So who here is recession proof?

[PabloLuna]

Interesting.  Suddenly my forum Karma went down with this thread where I questioned how the system works.
It seems that not only there is a lack of sense of community when it is about money, but also there is a problem when it is about proposing solutions to economic problems.

What I say is based on my findings in my research.  For example, talking about American immigrants in Latin America looking for a job, I already know some white American immigrants.  It is not my wish to annoy people, it is that reality is already shocking.  Posting where do I take thses ideas from would make very long posts.  Posting about this won't make me popular, but I apologize if it makes you feel bad.

If this debate is not very popular, it could be better for me not to discuss anything else.  When people believe certain things and it causes problems, breaking the barrier of belief means that you say truths that are impopular, just like it happened during the time of Galileo.  I only may like to end my participation with a quote:

Matthew 6:24
24"No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money.

[Lukipela]

Interesting.  Suddenly my forum Karma went down with this thread where I questioned how the system works.
It seems that not only there is a lack of sense of community when it is about money, but also there is a problem when it is about proposing solutions to economic problems.

First off, as people will no doubt tell you in  a second, Karma isn't an official system or something, it's just a small fun thing. Well, among the people whod don't hate it with a fiery passion anyhow.

Second off, don't you think you're being a little biased here? If you go back and read the replies people have made, a whole lot of them have been on the line of "well you're refusing to do anything but talk theoretical ideology and since you've repeatedly given no explanation of how this would work in real life I'm out". Think of it this way. Man has managed to climb great mountains and construct amazing bridges.Mmany things we considered impossible have been shown to be doable. The biggest obstacle is in our minds. Perhaps people are annigilating you because you refuse to talk to them and rather just post random snippets? Nothing is impossible.

EDIT: To be topical,I've been in my home office this week. A lot less faces than there was a year ago and all of them bleak. I wonder if my office will still be there two years down the road when I return from Sweden. So i guess not everything is looking up just yet.

[PabloLuna]

Ok, here is how macroeconomical financial programming model works.
Hopefully we may have some common ground once we have the same common point of reference to discuss economy.
I will simplify it a bit to make it more understandable.

Imagine a table where the participants of economy represent a row, and markets represent a column.  There are some participants:
-Productive companies
-Government
-Financial sector
-Trade (exports and imports)
-Consumer

Markets are:
-Goods
-Capital
-Domestic credit
-Non domestic credit
-Currency

The rules here are:
-Deficits are positive numbers.  Deficit should be understood as expenses that are higher than income.
-Rows will always sum zero.  It means that every deficit or surplus will be compensated with money from another market.  For example, if government has a deficit, it will have to be compensated with money from other market, for example non domestic credit (debt) or by printing money in the currency market.
-If the sum of each column is not zero, economy becomes unstable as prices in every market will change.  The sum of the cells in a given column will produce a total called "Excess of demand".
-Deficits of certain participants may cause excess of demand in at least 1 market.

In the case of the market of goods, which is where it begins, you have this:
-Productive companies: Firing people not to absorb deficit, transferring deficit to consumers.
-Government: Deficit.  Financial sector bailed out, deficit is increased.
-Financial sector: Some banks have deficit, some have profit.  Deficit is compensated by transferring it to consumer via high credit card rates and high premiums.  Financial sector produces nothing, so it has to transfer all its deficits created by ghost wealth (toxic assets), instead of increasing production and sales as it would work for productive companies.
-Trade: Deficit
-Consumer: Unemployment, debts and poverty creates a state of deficit that is transferred back to productive companies.  Consumer absorbs the shock of deficit.

How do you get rid of deficit without transferring it to consumer?
1.Plunge dollar to reduce trade deficit.
2.Let banks with losses to enter bankruptcy (disappear so their deficit becomes 0), nationalize profitable banks to make financial sector deficit to be 0.  Profit from profitable banks will reduce government deficit, without raising taxes (that would transfer deficit to consumers and companies) and without creating excess of demand in other markets.

Right now, as government deficit is used, instead of nationalization of banks, it spreads excess of demand to other markets.  Printing dollars creates excess of demand in the currency market, issuing bonds creates excess of demand in the non domestic credit market.  Any measure that involves transferring of deficit to the market of goods creates excess of demand in other markets, bringing unbalance to those markets that soon would have a recoil effect on other markets.

All the beliefs of Americans are oriented towards microeconomics.
Also, macroeconomical planners use this model, but they did not include the consumer, so transfer of deficits to consumer gives the impression of bringing excess of demand to zero.  This model is used by IMF and also by World Bank and some central banks around the world.  So you may expect that excess of demand becomes unemployment, it isn't until recently that unemployment became an issue (in september 2008 I was called socialist for pointing this problem).

I could explain later how is that banks create ghost wealth and why it is a problem in macroeconomics.

[Cedric6014]

I'd be pretty pissed off if I ran a successful bank and then the government nationalised it. You're all about reducing incentive for success aren't you!

[PabloLuna]

I'd be pretty pissed off if I ran a successful bank and then the government nationalised it. You're all about reducing incentive for success aren't you!

I did not invent this idea of nationalization.  See this...

Source: http://www.reuters.com/article/idUSTRE50F1KI20090116

The banking industry itself is obviously opposed to nationalization.

"If it weren't for the political power of the industry, nationalizing is what you'd want to do. It's almost a no-brainer," said Dean Baker, co-director of the Center for Economic and Policy Research.

Should bankers fear?  Or should they be upset?  On February 2009 they felt fear.

Nationalization fears hit Citi, BofA
http://uk.reuters.com/article/idUKTRE51I4R720090221

Banks caused this crisis.  American citizens who did not cause the crisis are suffering the effects of a crisis they did not cause.  If banks had not engaged in such a risky practices there would be no need of nationalization.  From a macroeconomical point of view, nationalizing profitable banks this is the best option to reduce deficit to fund company incubation programs and to reduce deficit.  Else, taxpayers will have to pay for the recovery, not banks.  Anpther problem is that banks are controlling the supply of money, so taxpayers could not possibly pay the recovery, so nationalization is required so government does what banks are not doing.

Geithner: Small businesses' tight credit hurts recovery
http://www.reuters.com/article/idUSTRE5AH32K20091118

Geithner also admonished banks to use their U.S. government-provided capital to increase lending.

"We need our nation's banks to put the assistance the government provided to work and get back to the business of lending, helping companies raise capital and investing in the promise of American innovation," Geithner said. "We need banks to be working with us, not against recovery,"

He added that all banks -- strong and weak alike -- have benefited from government rescue actions. "Banks bear some responsibility for the extent of the damage caused by the crisis. And you carry a substantial obligation to help our communities get back on their feet," he said.

Banks are not going to collaborate.  It goes against the behavior banks have had lately.  If they do not help in the recovery, nationalizing becomes an option.
Notice I did not invent nationalization of banks.  It has been an option on the table, since january 2009.

Will United States be forced to nationalize banks?
http://www.reuters.com/article/idUSTRE50F1KI20090116

NEW YORK (Reuters) - The U.S. government's latest bank rescue, this time a multi-billion dollar lifeline handed to Bank of America, has led to more talk of what once would have been unthinkable -- European-style nationalization of major American banks.

Nationalizing banks in bankruptcy is just to nationalize deficit, tranferring all the obligations of the bank to taxpayer and rewarding failure.  Capitalism is about letting die those businesses that fail, so nationalizing them would not be a good choice from a deficit point of view, specially now that unemployment is a problem.  The only political benefit of nationalizing is if it would bring profit to government, not losses that taxpayers should pay.  How could unemployed people or a company that had reduced sales fund the recovery?

Banks are pushing too much, and if politicians see themselves in risk, either they like it or not, it becomes a good option.

Here some other words on nationalization.

Roubini: Nationalize the banks
http://blogs.reuters.com/rolfe-winkler/2009/02/14/roubini-nationalize-the-banks/

The U.S. banking system is close to being insolvent, and unless we want to become like Japan in the 1990s — or the United States in the 1930s — the only way to save it is to nationalize it.

Nationalization by autumn, bank on it
http://blogs.reuters.com/great-debate/2009/02/13/nationalisation-by-autumn-bank-on-it/

TIMELINE: Events leading to Anglo Irish Bank nationalization
http://www.reuters.com/article/idUSTRE50E8AM20090116

[PabloLuna]

Now let's se how the game of numbers of bank works.

Let's say you deposited $1000 and the rate of money flowing to FDIC (or equivalent) is 20% ("fractional" reserve system).
See http://en.wikipedia.org/wiki/Money_creation

It means that after you deposited $1000, $800 can be used for lending and $200 goes to FDIC.

The bank lends $800 to John and deposits the money in his account.
It means that after the deposit of $800, $640 can be used for lending and $160 goes to FDIC.

The bank lends $640 to Mike and deposits the money in his account.
It means that after the deposit of $640, $512 can be used for lending and the rest goes to FDIC.

...and so on...

In the end, after a deposit of $1000, $1000 went to FDIC and $5000 were used for lending.

If you lend you car, you can't use it while it is used by someone else.  It does not happen with your money at the bank.
If you go to the bank, to draw $1000 you deposited, you will be given your money.  It means that even if your deposit was the base for calculation of money to lend, your money was never used for lending.

Where did all the money came?  How could $1000 end up as a $5000 loan, and a $1000 draw?
Money was created out of thin air in the accounting books of banks.
This is how banks create money.  They produce nothing, they just create money out of thin air.

The money of loans does not produce inflation, since it is collateralized.
It means that if you do not pay the loan plus interest, the bank that created money will keep a real asset of yours.
However, interest were never collateralized, so it creates inflationary pressure.
On top of that, the fact that it is not collateralized means there are no real assets to back that money, so that money does not really exist.  Since that money never existed, it means that at some point in the economy someone will not have enough money to repay the loan, and this is when the loss is passed to the debtor and bank keeps the real asset that was the collateral.

---------------------------------------------------------
How could toxic assets be produced?
Let's make another simplified example.

Mary asked for a $10 loan to buy a $10 house.
He must pay $20 to the bank.
It was a NINJA (No Income, No Job, no Assets) loan, so Mary can't repay the loan, so the bank agrees to refinance her loan.
Now the bank will lend the $20 to Mary and she will have to repay $40.

Not happy with making such operation, the bank went to Wall Street that issued a certificate with a nominal value of $40, backed by the $40 that was borrowed by Mary.  Frank bought that certificate with a promised interest rate.

But Mary was not able to repay the loan.
The bank took Mary's house, so the $40 certificate is backed by a $10 house.
Where did the $30 go if Mary defaults?
It is a toxic asset, it never existed, except in the accounting books.
It was ghost wealth.

How bankers transfer credit risk with synthetic collateralized debt obligation (synthetic CDO)
http://www.youtube.com/watch?v=0Q7ji-vPlP4

Just see this graph.



Right now republican senator Ron Paul, is after auditing Federal Reserve.

Americans Deserve a Transparent Fed
Trillion-dollar interventions in the economy merit scrutiny by taxpayers and their representatives.
http://online.wsj.com/article/SB10001424052748704782304574542280971009044.html

Ron Paul Q&A: Audit the Fed, Then End It
http://blogs.wsj.com/economics/2009/09/16/ron-paul-qa-audit-the-fed-then-end-it/

Do you think that Ron Paul and Jim Rogers are wrong to call for its abolition? They make some interesting points.
Here is where you must judge if he is right or not.  This is where you will have to do your own research so you have your own opinion.

"From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts."

"Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.

In fact, Congress' constitutional mandate regarding monetary policy should only permit currency backed by stable commodities such as silver and gold to be used as legal tender. Therefore, abolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation's founders: one where the value of money is consistent because it is tied to a commodity such as gold. Such a monetary system is the basis of a true free-market economy."

~Ron Paul, "Abolish the Fed"
http://www.lewrockwell.com/paul/paul53.html

"Federal Reserve Chairman Ben Bernanke should resign and the Fed should be abolished as a way to boost the falling dollar and speed up the recovery of the U.S. economy, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe Wednesday.

Asked what he would do if he were in Bernanke's shoes, Rogers, who slammed the Fed for pouring liquidity in the system and accepting mortgage-backed securities as guarantees, said: "I would abolish the Federal Reserve and I would resign."

From: "Jim Rogers: 'Abolish the Fed."
http://www.cnbc.com/id/23588079/

[Rider]

I'd be pretty pissed off if I ran a successful bank and then the government nationalised it. You're all about reducing incentive for success aren't you!

If this succes is at the cost of Joe Everyman's spending power and job security then one can wonder if succes is the right word.

[Lukipela]

If this succes is at the cost of Joe Everyman's spending power and job security then one can wonder if succes is the right word.

I think you're talking about unsuccessful banks Rider. There are banks out there that haven't needed government bailout and are doing well.

[PabloLuna]

If this succes is at the cost of Joe Everyman's spending power and job security then one can wonder if succes is the right word.

I think you're talking about unsuccessful banks Rider. There are banks out there that haven't needed government bailout and are doing well.

Yes.  But the problem for the economy is the effect of the existence banks.
The system is nearly insolvent as a whole.
Nobody gets rich if they borrow for consumption.

If your debt is higher than the level of value added you produce with your own work, the debt becomes unpayable.
The value added a debtor produces is what allows a debtor to repay, because the bank does not produce anything, so defaulting creates a toxic asset, because it was money in the books that was created but it never existed.  The apparent existence of value of a loan is an illusion created by the fact that once debtor repaid the debt with his work (banks make profit with debtor's work) and this is why nobody noticed the problem of toxic assets before the crisis, and the use of exchange value, instead of usefulness value.  It was "irrational exuberance" expressed like "we are making lots of money, why do you think it should be a problem?".

It contradicts the common misconception of value as "perceived value" (exchange value) that people driven by microeconomics just have.

The graph above shows debt as a percentage of GDP.
Notice that this GDP is overestimated, because it includes transactions that involve no value added.
For example, insurances account for about 16% of GDP.
It shows how unpayable debt is, because debt goes above the ability to repay.

This is why I pointed out that a debt based economy is not a value based economy, but a system that creates macroeconomical practical problems.

[Lukipela]

There's still a giant leap between "You shouldn't borrow to consume" and "We don't need any banks ever and no insurance either" though. As has been pointed out several times.

[PabloLuna]

There's still a giant leap between "You shouldn't borrow to consume" and "We don't need any banks ever and no insurance either" though. As has been pointed out several times.

Is the housing problem a problem of consumption?  Or is it caused by a systemic failure in the design of the system?

The problem of the existence of private banks is that the money that is created may become a toxic asset, since that money is not collateralized with goods.  The money that is created if banks are nationalized would be collateralized with the goods government would buy.

Also, private banking pays bonuses, which are a powerful incentive to engage in transactions that produce toxic assets.  Government jobs do not pay bonuses, therefore not encouraging such risky behavior.  Attempts to regulate would only mean that government will spend more money to be police, instead of getting rid of the root cause of the problem.  Like with any police, there will be crimes that will go unpunished.  SEC could not see an old and easy to spot Ponzi scheme in the case of Madoff, and they won't be able to keep the pace of banks, since the most brilliant will be hired by banks not by the government regulators.  And if government regulators get to earn a high income, such a job would become a political bounty, so it becomes unlikely that a capable regulator gets the job.

Corruption threatens "soul and fabric" of U.S.: FBI
http://www.reuters.com/article/idUSTRE5B74AI20091208

He said public corruption investigations by the FBI were "huge" and had increased by more than 20 percent in the last five years, while financial scams -- from securities and hedge fund frauds to Ponzi schemes -- had jumped by more than 25 percent nationwide in the last year alone.

Not only the problem becomes the type of frauds and the mechanisms to spot them and stop them, but also the volume of cases that increase the costs of regulation, adding it to the government deficit.  Add the problem that banks have too much political influence, so regulators would face political barriers to accomplish its goal.  Regulator would face a huge political risk when investigation powerful people.  So regulation is deemed to fail.

If you do the same thing, you get the same results.
Leave the systemic failures open, and the system will fail sooner or later.
It is as simple as that.  I am not the one who will suffer with it.

The economic outlook also affects the future.  If US wants to preserve its system and beliefs, it will get the result of such systemic design, with its advantages and also its problems.  By the time systemic failures become evident, it will be when disaster comes.  There are 2 ways to learn: the understanding systemic failures and correct them, or hitting rock-bottom.

This is how the future looks now.

US global dominance 'set to wane'
http://news.bbc.co.uk/2/hi/7741049.stm

US economic, military and political dominance is likely to decline over the next two decades, according to a new US intelligence report on global trends.

When you ask for a loan, someone gets richer.
Guess who gets rich...

Saudi prince plan shows he sees lengthy Citi recovery
RIYADH (Reuters) - Saudi billionaire Prince Alwaleed bin Talal's announcement of a rescue plan for his investment vehicle indicates he expects a long road to recovery for his shares in Citigroup.
http://www.reuters.com/article/idUSTRE6090AR20100110

Upset at banker bonuses?  As people push to lower bonuses, they raised their salaries.

Banks lift executive salaries, cut bonuses
http://www.reuters.com/article/idUSTRE60A00220100111