for Americans to save money and/or pay down debt.

    There are many inside the Federal Reserve itself who vehemently disagree with this strategy.

    My personal opionin on our economic outlook is this;

    Our economy collapsed due to being artificially inflated by lax lending standard, artificially low interest rates and a very greedy American consumer and Corporate mindset. In other words, both citizens and businesses alike got far to greedy and our gov't did nothing but provide the platform that enhanced our greediness.

    So now our gov't is continuing to use the same thinking that got us into this mess in a foolish attempt to get us out of it.

    Here is a FACT: Government can't turn this recession/depression around. It is not possible. There is a natural process that MUST ocurr and the worst thing our gov't can do is get in the way of this process. And the process I'm referring to is "De-leveraging" of both consumer and corporate debt in the financial industry.

    This economy can not turn the corner until banks' bad debt (in the form of foreclosed homes) and consumer debt is written down. Then banks can once again begin to lend RESPONSIBLY and consumers disposeable income allows them to spend more.

    But the catch to all of this is that consumers will never again spend like they were in the late 90's and early 2000's in our lifetime.

    Why?

    1. Because home values will never rise they way they did and provide home owners with the equity to finance greedy life-styles.

    2. Just like the post-depression era, consumers will now be frugal for generations to come. Americans will never again allow themselves to be put into the financial hole that resulted from the belief that it's ok to spend more than we make.

    If people don't agree with me now, they will in 5 years when we're still not out of this mess.
  4. STFarmy

    STFarmy Rookie

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    Thanks, PR. My brother-in-law's take was that one of the major problems right now is uncertainty. Since there is so much uncertainty, anyone who has the money is unwilling to invest and spend because they don't know what will happen. They don't know when unemployment will get better, they don't know what will happen with taxes, and they don't know when the overall economic outlook is going to be brighter. So they sit on their resources, not wanting to fritter them away.

    Unfortunately, I think we're in for years of economic struggles.
  5. PatriotsReign

    PatriotsReign Rookie

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    And your brother in-law is correct. Uncertainty plays a huge role in both consumer spending and investment. But even before the fed bought the debt, we had a boatload of uncertainty.

    And I agree with your last statement whole-heartedly or even regretfully. I think anyone with any common sense will look at the economic situation we're in and realize things aren't going to get better for a long time.

    Certainly not in the next 2 years as Obama would like. That isn't going to happen.

    Recently, the National Bureau of Economic Research (the same committee that declares when recessions begin & end) made a statement that "there is no chance of a double-dip recession ocurring". In my opinion, that was idiotic and arrogant for them to declare because the fact is, there is a chance we'll experience a "double-dip" recession.
  6. PatriotsReign

    PatriotsReign Rookie

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  7. STFarmy

    STFarmy Rookie

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    Very good; thanks, PR! I am so bad with economics, so any extra input I have helps. I'll check this out at lunch.

    Anyone else have any thoughts on this? Just curious to see what everyone's take is. I'm pretty surprised more people in general (not just here) aren't talking about it.
  8. PatriotsReign

    PatriotsReign Rookie

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    I think most people don't comment because who the hell knows what "Quantitative Easing" is all about? It's both intimidating and boring to a lot of people.

    I think you have a natural curiousity about economics that most find boring. Did you know Economics is often referred to as "the dismal science"?
  9. STFarmy

    STFarmy Rookie

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    Ha, no, but that makes sense. I'm only curious to know how things work so that I can be better informed (and prepared). Honestly, I'm usually drawn to the humanities topics that most people find boring. When I was in grad school for history, I focused mainly on political theory and how Americans understood the ancient Greek and Roman forms of government when creating our system. I loved the books that others loathed, because they wanted to study more socially focused things such as slavery, women's history, civil rights, etc. Those things are all important, but I love the history of political theory and ideology. So I guess that does tie into economics.
  10. Real World

    Real World Moderator Staff Member

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    I think Father Guido Sarducci covers economics at his 5 minute university, so if you got 5 minutes to spare, you'll learn all you really need to know. :D

    YouTube - Father Guido Sarducci's Five Minute University
  11. STFarmy

    STFarmy Rookie

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    Oh, very good! I've been looking for a bad Italian stereotype to explain the intricacies of our world to me. Thanks RW! ;)
    Last edited: Nov 4, 2010
  12. Real World

    Real World Moderator Staff Member

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    Anytime pal.


    With respect to the thread topic though, this $600 Billion purchase, is on the heals of the fed having already purchased $1.7 trillion worth of bonds since 2009. Think about that.


    The problem with this policy, and it's weakening the dollar, is that it's going to make commodities prices, or all things foreign, more expensive. When you consider that oil is likely rise in price from it's current $85 a barrell, that means higher costs for anyone who uses it, here at home. When you understand that oil is used to make plastic, aside from fuel, it mean rising prices for businesses, people, and products. That's risky with oil already being so high in price, and the economy being so brutal.
  13. TBradyOwnsYou

    TBradyOwnsYou Rookie

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    It's simple really. We print more money, therefore we have more money, therefore all our problems disappear!
  14. Patsfanin Philly

    Patsfanin Philly Rookie

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    #95 Jersey

    If I understand this correctly, the American public and corporations are trying to put themselves on firmer ground by paying off debt and saving but the government wants people to spend more to stimulate the economy.....
  15. PatriotsReign

    PatriotsReign Rookie

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    Exactly!! Our gov't wants people & businesses to do something they can't or shouldn't do.

    What we ALL (including our gov't) should be doing is practicing patience. We need to let this run it's course...and it WILL run it's course no matter what the gov't does or does not do.

    When everyone or most everyone is finally out of their debt-hole, then they'll spend once again. The problem is, they surely will not spend like they did before the recession. So any expectations of returning to pre-recession spending levels has to be forgotten...because it's not going to happen.

    We all need to accept that recessions are as much a part of our system as booms. It will take time and recovery will be very slow...it's not all that difficult to swallow.
  16. IcyPatriot

    IcyPatriot ------------- PatsFans.com Supporter

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    #87 Jersey

    Eliminate corporate taxes ... completely eliminate corporate taxes ... watch what follows. :rocker:


    Elimination of corporate taxes would enable many companies to relocate right here where they belong. Some adjustments will need to be made so that owners don't use corporate profits to avoid paying taxes. That is a rather small issue and easily remedied.

    So not to be so radical it could be graduated and lowered based on the number of employees. We currently have the 4th highest corporate tax rates in the world. Canada and Germany are higher ... not sure of the other one. I would immediately slash the 40% top tier rate to 20% and go from there.

    We print money to pay lost wages to workers ... the economy would work better if these people were employed buying products with earnings vs buying only necessities with out of work wages.
    Last edited: Nov 4, 2010
  17. shirtsleeve

    shirtsleeve Rookie

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  18. mcgraw_wv

    mcgraw_wv Rookie

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    I love the idea but you would instantly put the advantage in the political arena for corporations since they can donate unlimited amount sof cash to campaigns.

    Also, you would cause a giant swing of 1099 contractors which would pay no tax at all. I have a company and it employes me... and I pay someone as a contractor to work for me on projects, shall we no longer pay taxes?

    Combine that with Government Healthcare, and your looking a HUGE gap in revenue. Since we now provide healthcare, and you just gave a HUGE incentive to forgo benefits and work as a contractor, you will have a class of people who completely live off the state, and pay nothing for it.
    Last edited: Nov 5, 2010
  19. IcyPatriot

    IcyPatriot ------------- PatsFans.com Supporter

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    #87 Jersey


    That's why I said base it on number of employees ...

  20. mcgraw_wv

    mcgraw_wv Rookie

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    Then all that does is give a competitive advantage to already bigger companies, how can an up and coming company supplant a larger company as a market leader when they have an extra tax to have to pay that the already larger company doesn't?

    And trust me, big business would love that, just like Sarbanes Oxly which creates such a cost on smaller companies they can't grow to compete with the bigger ones.

    I own and run a small business, and one day I want to be able to grow and compete on a larger scale, I want to ensure that there are no advantages for bigger companies other than larger profits to invest in better people and technologies... that's a competitive advantage enough.


    Simplify the tax code, remove all the loop holes, and no matter the expenses... we pay 8% of whatever total income we generate, no matter the expense.

    You recieve 1mil, you pay 70k in taxes period no loop hole, no expenses, no nothing. and it applies to everyone on the same percentage.

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