If $700 billion and a rate cut isn't enough, what will it take to get us out of this mess!?!?!
Answers
457 points
SallyG answered one year ago …
Lots of time and prudent financial practices. An increased savings rate and less easy credit. Shaking out those companies who made bad decisions, overleveraged, bought without knowing what they were buying (e.g., mortgage-backed securities), or took too many risky chances that failed.
If you didn't see Charlie Rose and Warren Buffett, find the program on the Web. Buffett, the eternal optimist, calls this an "economic Pearl Harbor" and warns that there is no magic bullet. That said, he has invested $8 billion in preferred stock of GS and GE, so he presumably believe that the long-term future is not so gloomy.
Sally
P.S.: Go see I.O.U.S.A.
411 points
jester112358 answered one year ago …
Time, hard work, savings, increased real productivity and delayed gratification. Not exactly American's forte! Get out of debt if you're not already. We need to make our own things, not rely on cheap foreign labor. Re-industrialization in short. Will take at least 20 years, about the time we've been de-industrializing and becoming a "service and entertainment economy" based upon pieces of paper instead of tangible assets.
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HeyJuan answered one year ago …
Borrowing or printing money reduces the value of the US dollar. Where will the money come from?
Expect huge tax increases to pay for this, and a slow economy for many years.
3963 points
MNSL answered one year ago …
Good answers. I like to add some more.
I think market players should not over invest in one sector such as commodity and real estate. Further they should not introduced highly leverage instruments
Banks and other organizations also should take responsibility. They provided credit for overpriced commodity, real estate .and other non productive assets.
Everybody top investment banks, funds, ETFS, private equity fund, sovereign funds, banks etc were into rapid expansion worldwide. In fact they built up a bubble for most assets. They did not give much attention to the risk involved
Some published reports saying oil is going to go to $200 in October. So some Jumped and hedged their oil for $135 to $140.These companies and some Airlines are in real trouble now. I think in the future these companies should not give attention to these oil analysts and their reports. Even some rating agencies also not doing their job properly.
Some assets such as property, commodity should come down at least by 70% to see real world growth. It is happening now.
Now current mess had made some sectors very attractive and companies in these sectors will outperform the market Some of these sectors are productive and irrespective of up and down in the economy always there will be demand for their product and services.
This is the time to put your money in the best managed banks and buy their shares while selling shares of giants and mismanaged banks and withdrawing money from their funds
2082 points
alanj answered one year ago …
Time. Markets are cyclical. They go up and they go down. Right now they are down. Given enough time they will find a bottom and then head for new highs. They always have.
When people start getting nervous and selling off in mass, like what's happening now, this is usually a sign that the bottom is near. Time wise.
731 points
thinker70 answered one year ago …
In two words; HONEST MONEY! All the answers so far deal with SYMPTOMS, none deals with the fundamental problem which is a faulty monetary system established in 1913 with the passing of the Federal Reserve ACT. So what it will take to actually SOLVE the problem rather than just patching it up with duct tape and baling wire hoping to avoid the INEVITABLE collapse of a badly flawed fiat money system is HONEST MONEY backed by hard assets like gold and silver so greedy bankers can not CREATE layers and layers of printing press money instruments that can (and are) collapsing like a house of cards balanced precariously on top of one another where the slighest vibrations can trigger chaos such as we have today.
The vast majority of the population have bought into bankers propaganda and believe a totally fictional account of how banking actually works! They have bought into the MYTH (bankers propaganda) that banks loan out an admitted HIGH percentage of their depositors money and keep the 5% or so balance as a RESERVE on the premise that not everyone will ask for their money back at the same time. One writer a few days ago in a well known financial newsletter presented it this simply. "Banks pay you 3% interest and loan most of that money out at say 7% and therefore earn a 4% profit on the spread,(for illustrative purposes) and indeed that is what they would LIKE you to believe! This is a GROSS deception and totally distorts reality.
THINK! Many profitable businesses have margins ranging from the teens to as high as 50% before expenses so how could bankers set aside millions (billions in some cases) for loan losses and still show millions or billions in profits?
The Federal Reserve Act allows banks to turn a liability (deposits that can be withdrawn without notice as in checking and savings accounts) into an ASSET that are euphamistically referred to as RESERVES, and on the supposed strength of those reserves CREATE (out of thin air) printing press (substitute) for money what are in effect IOU's as a trading medium having no intrinsic value.
For simplicity I will illustrate the procedure this way; since the catalyst for the current fiasco was sub-prime mortgages, a word by the way that in french means "death gamble" which it truly is for the reasons to follow, as you will soon see. Lets say I have $10,000. I am willing to deposit in a bank to get the 3% interest offered in the writers illustration referred to above, his explanation being that the bank then will loan out say $9500. of that deposit to someone else for 7% and therefore earn a little less than 4% as profit. COMPLETE FICTION; on the strength of that deposit they are ALLOWED to create $200,000, in new Federal Reserve notes that circulate as "dollars" for all transactions public and private.
Second step: you apply for a mortgage of $200,000. and BEFORE all these liar loans where appraisals were falsified, loans were made with no downpayment, incomes were not verified you actually QUALIFY by the original standards with a healthy downpayment and verifiable income for that mortgage ,so you sign on the dotted line and the $2000,000. of newly created dollars are credited to your account! When you then bisburse these funds to the seller, builder etc. the economy has $200,000. of new money in circulation much of which ends up in other bank accounts as DEPOSITS and therefore TRIGGERS a multiplier effct of new money creation to an almost infinite level!
So whats wrong with that you ask, simply this, when you signed the mortgage document you agreed to pay back probably at least DOUBLE what you borrowed, depending on the interest rate and amortization period, so where does that INTEREST equalling the original loan come from since it was NOT CREATED at the time the original loan was made? Simple you say, it comes from my profits as a businessman or wages from my job, but there is a problem!
Since every bank loan is a new creation of money and when it is paid back it ceases to exist, and since in the EARLY years most of your payments are INTEREST, which the bank keeps as profit, without new loans being taken out by others there would soon not be enough money in circulation to keep the economy liquid! Sound familiar, it should because banks must constanlty LEND (create new money) for the economy to function. They are unable to do that when there are inadequate deposits (savings) to allow that, so credit drys up, again sound familiar? Americans have not been saving in recent years and so have been borrowing from other nations such as China where savings rates are as high as 30% resulting in deficits that are rapidly becoming unpayable!
Why is that you ask; because the Federal Reserve Act is in effect the "mother" of all PONZI schemes and like any pyramid scheme must grow exponentially with new investors coming in at the bottom to pay those at the top, in this case people willing to borrow, (go into debt) and so we have a debt accumulation approximately equal to the uncreated interest, otherwise known as INFLATION that robs people of purchasing power that totals about 96% since the Act was created in 1913! Expressed another way, inflation (a HIDDEN TAX) has reduced todays paper dollar to about 4c in actual purchasing power compared to the 1913 dollar and the decline is accelerating at an ever faster rate.
The problem then is TOO MANY dollars with NO intrinsic value being created (with nothing but FAITH backing them) so the only thing that creating $700 BILLION in additional dollars will do is ACCELERATE the true value of paper dollars to ZERO, (its true value) leaving the TAXPAPER with the additional DEBT to this iniquitous banking system created in 1913 further exasperated by going off the Gold standard which would have retained at least some honesty in the system.
While rate cuts will help by reducing the interest BURDEN at all levels, government, corporate and private, the system is so far down the road to obl;ivion there are few tangible ASSETS against which to loan new dollars that it can only end in a mass hyperinflationary repudiation of DEBT, OR, repeal of the Federal Reserve Act and establishment of a NEW and HONEST monetary system backed by hard assets like gold and silver and possibly other commodities.
In summary then, the actions being taken by most governments around the world is NOT dealing with the fundamental problem (a flawed system) but merely temporarily attempting to "patch up" a broken system that they can no longer control and once the masses understand how they have been hoodwinked they flock into gold and silver (and other hard assets) that will make the meltdown of the stock market look puny by comparison.
YES gold and silver have also fluctuated dramatically, but people have put the cart before the horse, with reactions like "gold is too expensive" when in actual fact an ounce of gold at virtually any point in history you want to pick, including today, bought the best suit in town, in other words it has PRESERVED purchasing power unlike the paper dollar. In actual fact it is not gold that has gone up or down so much as it is the DOLLAR that has lost its purchasing power, so it is like looking through the wrong end of a telescope to view gold as expensive. If people understand the REALITY of the present dilemma there would be a mad scamble to get some Gold and Silver while it is still affordable (to preserve purchasing power of your assets) that would send the price beyond its inflation adjusted value of approx. $2200. in comparison to the 1980 top around $850.
This is exactly WHY the banking cartel has used its awesome purchasing power to supress the price of gold and silver because they KNOW a spiking gold price will expose the frailty of their scheme and further erode the FAITH in their profitable (for them) paper pyramid that rapes the average taxpaper through inflation and subsequent loss of real purchasing power. There is no easy and simple way out of this MESS and we are far from out of the woods with the governments band-aid solutions. The only person in government that seems to have ANY understanding of the actual magnitude of the problem and possible solutions is Ron Paul, read his writings for further insight!
249 points
engcomp answered one year ago …
Thinker, that's a treatise of an answer. It all sounds very plausible and persuasive. But somewhere, there must be an error in your reasoning. According to you, a society that has no gold or silver on which to base its trades would have no chance to succeed. That clearly can't be true. If I buy your best suit not with an ounce of gold but with the promise to mow your lawn for six months, we can do business without the gold. The problem starts when I don't keep my promise.
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307 points
CG answered one year ago …
Thinker70, great post !
SallG wrote "[Warren Buffet] has invested $8 billion in preferred stock of GS and GE, so he presumably believe that the long-term future is not so gloomy."
It's not so simple. If you check the terms, he was practically paid to take the GS position and has effectively zero risk while the GE position is also very generous and is gauranteed to be paid out to him in the event of the company's failure whereas people mistaking this for faith in the common stock of these companies would get nothing upon failure and have their capital at risk whereas Buffet took on effectively no risk.
However there is the free market at work ! Buffett is prudent, so he has the money and can now get favorable terms to bail out these companies. The taxpayer needn't be robbed to save these entities.
It'll get much worse, so we've again started adding shorts on our blog (see profile). Better too early than too late.
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