Alternative to creating bubbles?

Discussion in 'The War Room' started by sabretruth, Aug 5, 2016.

  1. sabretruth

    sabretruth Too many notes

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    Through low interest rates (and low capital gains taxes, one could argue) the government has created one bubble after another. But is there an alternative that would have been less harmful? Going forward, what do you think the government should do if some asset prices (whether stocks, real estate, or something else) are going up much faster than the rate of inflation?
     
  2. KONG-D'SNT-TAP

    KONG-D'SNT-TAP Titanium Belt

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    Well the 2008 bubble was created with fraud. Yet no one went to jail. Not one important person.
    Rating agencies being paid off to give falsified ratings to bonds that contain garbage defaulted subprime loans.


    The entire thing was a Scam.
     
  3. VivaRevolution

    VivaRevolution Banned Banned

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    Yeah, cut out the cancer at it's root. These cycle bubbles are created because we have no real sustained economic growth. You need a growing middle class to have actual growth, and not the illusion of growth, AKA bubbles.

    Fix immigration and trade policies, so that we have a shortage of labor, and the value of labor will go up. If the value of labor goes up, then the middle class will rebound, and our government will hopefully return to not generating bubbles, due to the political pressures created by a stagnant economy.
     
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  4. KONG-D'SNT-TAP

    KONG-D'SNT-TAP Titanium Belt

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    Creating bubbles is kind of a new phenomenon.

    How many bubbles have there been since the 1980s started
     
  5. Letssnuggle

    Letssnuggle Purple Belt

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    "Artificially low interest rates lead to malinvestments, which then require a recession to correct."
     
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  6. Greoric

    Greoric Double Yellow Card Double Yellow Card

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    Good to see you coming along Sabretruth. The short answer in my opinion is no. Markets will always misallocate some amount of land labor and capital to some extent. We're always going to have booms and busts. Of course, the ease of information flow is a good mitigating factor to blowing up bubbles. As information flows more easily the influence of sustained irrational exuberance depreciates.

    The best thing that can happen to mitigate bubble growth, however, is allowing interest rates to be controlled by the market instead of a state backed banking monopoly.
     
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  7. Greoric

    Greoric Double Yellow Card Double Yellow Card

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    Well they've been around as long as there have been markets. Their size since the 1920s in the US, however, has been notable, but they've all had a common denominator since then.
     
  8. Greoric

    Greoric Double Yellow Card Double Yellow Card

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    A lack of a middle class is not what causes the bubbles my man.
     
  9. VivaRevolution

    VivaRevolution Banned Banned

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    What do you mean by cause, if you mean the root of the issue, I disagree. If you mean the mechanism, I see your point.

    We had a 30-40 year period without bubbles. What could you attribute that to, other then a middle class creating organic economic growth?

    I think we both know that Interest rates are at the core of many of these bubbles, but the driver of those interest rates being manipulated, is stagnant economic growth. Those stagnant economic conditions are being driven by a lack of consumption growth, AKA a retracting middle class.
     
  10. Greoric

    Greoric Double Yellow Card Double Yellow Card

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    Well your first sentence of the last segment really saves us a lot of time so that's good, but you start to turn the symptoms into the cause with the next sentence. Yes, its true they reactively lower interest rates because the economy is shoddy, but it's only shoddy because they won't allow it to correct from the previous recession. That's why we've seen them recursively drop cycle after cycle since Volker.

    If we would have let the banks fail and restructure during the GFC, we would have sustained a deeper more painful recession, but the climb back up would have been just as acute. Instead, we're left with this zombie sub 3% growth, everyone likes to blame on Obama.

    What 30-40 years are you referring to if you don't mind? We've had maladjusted interest rate fueled bubbles as long as we've had a central bank.

    And just to clarify, the suffering middle class is just another consequence of the cause that produces bubbles. Sub optimal growth and a deteriorating middle class are both symptoms of the same disease.
     
  11. VivaRevolution

    VivaRevolution Banned Banned

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    Bolded and underlined: I think you may be misinterpreting my statement of lack of consumption growth, as I did not phrase this very clearly. The consumption growth I am referring to here is the economic feedback loop that was created by a growing middle class. In this I mean organic consumption growth. Where as I believe when you say I am confusing the symptoms with the cause, I believe you are referring to interest rates, and other forms of non-organic economic gerrymandering.

    I agree that allowing the banks to fail would have been more painful originally, but would have allowed for a true economic recovery in it's wake.

    The 30-40 year period I am referring to is the period that allowed Summers, Weill, and company to argue during Clinton's term that deregulation could occur without harm. I can't remember what the phrase was they used to describe this period was, but the idea was that through tools like interest rates, the cyclical nature of boom and bust that occurred both before and after this period, was a thing of the past. 50's- early 90's though is the era I am referring to.
     
  12. KONG-D'SNT-TAP

    KONG-D'SNT-TAP Titanium Belt

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    I'm talking artificial bubbles. The amount since the 1980s was never seen before in America.
     
  13. Greoric

    Greoric Double Yellow Card Double Yellow Card

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    I fully agree. We're seeing now the greatest bubble that's been seen in history. Even the GD doesn't compare.

    In addition, I want to apologize again for my comments the other day. Just so you know I think your response made me look like the fool I was. Props.
     
  14. MadSquabbles500

    MadSquabbles500 Steel Belt

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    How will this look like?
     
  15. Greoric

    Greoric Double Yellow Card Double Yellow Card

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    Market determined interest rates, instead of centrally planned ones.

    When the market misallocates its allowed to sharply correct then sharply recover without monetary interventionism, which as we've seen, makes the problem worse.
     
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  16. MadSquabbles500

    MadSquabbles500 Steel Belt

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    But without a central bank?
     
  17. Greoric

    Greoric Double Yellow Card Double Yellow Card

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    There will still be interest rates without a central bank. We didn't have one before 1913. To be precise though, we could technically have a central bank as only a lender of last resort instead of an institution that manufactures interest rates. I just don't trust that it will stay within that capacity.
     
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  18. KONG-D'SNT-TAP

    KONG-D'SNT-TAP Titanium Belt

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    Dude I'm just giving u a hard time. U don't need to apologize. Thanks though, takes a lot to say that. So in turn I apologize also.

    also the financial bubble in 2008 was bigger than the GD. I'm not sure what you mean though, are you talking about the college student loan bubble.

    Or are you saying that the 2008 bubble is still in effect.
     
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  19. sabretruth

    sabretruth Too many notes

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    I wouldn't say lack of a middle class causes bubbles, but there definitely seems to be a connection. As wage growth has slowed (except for the super rich), non-rich people have gone into deeper debt to "keep up with the Jones", buying assets (like houses) to feel richer.
     
  20. Jack V Savage

    Jack V Savage Secretary of Keepin' It Real/Nicest Guy on Sherdog Platinum Member

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    One can not argue that if one knows what one is talking about.

    Er, no. There is literally no way to ensure that all prices rise equally, and absolutely no reason to think that that would be in any way desirable.
     

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