TPS

Someone needs to organize a TBD outing (coordinated to the home opener) so we can find out who counts all of their strokes and who doesn't... :-)

Unless you own your own business and can directly use savings to expand, there is no direct connection between the "savings of the rich" and investment by corporations; it's indirect. The rich "financially invest" in stocks, bonds, real estate, art, precious metals, and various liquid accounts. increased stock prices make it more attractive to raise new equity, and increased bond prices lower interest rates, but the investment decision by corporations is driven by profit expectations (being able to sell the increase in products or services). Then, even if they do decide to "invest," there's the question you raise about "where" they locate...

I don't think Dems have ever said that lower taxes don't impact the economy (if so, please find me a quote). You allude to the difference, and it's pretty straight-forward. The top 20% of income earners spend about 75-80% of their income (20-25% savings rate); the bottom 60% spend more than their incomes; and the other 20% spend all of their income (0 savings rate). If your philosophy is that demand drives the economy, then you need to cut taxes on those who spend the most--it makes perfect sense. If you believe in supply-side stimulus, then cutting taxes for the top makes more sense. That's why I've always argued for cutting the payroll (SS) tax.

Right. This would be like JFK having LBJ as his vp--don't turn your back Barack!

You'll find him/them at one of these places: steely dan

How far back do you want to go with that "key line?" Why is it that we subsidize industries that rely on oil (trucking, airlines, highway system, etc.) but let Amtrak starve? Why do we subsidize oil extraction, but tax it at the pump? Maybe congress isn't "do nothing," maybe they do it for the interests that support them most? Isn't that a novel thought...

Something to support the "Drane view." Phase 2 This will test the limits of modern fiscal and monetary policies. In my view, the problem is that the focus has been too concentrated on bailing out the financial sector, when the the "bail out" needs to go to the "source," households/consumers. The housing market has to be stabilized, and there needs to be a more permanent tax cut for those who spend--I'd suggest a significant cut in SS taxes until this is over. And of course some incentives for business investment... While the Fed is selling off assets to fund its bail outs, as long as the government's deficit continues to increase, guess who'll be buying...

You don't think there's a difference? Maybe not as much anymore on the asset side, but the source of funds? Should the FDIC insure $X for investment banks now too? I'm sympathetic to your view here, but I still think they are very different animals and need different types of regs. However, I think one common area would be capital requirements (maybe not the same % though).

Update2: it'll be interesting to see what happens this week with the futures prices... Impact of speculators?

If you mean making the "loan facility permanent," yes. Getting back to the original point of the thread... increased margin requirements This may make it tough on the "little guys," but not the institutional speculators.

Did someone ever say China was harmless? I thought it is pretty much taken for granted that they are the next major threat to the US--the CIA has stated this. This aritlce is not surprising to me. As for Chavez and Colombia, Venezuela and Ecuador responded to Colombia's attack on FARC inside Ecuador. The combined forces of both countries can not match Colombia. The threat in S.A. is that we have lost influence in nearly half the countries as the left has won election after election. And the "threat" is that they are nationalizing resources once owned by private companies, many of them US. I'd blame the current admin because of their myopic focus on Iraq.

Here's a nice little piece on the Fed's role so far and possible future regulation. Kohn

Drane, Here's a nice little piece on expected bank failures I just came across. 150-300 failures? Yeah, gg, what do you do besides post here a lot? Agree about the asset "thingy." They are swapping good for bad assets on the one hand, then, if necessary, they can buy the good asset back in order to provide (more) "liquidity" necessary for the institution to meet its cash flow obligations.

Hmmm...missed this one. My focus is on Friedman's (and monetarism) contention that there is a close relationship between money growth (as defined by M1, which MF used) and inflation. While Volker's Fed tried to use this (MF's "monetary rule") in the early 1980s, they gave up because the relationship was not tight enough to use as a strict policy. No (advanced country's) monetary authority follows Friedman's "monetary rule" any longer because it's just not accurate enough. Most use "inflation targets" and use changes in interest rates to pursue their target. while my buddy colon is correct that the value of money is a function of the price level (inflation), he doesn't seem to understand what money actually is. btw colon, if you define inflation as including increased prices of assets, then maybe we're closer than we think. Here's the key: when gold was money, if you doubled the quantity from a new discovery, sure, you'd have inflation in the classic sense. Today, most of the money supply (M1) is made up of demand deposits and growth of M1 is a function of loans. Just as a new loan can expand the supply, paying off a loan contracts it. Yes Ad, it's much more complex than this, but the concept is that what we think of as "money" is not something permanent once its created, as in the gold example. And, if one expands the definition of "money" to credit, there's a hell of a lot of "money" being destroyed right now. signed, the sophomore

This from the guy who believes in the helicopter theory of money? You've also crossed the line !@#$. DC and I never agree!

My portfolio is 55% global natural resources, 15% emerging markets, and 30% cash. Overall up about 11% ytd.

I'll have to do a search and see how many of us have been annointed as "not a complete idiot" by my new friend DC. Oh, wait, Darin said he still hates me. Nevermind...

Congratulations SD, welcome to the "I'm not a complete idiot club!"

Another area of agreement. Strange days indeed... Seems to me there is a serious misunderstanding around here of how "money" is created.

Did I say that? I said this, And I've stated enough times for even you to know that I believe the current level of government is too large. I agree with you guys on the need to reduce government and lower taxes. You are so blinded that you want to read into my comments what you want to believe. It is a fact that a larger government sector and activist fiscal policies have reduced the severity of downturns. THAT DOES NOT MEAN THAT I BELIEVE GOVERNMENT CAN SOLVE EVERYTHING OR THAT WE NEED MORE GOVERMENT. THE SIZE OF GOVERNMENT HAS GONE PASSED WHAT'S NECESSARY TO BE A STABILIZING INFLUENCE. When i argue about marginal tax cuts and revenues, I argue against the supply side belief that tax cuts increase revenues. THAT DOES NOT MEAN I AM AGAINST TAX CUTS. I AM FOR REDUCED GOVERNMENT AND TAX CUTS THAT HELP THE MAJORITY OF AMERICANS. REDUCE PROPERTY TAXES PLEASE. I hope this is clear enough for you.

Huh? The value judgement I made on S&D? I said the government can correct a supply side shock? Where am I?

Speaking of patterns, yours is always to insult without adding anything to the discussion. You used to try a little harder. Complimented? I was referring to your comment about me. And thanks for the reminder I'm not part of the club. I'm so disappointed...boo hoo...

Gee, I always wondered what it would feel like to be DC Tom... AD, of course you can't reduce an explanation to one general answer, but there is typically one major influence. In this case, activist fiscal (increased government) and monetary policies have reduced the amplitude of Business Cycles. I certainly didn't come up with this; it's accepted by the majority of "the profession." The major change since the GD has been the size of Govt relative to gdp, and fiscal policies to prevent recessions from becoming depressions. DC, pass the salt.

Your first sentence is wrong, the second has pretty much been discredited, but the rest are correct. The FED can control short term interest rates, which influences credit expansion and the money supply. When I say the "mark up is determined by the degree of competition in an industry" that is the influence of S&D conditions. When markets become more competitive, it becomes more difficult to "pass along costs" into higher prices, so, yes, firms will have to pursue other strategies like outsourcing production (longer term) or reduce their margins (short term). Reading the paper this morning DOW chemical is going to raise prices by 20% due to rising energy costs. Is that S&D, or are they passing increased costs along in to higher prices? You have causality backwards, obviously because you believe the "Uncle Miltie" line. Friedman's "helicopter argument" makes for a good story to persuade people like you, but the Fed does not own helicopters. The Fed influences banks' reserves and money is created when banks make loans. Banks and the FED can't directly influence people to borrow however. Inflation occurs from either too much demand (relative to supply) or a supply-side cost shock. If there was some way that people's money incomes were doubled over night, then the helicopter story could work; but money doesn't grow on trees nor is it dropped from helicopters. Friedman and Monetarism was discredited in the 1980s. I've saved quotes from him in the WSJ and Business Week. Each one goes something like this: Money supply growth is greater than potential real growth, so inflation will be higher next year. Each time he was wrong. Inflation was "tamed" in the 1980s because Volker raised interest rates to unprecendented levels causing the most severe recession since the GD with unempolyment reaching 10%. Labor lost its bargaining power (Reagan helped too by breaking the air controllers union). Combine that with increased global competition and low oil prices, and you get lower costs and less ability to mark up prices. Increased global competition has forced firms to constantly try to keep their costs down, and if they can't do it in the US, then they outsource. This is why Greenspan's fed could let the unemployment rate go below 5% in the 1990s--labor's ability to bargain for higher wages has declined. We are currently in a very interesting situation. Global demand is pushing up commodity prices, with oil prices rising from "other factors" as well as demand, while, at the same time, the US is (almost) in a recession (hence the low interest rates). The FED can't control those kinds of cost influences. Conclusion: prices are rising because of REAL factors, not the FED dropping money from helicopters. Corn (and all grain) prices are rising because of ethanol production; global commodities being pushed up by demand from Chine, India and other emerging economies; and oil prices from demand, speculation, and the depreciation of the $. DC, pass the popcorn...

No. The Fed can allow or accomodate inflation, they don't cause it--not unless they are handing money to the average joe consumer or business. I don't know anyone who can go to a federal reserve bank and get a loan or a cash handout. Inflation is a general rise in prices. First question: how are prices set? Businesses add a mark up (some %) over their avereage total costs. The mark up is governed by the degree of competition in an industry. Costs are mainly made up of wages (including salaries and benefits), raw materials, and energy (especially for manufacturers). To keep it simple (so AD can understand it), as costs increase, prices increase. And, given the increased costs, there's an increased demand for working capital, and therefore the need to borrow, by firms. Borrowing, or loans, is how money is created. For the most part, the banking system makes the loans, and the Fed governs the cost of loans by setting a target Fed Funds interest rate (FFR), which is essentially the banks' borrowing cost. The Prime interest rate is a mark up over the FFR. In a fast growing economy costs eventually begin to increase due to increased demand for resources, low unemployment giving workers more bargaining power, some industries hitting capacity before others, etc. Rising costs means increased borrowing by firms, and loans are how money is created. In addition, workers (consumers) with their higher incomes or even more people working are taking out loans. At this point, the FED has to decide whether or not to let the growth continue or not. If it lets it go, it could cause an inflationary spiral. Higher wages (due to labor's better bargaining position) leads to higher costs, which lead to higher prices. Or, it can decide to put the brakes on by raising its FFR target. The Fed almost always chooses this course of action. End of story.