Warren Buffet speaks common sense; alarms most Republicans

[Kuciwalker]

The problem isn't that you built too many houses. It's too many people bought houses when they could not afford it. It's that you could buy a house with zero down and a 40-year mortgage. It's that Americans, by and large, are the most fiscally irresponsible people on the face of the planet (both in government, and personal spending).

The fact that there were many houses is just one part of it.

All of that is just finance. You don't get 'real' recessions* out of bad loans, etc. unless those bad loans were genuinely not purchasing things of value (e.g. excess housing). Once the house is already built of course we can afford it; it's right there, the maintenance costs aren't that high. There was no particular reason for anyone but some construction workers and Wall Street traders to lose their jobs.

*that is, recessions caused purely by real factors like malinvestment or tsunamis or whatever, as opposed to recessions caused by a shortfall in aggregate demand that isn't offset by the central bank

[Kuciwalker]

Aeson:

I was the one who used the phrase. It was what I meant by the use of the phrase. It is acceptable use of the terms in the English language.

No. You want to talk about an established science you don't get to make up your own meaning for existing terms.

[Kuciwalker]

I am not sure due to your use of "minor depression"... but are you dropping the "nonexistant recession"?

Reread the sentence until you figure it out.

[Kuciwalker]

You are still avoiding addressing several of the factors I mentioned. (The funny thing is one of them I mentioned was the Fed, yet you labeled my entire argument as not being able to get to the 9% unemployment even though you claim the Fed is entirely to fault.)

You posted a bunch of stuff that happened, but provided no explanation as to how those things would cause unemployment. So there were bailouts. So what? How does that create unemployment? How does that create lasting unemployment?

[Aeson]

I get to use terms however I want. If you're too stupid to be able to infer that I was talking about being able to get loans from F&F and leveraging ratios when I specifically qualified it as being able to get loans from F&F and leveraging ratios in the original statement and then the follow up explanation then so be it. It's good for laughs

[Aeson]

Reread the sentence until you figure it out.

I am not sure on your definition of "minor depression". I do not know if you mean that as more serious than a "nonexistent recession" or less serious than one or the same thing.

I simply asked you for further clarification rather than jumping to any conclusions. Sorry if that offends you.

You posted a bunch of stuff that happened, but provided no explanation as to how those things would cause unemployment. So there were bailouts. So what? How does that create unemployment? How does that create lasting unemployment?

I didn't say the bailouts created unemployment. Not bailing out some firms probably directly lead to unemployment for their workers in the short term. (But not for sure since they may not have been saved anyways, and it may have cost more jobs than allocating funds elsewhere.)

The main driver for unemployment in my timeline was probably the stock market going down and general panic/hysteria. People worrying about spending money. Worries about increasing inflation. Driving up prices of commodities. Less capital for firms to create new jobs or maintain old ones. Some of these things conflict in some ways.

The "stimulus" was a farce of course. That money could have been spent in much better ways to create jobs. While not necessarily creating unemployment, it wasn't creating employment as it could have IMO.

As I've said, increasing money supply would have been helpful, but pretending that all these problems themselves weren't contributing to the outcome is absurd.

[Kuciwalker]

The main driver for unemployment in my timeline was probably the stock market going down and general panic/hysteria. People worrying about spending money. Worries about increasing inflation. Driving up prices of commodities. Less capital for firms to create new jobs or maintain old ones. Some of these things conflict in some ways.

Yes, and almost all of them conflict with the facts.

Not enough capital? Firms are awash in cash.

People worrying about spending money? SOUNDS LIKE AN AD SHORTFALL TO ME.

Commodity prices FELL during the panic. Dramatically.

Inflation expectations PLUMMETED during the panic. Dramatically.

[Aeson]

Not enough capital? Firms are awash in cash.

If firms were awash in cash why do we need to increase the money supply? (Honest question. I don't understand how that interacts with the rest of your argument though I'm sure there's a reason.)

I don't recall firms having tons of cash in the early days of the recession though.

People worrying about spending money? SOUNDS LIKE AN AD SHORTFALL TO ME.

And one that simply adjusting money supply will not always fix. As weird as it seems, people base their spending off of emotions in many cases. When the stock market is crashing and words like "depression" are on TV those things have their own impacts on people's choices.

I knew people who had money who were still concerned about investing it or spending it, even though their concerns were about hyperinflation. It doesn't make sense to me to hold cash when you're worried about hyperinflation, but it doesn't have to make sense to me because it's not my money to spend. It's their's. So their mindset is what matters in regards to the money they have.

Commodity prices FELL during the panic. Dramatically.

Depends on which panic you were talking about, and which commodities. The high oil prices had already increased unemployment before the crash hit, and I don't think the prices coming down created the jobs again. Later when the stock market was at the lows oil started increasing again, and perhaps more importantly, fears about oil prices going up were still hampering business which relies on it.

Inflation expectations PLUMMETED during the panic. Dramatically.

There were lots of mainstream fears that the Fed would increase inflation or that we'd get hyperinflation or stagflation. While economists may never have changed their expectations, it's obvious that the general markets were impacted by individuals who were operating with fears of inflation.

(Gold seems the most obvious area that there's a weirdness going on. I hadn't seen the prices for a year or two...$1780? Gold bugs unite! Sometimes it pays off to be a loony...)

In general though I'd be interested in seeing if you have any non-Fed explanations for unemployment. It seems to me there are a great many factors involved to various extents.

[MRT144]

Openly false. There is a problem of unused capacity. Income inequality has literally nothing to do with it; excessively tight monetary policy is the issue.

Excessively? Hyperbole Police should arrest you.

[Jon Miller]

Thank you for a non-pretentious little git answer to my initial question. You don't care.

I guess not many people take seriously the rumblings about alternatives to US dollar reserves and currency of trade.

My understanding is that the US has a lot to lose.

This would probably increase US exports/manufacturing.

It has been nice being the reserve currency/etc of the world. It isn't clear to me that the US can stay there indefinitely.

JM

[Kuciwalker]

If firms were awash in cash why do we need to increase the money supply? (Honest question. I don't understand how that interacts with the rest of your argument though I'm sure there's a reason.)

The money supply has increased but demand for money has increased even further (because of 'flight to safety' and IOR, two name two effects). One of the channels by which (effective) monetary policy would stimulate is that increased inflation would make holding those large cash stockpiles increasingly unattractive and so the corporations would spend the money.

(Technical point: when firms have "cash" they usually aren't holding actual dollars but rather park their money in highly liquid short-term investments like the repo market. KH may correct me on this, but my understanding is that demand for these types of securities increases the demand for money as well, because those providing them need a fair amount on hand to guarantee liquidity.)

And one that simply adjusting money supply will not always fix. As weird as it seems, people base their spending off of emotions in many cases. When the stock market is crashing and words like "depression" are on TV those things have their own impacts on people's choices.

No, adjusting the money supply will always fix it. You don't have to change their preferences. You just have to satisfy their demand for money, and then some. Individual people will eventually hold enough money that they want to get rid of some of it; quickly, this happens to the entire society with enough money printing. But since society as a whole can't get rid of the money, it continuously drives consumption and investment.

Depends on which panic you were talking about, and which commodities. The high oil prices had already increased unemployment before the crash hit, and I don't think the prices coming down created the jobs again. Later when the stock market was at the lows oil started increasing again, and perhaps more importantly, fears about oil prices going up were still hampering business which relies on it.

As mentioned earlier, the oil prices crashed in anticipation of the recession, and have risen again on each anticipation of recovery. (There have been some supply-side shocks overlaid on this, such as Libya.)

There were lots of mainstream fears that the Fed would increase inflation or that we'd get hyperinflation or stagflation. While economists may never have changed their expectations, it's obvious that the general markets were impacted by individuals who were operating with fears of inflation.

Revealed beliefs: anyone who feared hyperinflation would spend most or all of his cash upon receiving it, not stockpile the cash in anticipation of it becoming worthless. The market, as well, has clearly discounted the possibility of hyperinflation.

In general though I'd be interested in seeing if you have any non-Fed explanations for unemployment. It seems to me there are a great many factors involved to various extents.

Plenty of other factors contribute to unemployment, just not a very large fraction of it. 99 week UI is one factor; Obamacare is probably another. There's a tendency for the long-term unemployed to observe a genuine depreciation of skills. etc. But many of these 'real' factors are themselves largely consequences of the Fed's failure. 99 week UI wouldn't have been implemented had the recession been mild. We wouldn't have a bunch of long-term unemployed had the recession been mild. etc.

[RGBVideo]

Buffet paid about 18 percent last year. Why didn't he pay the 35 percent in his bracket?

Because the "18 percent" (actually 15%) is his bracket. That's the tax on capital gains, ie. money earned from ownership, as opposed to working. His average paid taxes per earned money only goes up to 18 because he's taking some money from his firm to pay himself CEO wage, which gets taxed at a higher rate. "35 percent" is the rough average of the people working in his office, who pay taxes from their work, as opposed to ownership.

Ben, seriously, you're being a ****ing ridiculous moron. Read and think after reading before starting your ridiculous strawman-arguments. He's not even "using loopholes", 15% is the perfectly ordinary and legal tax rate as set by US Congress.

[RGBVideo]

The point Buffett is making (and what he has made for years) is that people who earn money by working have to pay a lot higher tax percentages than the people who earn money by owning stuff and sitting on their arses. This is is an unbelievably unfair tax system. De facto it is a reverse progressive taxational system, which somehow manages to also include the worst sides of progressive tax system since people who create the most wealth with their work (ie. people who work long hours and earn much) have to pay the most taxes. I'd actually say that as long as capital gains tax rate is below the highest tax brackets of taxes on work, all the huff and puff between progressive vs. flat tax rates on taxes based on earned income from work is irrelevant -- mega-rich who pay capital gains taxes are pushing the middle class who pays the highest tax brackets on work against the poor who pay the lowest tax brackets on work.

I think the only way you could rationalize yourself to defend this system is that if you are yourself a multi-millionaire who has inherited nearly all of your wealth and are now earning most of your income through stock ownership, as opposed to those loser-proles who actually bother to work in order to keep our economies rolling.

[Kuciwalker]

The point Buffett is making (and what he has made for years) is that people who earn money by working have to pay a lot higher tax percentages than the people who earn money by owning stuff and sitting on their arses. This is is an unbelievably unfair tax system.

[RGBVideo]

(Gold seems the most obvious area that there's a weirdness going on. I hadn't seen the prices for a year or two...$1780? Gold bugs unite! Sometimes it pays off to be a loony...)

Past price is not a fire-proof indicator of future price. In theory, the larger the monetary supply is compared to amount of wealth, the higher the price of gold will rise. In case you haven't noticed, both US and EU authorities are dealing with budget problems by enlarging their monetary supplies, ie. printing more money. This lowers the prices of dollars and euros compared to other goods, or IOW raises the price of gold compared to dollars and euros. Of course there are speculational bubbles, but if you think the price of gold is ridiculously high and the present price rate is 100%-surely result of a speculationary bubble, you should obviously put your money where your mouth is and short-sell gold futures. That way, you'll show all them "loonies" and make a sweet amount of cash in the process.