Tag: Liquidity

It’s Demand, Stupid!

Keeping with my week of jobs and the economic thing……

The Prez made his speech to the joint session of Congress and the American people, after caving in to the political BS, and we now have his plan for jobs……..“intention to lay out a series of bipartisan proposals that the Congress can take immediately to continue to rebuild the American economy by strengthening small businesses, helping Americans get back to work and putting more money in the paychecks of the middle class and working Americans, while still reducing our deficit and getting our fiscal house in order.”

First of all…..YAWN!  This has about as much chance as I have being elected “Miss Teen America”…..

Now for the GOP plan for jobs creation……..a noun, a verb and tax cuts……..

Analysis…..a even bigger YAWN!

Let us try to be realistic….we need demand, not liquidity…….tax cuts will create liquidity and liquidity will create profitability and profitability creates NO jobs!  Is that easy enough for you?

But wait!  What is demand?………..analysis of demand with regard to consumer behavior and rationale when changes occur in variable factors such as price, income, substitute goods.

And then there is liquidity…….the ability to convert assets to cash quickly…….

Back in 2008, at the beginning of this present economic crisis I posted……

Governments in advanced countries have still not recognized this onset of a crash. They have proceeded on the assumption that the injection of liquidity into the system is all that is needed. It was thought initially that this injection could be achieved through the government purchase of “toxic” securities, but widespread opposition to that scheme has now made most governments accept the idea of injection of liquidity in lieu of equity, i.e. through the part-nationalization of financial institutions.

But injection of liquidity, even in this manner, is not enough. Credit will not start flowing simply because banks can access more liquidity. There has to be adequate demand for credit for viable projects by solvent and worthwhile borrowers. And this is not happening. First, the injection of liquidity does not improve the solvency of firms saddled with “toxic” securities, so that the risk associated with lending to them remains prohibitively high. And secondly, quite apart from this, the anticipation of a Depression makes borrowers chary of borrowing and lenders chary of lending.

This anticipation in turn derives from several factors: first, the bursting of one bubble is not necessarily succeeded by the immediate formation of another, so that some recession of a more or less prolonged duration is in any case inevitable. Secondly, the very scale of the current financial crisis is such as to entail an anticipation of a prolonged recession. And thirdly, since the recession has already started, the prospects of crisis-prevention now through the usual monetary instruments (including liquidity injection) appear distinctly dim. The scenario, in which tendencies towards increased liquidity preference on the part of private individuals and institutions and a downward slide in the real economy mutually reinforce one another, has already started unfolding itself and will continue for a prolonged period, unless governments now act to inject demand into the economy directly, apart from injecting liquidity. Until this happens on a large enough scale the Depression will persist.

ZZZZZZZZ….all that is so much mumbo jumbo, right?

I can fix that!  Chuq’s economic law………demand creates jobs; liquidity creates billionaires……see it is that simple!  Let us go back to another theorem…..a theorem that pertains heavily to the jobs debate in Washington…..and since our elected officials are not the sharpest pencils in the box when it comes to economics…..let me make it really, really, really simple for them……..

tax cuts creates liquidity, liquidity creates profitability, profitability creates NO jobs….one more time……PROFITABILITY CREATES NO JOBS!

Without demand there are NO jobs…..without jobs there is NO recovery from a recession…….Very simple……Create Demand, Not Liquidity!

Fed Throws A ‘Hail Mary’

Yesterday the markets just exploded and ALL the pundits are so confident that this is the beginning of an explosion on Main Street, that prosperity is returning….but is it?

The rally was touched off late Wednesday by the announcement by the Federal Reserve Board that it would pump another $600 billion into the financial markets over the next eight months through the purchase of Treasury bonds. It was further fueled by signals from the White House that the Obama administration is about to capitulate to Republican demands for an extension of Bush-era tax cuts for the rich.

A headline on CNNMoney’s web site summed up the Fed’s action as a “$600 billion gift” to Wall Street. The US central bank is ensuring that corporations and banks have easy access to low-cost funds, even while working people and small businesses find credit unaffordably expensive, if available at all.

So this is basically a ‘hail Mary’ pass…..the Fed has little options left in its bag of tricks to stop a downward spiral of the economy….this action helps NO one but those thieves on Wall Street that have had nothing but good fortune during this economic crisis….the government has done everything it possibly could to keep these firms above water……none of this will increase demand….it does however make the liquidity of the firms involved more stable….but I do not see why this would do anything to help the economy recover…

How will this help anyone with their problems with jobs, housing or whatever else afflicts the common person?

Demand–Now That Is What I Am Talking About!

Since the economic collapse I have been saying that demand needs to be created not liquidity–for without demand nothing will move in the economy. I even have a page on the subject. We have pumped billions into banks and still not much is happening in the demand arena. We have tried to pump dollars into the infrastructure and again not much demand has been created. Then what shall the admin do to create the demand that is needed to jump start the economy?

Well they had a good start….with the cash for clunkers program. The WaPo is reporting:

Passed by Congress in late June to help the flagging U.S. auto industry and launched just a week ago, the $1 billion program gives vouchers worth up to $4,500 to consumers who trade in gas-guzzling cars for more fuel-efficient models. The highly publicized effort was scheduled to run until Nov. 1, or until money ran out. It was not expected to run out of cash so quickly.

The effort, formally known as the Car Allowance Rebate System, or CARS, appeared headed for a temporary shutdown at midnight Thursday. Federal transportation officials became increasingly concerned that the program’s popularity with consumers could drain its budget by week’s end, according to sources familiar with the discussions who spoke on the condition of anonymity.

The government’s “cash for clunkers” program, aimed at boosting stagnant auto sales, is almost out of money, putting its future in question, according to sources familiar with the effort.

Gee, sounds like they created demand…..you think that this could be an answer to the economic crisis? Some of us have been harping on that for a long time and it looks like we were correct in our premise.

Now that is what I am talking about…..create demand and the economy will start working again.  Go figure!

Don’t Worry, Be Happy

A week or more of rising markets and a one day rise of 500 points and all is gravy fore the big dogs on Wall Street.  Joy, joy…do the dance of joy….well only if you are a Wall Street trader…Main Street still SUCKS!

Everything being done is for Wall Street and those happy go lucky guys that put usd in this pickle that we are clawing our way out of as we speak.

Geithner got his long waited vote of confidence from Wall Street on Monday and Tuesday he profit taking began…..but is the worse over…tee hee…HELL NO!

Paul Krugman sees it for what it is.

“This is more than disappointing,” Krugman wrote in The New York Times. “”In fact it fills me with a sense of despair.”

“The Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt,” the Princeton University economist said, citing weekend reports outlining the plan.

“This isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets,” he added.

Krugman called it a recycled idea of former Treasury Secretary Henry Paulson, who later abandoned the “cash for trash” proposal.

The Obama Admin is losing its window of opportunity to take control of the banks.  The economic bubble has a slow leak and soon it will be an out of control balloon filled with crap as it crash against the waiting wall.  And it will be messy, to say the least.

Yes, there is confidence but not where they need it….Main Street is not amusede.

We Need Demand, Not Liquidity

Governments in advanced countries have still not recognized this onset of a crash. They have proceeded on the assumption that the injection of liquidity into the system is all that is needed. It was thought initially that this injection could be achieved through the government purchase of “toxic” securities, but widespread opposition to that scheme has now made most governments accept the idea of injection of liquidity in lieu of equity, i.e. through the part-nationalization of financial institutions.

But injection of liquidity, even in this manner, is not enough. Credit will not start flowing simply because banks can access more liquidity. There has to be adequate demand for credit for viable projects by solvent and worthwhile borrowers. And this is not happening. First, the injection of liquidity does not improve the solvency of firms saddled with “toxic” securities, so that the risk associated with lending to them remains prohibitively high. And secondly, quite apart from this, the anticipation of a Depression makes borrowers chary of borrowing and lenders chary of lending.

This anticipation in turn derives from several factors: first, the bursting of one bubble is not necessarily succeeded by the immediate formation of another, so that some recession of a more or less prolonged duration is in any case inevitable. Secondly, the very scale of the current financial crisis is such as to entail an anticipation of a prolonged recession. And thirdly, since the recession has already started, the prospects of crisis-prevention now through the usual monetary instruments (including liquidity injection) appear distinctly dim. The scenario, in which tendencies towards increased liquidity preference on the part of private individuals and institutions and a downward slide in the real economy mutually reinforce one another, has already started unfolding itself and will continue for a prolonged period, unless governments now act to inject demand into the economy directly, apart from injecting liquidity. Until this happens on a large enough scale the Depression will persist.