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Getting Ready for LD

By Larry Johnson on November 23, 2008 at 5:49 PM in Current Affairs

Tonight’s chat with LD is designed to help you understand what is going on in the economy and why there are no easy quick fixes. Here are some basic concepts to keep in mind:

1. The Government is sort of like you in how it gets money–you get paid by someone else or you borrow money. The Federal Government can get more money by collecting taxes. Let’s understand that the general effect of a tax is to reduce the spending by those who pay the tax. Rather than increase taxes the Feds can also “print” more money. Actually, they borrow money from other people, nations or corporations. The most common means has been to sell Treasury bonds. The Federal Government promises to pay someone the principal (i.e., the amount borrowed) plus interest.

2. If the price of something goes up, a person or a corporation will buy less of it. Conversely, if the price of something goes down, people can afford to buy more.

3. When the Federal Government borrows money (i.e., prints more money) it is increasing the number of dollars in circulation. And, unless it reduces spending, is going to increase the amount of debt the government owes. This will in turn create strong inflationary pressures–in other words, because there are so many dollars circulating a person who is getting paid in dollars will want more of them. That means a rise in prices.

4. The Federal Government is playing an increasingly prominent role in our nation’s economic activity. There are folks and corporations in the private sector who grow food, make clothes, drill for oil, harvest lumber, or transport goods are primary producers. Government is a secondary supplier. Unfortunately, the Federal and State government is becoming an increasingly important part of the total economic activity.

5. The Federal Government can do three basic things to stimulate economic activity:

Reduce taxes
Provide direct cash payments
Purchase goods and services

Anyway, come with your questions and we will talk about these things tonight at 8pm est.

  • Seattle Moss

    Hello Larry,
    I wanted to bring up the biggest problem facing the economy right now

    Deflation!!

    Prices falling sounds good to most people.
    In a good economy price competition is a great and the consumer wins.
    In this economy what we have seen is sharp rise in the costs of raw materials oil related. These higher prices have been passed on which has led to a crash in demand.
    Now what is happening is that buyers of products want a cheaper price.Unfortunately the manufacturer is stuck with raw materials that were bought in the summer when prices were high. These manufacturers are unable to use up the more expensive raw materials do to demand and now have to manufacturer with far less margin or profit.Producers are forced to buy jobs just to keep their equipment running but this won’t last for long.
    This is what deflation is…

    • WildChild

      sounds like the same problem affecting the price of my home.

      • Andy

        And my 401(k) …prices of everything but food and other essentials are falling.

        • WildChild

          luckily I dug up most of my back yard to plant a garden this spring. It kind of came in handy to have parents who lived through the great depression and liked to talk about how they kept food on the table.

    • Galt’s Pizza Parlor

      Deflation? This also applies to Opampers ego, sooner as opposed to later. :shock:

      • Cubs in 09

        Senator Charles Schumer on ABC’s This Week:

        “We’re on the edge of deflation. Once you get into deflation you almost never get out.”

        • Cubs in 09

          B.O.

          We now risk falling into a deflationary spiral that could increase our massive debt even further.

          He also wants aggressive spending? I can’t see how that would help. Wouldn’t that lead to massive inflation? What an I missing?

        • William L. Donlon

          In New York we refer to Chuck’s ramblings as “Schumerism”.

          Chucks IQ is rated by New Yorkers at some where between zero and nothing and tracks slightly lower when he speaks about economics.

          Hillary is going to be missed by all New Yorkers when she leaves the Senate.

          Hillary has come out of this campaign with a great deal of respect from everybody but the fanatics in the extreme left wing Klan.

          A fanatic is a person who can’t change his/her mind and won’t change the subject. You know, a bit like Keith and Rachel.

          I know! I know! I’m now the WOORRSSST Peerrsson Of the last five light years.

          Oh well! If BILLO can take it so can I.

    • http://angel HON MRS. JOY EGOBIA;

      HI AM HON MRS. JOY EGOBIA; AM FROM INTERNATIONAL FUNDS TRANSFER / AUDIT UNIT UNITED NATIONS (WORLD BANK ASSISTEDPROGRAMME) DIRECTORATE OF INTERNATIONAL PAYMENT AND TRANSFERS.AND AM HERE FROM business IF U ARE INTERING U CAN CONTANT ME IN JOY_GOBIA@YAHOO.COM

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  • WildChild

    but then almost everything I buy drops in value right after I buy it.

  • blogforceone

    What will happen if China and the Gulf states will not or cannot buy debt from the USA in the coming year? Chins is going to have to do some MAJOR domestic cash infusions the prevent civil inrest with their collapsing economy so they’ll be out of the buying picture and Saudi Arabia and the gulf states will not have the extra cash with collpsing oil prices…… The foreign Sovereign wealth funds have been keeping our chestnuts out of the fire by buying our prommisory notes . But I believe this shell game is just about over.. How will we fund our Trillion dollar plus annual deficits then?

    • Seattle Moss

      We will drastically reduce unnecessary spending especially in retail which is undergoing a complete collapse..
      Look around at your favorite restaurants and niche stores…They will be out of business soon.
      What will rise in it’s place is a New American economy where we manufacture the basics needed.
      As the supplier of essential products to these industries I’m, bullish on America and how we will change.

  • xax

    OFF TOPIC:

    I may be late to the party, but I just heard that Obama plans to “delay” his plans to roll back tax cuts on the wealthy. Personally, I think it’s a smart move, but this is just toooo good.

    If the pods head haven’t exploded yet, will this do it?

    • illegal alien csuzeq

      I heard that a long time ago. I told my boyfriend who if a “soft” bot. He said, “Stop believing internet rumors”, so I emailed him my “internet rumor” source for the article TIME magazine. haha. Anyway, I have never believed Odrama would cut taxes, at least not for a long time.

      I rarely believe a politician who says they will cut taxes. Even if they do, they drop taxes in one place, but raise them in another. Or they play word games, such as instead of calling something a tax, it is now a fee, etc.

      I do think Odrama should not cut taxes at this time, but I will also enjoy watching/listening to bots whose heads are exploding with each broken promise and Hillary as Secretary of state. This subject came up at a class I was in and the instructor said it was interesting that he would choose Hillary. Another student said, “Yeah, where’s this change we were waiting for?” I said, “The change is that people are realizing they were conned.” haha.

    • Cubs in 09

      “President-elect Barack Obama has signaled that he will pursue a far more ambitious plan of

      spending and tax cuts

      than anything he outlined on the campaign trail…

      Tax cuts—fine. Spending? That doesn’t sound good…

  • Sassy

    Moss, I was reflecting on some of your comments a few days ago.
    We had a small area near our home that was sort of a decorator area…craft shops, rug outlets, home decor items.
    These were family or individually owned shops…they are all closed now.
    The floral designers, stockers, and cashiers were all women, and now they are without jobs.
    I have heard a couple of times that the tax on stocks should be repealed and the market would rise again at a rapid pace.
    I don’t know if that is true.
    Good fortune to you!

  • HARP

    WE TOLD YOU SO TROLLS:

    President-elect Barack Obama may delay the rollback of high-income tax cuts for the wealthiest Americans, two of his aides said Sunday.

    http://rawstory.com/news/2008/Axelrod_Obama_may_delay_tax_rollback_1123.html

    • KathyNeocon

      Not a surprise, thanks Harp. It’s so easy to promise the moon on the campaign trail. Unfortunately, 50-some million people lapped it up and bought it hook line and sinker.

    • xax

      They got played like a bunch of used fiddles.

      Slimy politicians will do it to you everytime.

      He’s probably just saying it to try and give investors some confidence. Will it work?

      • illegal alien csuzeq

        I think when I’m around bots I wills tart saying, “Hey, where’s my tax cut and where’s my free stuff?” instead of saying hello.

  • Seattle Moss

    Attention all Obama voters

    Several months ago we all talked about the coming Obama Crash.
    75% of business owners don’t trust Obama.
    Obama is BAD for business…
    Clean coal adding 50% to electrical bills. The threat of a carbon tax.Increased regulations.Capital gains taxes plus business taxes..
    This is about philosophy of business..

    Maybe Obama may scrap his plans to raise taxes in a recession causing a depression but the word got out and it stuck with those that employ people.
    We all know that this crash had much to do with the sub prime and democrats attempts to house everyone despite their credit worth.
    The stock market has been dropping ever since it became clear that Obama was going to be president.The fact that there is so many unknowns about his direction has spooked the market.

  • Mo

    That’s too bad.

    Don’t look for any improvement, for the long term.

    Again, this is short sighted 90′s solipsistic crap.

    I knew they’d do it, I was just hoping they wouldn’t.

    This period requires bold, innovative, creative leadership, and ideas, the type Bill Clinton is capable of executing, intead we’re getting a rehash from the Clinton sloppy seconds, which is what happens when a bunch of corrupt, old guys and such, from Wall Street, place THEIR stooge in the White House. Kinda of like a policy of the British bubble and squeak, a hodge podge of left overs mixed together from last nights meal.

    And I still woulnd’t invest in the American economy, not until they get in someone who can manage it.

    They don’t know what the fuck they’re doing, just like Bush’s people.

  • Ron

    The stock market recovers several month before the economy does. Look for the beginning of the next great bull market any day now, maybe Monday. The market can and sometimes does go up even while profits continue to decline in some sectors.

    • Interest rates are low

    • Oil prices are very low and will likely go down to $40/bbl before heading up in a few months

    • Food prices may start heading lower next year

    The unemployment rate will continue to rise in the near term with a sharply higher rate for November and December. GDP for Q4 ’08 will be negative as it was for Q4 ’07. The first two quarters of 2009 will probably be a bit negative, too, but thing should start to look up in the last half of next year.

    This is the time to invest in your future. Most stocks are at 52-week lows and we’re either at of very near a bottom. The last time we had an opportunity like this was 1982. It will probably take a few years to exceed previous highs but we’ll get there.

    • Mo

      Why would this be anything more than another dead cat bounce, due to another bubble?

      A bubble that will crash?

      Where do you make you judgements, based on what criteria, even in terms of real asset creation?

      What about wage stagnation?

      What about job creation?

      What if oil spikes again, and we still have no alternative?

      • Mo

        your judgements, sorry, typo.

        And I think healtcare is a dead weight on the economy, one not recognized.

      • Ron

        For the answers to your questions, just take a look at history. Look at the 1982 recession, which was a bad one, and the 2001 recession. Look at the bull markets that ended in 2000 and 2007. The stock market can lead further declines in leading economic indicators by 6 to 9 months.

        For more insight, take a look at this:

        http://www.bloomberg.com/apps/news?pid=20601109&sid=amQySOkB37zY&refer=home

        Be sure to look at the chart referred to in the article:

        http://www.bloomberg.com/apps/data?pid=avimage&iid=i6nNJeg_B1us

        We’re just about at the start of the next major bull market that will run for at least the next 8 years.

        • http://www.deathofthedemocraticparty.com xax

          I don’t see it. Was the government running 10 trillion in the red in 1982? We’re they continuing to spend trillions more in salvaging the markets? Was the AVERAGE person’s debt over $100,000?

          Despite how low things may go, people are not buying. In fact people are in debt. Whatever income they have goes to debt. And massive government spending will only lead to inflation. I don’t see any major bull market anytime soon, especially not one that will just happen to last eight years.

  • Linda C.

    There is a difference between a “Recession” and a “Credit Freeze with Deflation coupled with a Financial System Meltdown”.

    The last time we had a world wide collapse of commodities, banking, credit, real estate, and deflation was 1929.

    There are bargains in stocks as long as you have the money to invest. The folks who made out like bandits in 1929 were those who already had money and large liquidity. The folks who lost big time was everyone else who listened to the “experts”.

    We are not on the verge of any “bull market”. As long as the banks are not issuing credit or charging an arm and a leg in interest rates, there won’t be any Bull Market. The credit card companies are salivating for you to be one nanosecond late in one payment to jump your interest rate to over 25 percent. Need a car loan? A larger down payment and don’t be surprised at a 10 percent interest rate. Meanwhile the savings rate is pitiful which only widens the bank’s profit margin on the money that we, the tax payers, gave them in the first place to lend back to us.

    • Linda C.

      In other words, those that already have will do better. Those who don’t are screwed.

  • Mr.Murder

    Pricing flexibility is a serious issue, because it doesn’t exist.

    The price of fuel dropped finally, and eggs, milk, etc. still say higher after justifying raises based on fuel costs.

    One way flexibility. Flexible cost raises, inflexible cost reductions.

  • NIKKIAND Will

    I am just sick “Sick I tell you ” of what we are in today,a freak’n mess.Not one has helped out the american people in losing their homes or those who will soon be.You are giving numbers to call if you are behind or ready to lose your home and not one can fraak’n help you.Fannie Mae-Freddie Mac-AIG have got money from going under,What did that solve? We can’t borrow any money cause now many have bad credit like the ones who Fannie Mae and Freddie Mac gave to.So,Are they going to give us some to borrow to help us from being throw out of our homes or a line of credit even if our credit went from great-good-somewhat to a pile of shit now? I watch as all these Goverment say we will help those who are facing crisis now because of the mess we are in.Sure,Not one so far is helping us.

    Oh you are in the minus then what you bring in now.well hello.I wonder why.Medical-dental-co pays-gas food taxes house insurance -car insurance -electric-water-heating oil you name it went sky high.So I wonder what caused us to fall behind? It makes me so sick that banks- as well as those who caused this mess Fannie Mae and Freddi Mac got their bail out and AIG got their and Aig got more..

    Oh,Call your mortgage co…Call hud,What a laught such a big laugh.Hud or anyone else mail boxes are full or can’t come to the phone right now call back at a later time or date.what the hell is this.??

    So,if you are in the minus you can’t get your interest lowed-you can get a modification on your loan you have now on your home.SOORY CAN’T HELP YOU.

    This is so sick.The other banks can’t help because the democrats are busy bailing out those who caused the corruption.So,GM moved to Afraica many jobs lost here in U.S and they are wanting a bail out.But, will not get rid of their jets.And ok 2. something million jobs will be created by 2011?How many jobs will be lost before then 7-8-9-10 MILLION? And 2 something million will be created in 2011 a promise Sure. We will be in worst shape ever.

    2 million new 7-8-9- 10 lost before then.Let’s just say 4 millions.So, the jobs lost are just created back.We got nowhere and in the mean time bank loans on those who are trying to get help that we are giving numbers to call,and it’s a sorry can’t help you you are in the minus say 8 hundred a month.And just to say you cut-cut and cut your heat bill by freze your self to have a lower bill-You turn and unplug everything in your home other then your stove one tv-ice box.Re setting your alarm each day because it’s unplug.No lamps nothing…So,Electric co don’t make the money and hey raise the price on the customers.So here we go again.cutting down food-water gas- sports for kids.HOUSEHOLD ITEMS and it’s never enough.

    What about us.Should we call as they Government say to do? No nothing is done but sorry can’t help.I am so sick of the corruptions that put us here.Yes Fannie Mae Freddi Mac who the democrats would not stop giving out loans who had such bad credit.Yes democrats caught on tape on the congress floor.Michelle,Barack and the CEO OF Fannie mae in a building saying 2005 that Fannie Mae was having finencial problems but,however they will still continue giving oput loans.but, please pay then back.Fannie Mae told the banks when they called Fannie Mae to go ahead and give the loan to the ones who are asking..But but they can’t pay it back.No cradit and the mortgage is way over their heads.Oh Fannie Mae said .Don’t worry we will make the loan good if they fail..Ok…..They failed and Fannie Mae and Freddie Mac could not make those loads that other banks gave to those people who could not pay.And we now are stuck with paying that back in higher taxes.And still we don’t get help.

    Our credit is going down the tubes because of Fannie Mae Freddie MAC-Democrats -who cause this down fall in the market(S) now what?I really don’t think the democrats knows what they are doing at all.I really feel that america is being taken down by unknown to us…Obama