Warren Buffet speaks common sense; alarms most Republicans

[Asher]

Nothing to see here, move along.

GE has paid either no income tax, got tax benefits, or paid income tax well under the posted rate for many years before Obama came to power. Obama did not change the tax laws for GE in his first year in office.

You are a tool.

Additionally, GE is just but one example. You cannot even point me to a single large US company that paid 35% tax.

[Kuciwalker]

who is talking about 'getting rid' of the dollars? these dollars are being used for gambling on the stock market and in commodities. to buy financial products related to them. if you create a bunch of dollars and they end up being used for this kind of gambling, they are not being used in the real (productive) economy, but they have economic effects.

When this dollar is "used for gambling", where do you think it goes?

yes, both the announcements and implimentation of QE caused prices of various items to spike. higher oil and food prices mean that poor people are much worse off. the poorer they are the harder this hits them. this was my original point.

Prices for those things were only low because people didn't have enough money to buy them and weren't expected to for a long time. QE brought expectations of some degree of economic recovery, which meant that in the near-ish future people were going to have a lot more money, some of which they would spend on oil and food! Thus, the price of oil and food rise immediately so as to distribute those good intertemporally according to expected demand.

this is the key, has the economy recovered as a result of QE? i would argue very strongly that it hasn't, especially if we look at unemployment figures.

1) You have to compare to the (sadly unobservable) counterfactual, what would have happened absent QE.
2) There have been a number of nominal shocks from Europe (Greece, etc.), along with a few real shocks (Libya) since.
3) QE provided information that changed expectations of the future path of monetary policy even beyond the end of QE. After QE was announced, people updated their estimated likelihoods that the Fed would continue to provide additional stimulus (in the form of further QE2/3/4/n, lowering IOR, promising to hold interest rates low for an extended period, etc.) if inflation or NGDP expectations fell again. It's not clear that the Fed has done so properly after what happened to the TIPS spreads over the past few weeks.
4) I believe that unemployment and especially NGDP did improve following QE.

what has happened to all the money created by QE? i don't think anyone has provided a good explanation for that. what it hasn't done is caused banks to lend more money to businesses in order to create jobs and stimulate the 'real economy'.

The credit channel is just one way that monetary policy can affect NGDP.

the point i was making was that QE is good for banks and big business and bad for poor people, especially the world's poorest, because of the effect on the prices of basic goods. if you are living on $1-2/day, a rise in price of food and oil is obviously going to deter people from using so much, because they will be able to buy even less of the most basic necesities! this has had and will continue to have disasterous consequences for millions of people.

The price of food rises only because the wages of the poor are expected to rise. If those expectations are mistaken the price will fall again; if those expectations are correct the rise in price will be efficient. The prices can't stay high indefinitely unless real people actually spend more money on those goods.

Note also that those prices are for global commodities, and growth in the developing world has been substantially better than in the developed world.

no. it's clear in the short term they have a large impact on prices and yields, in the longer term there is some more room for doubt but there's a consensus that bond prices rise as a result of QE.

You are wrong. If the announcement of QE creates the expectation that the Fed is really going to print a lot of money (or if it's accompanied by an announcement that the Fed will repeatedly do QE until NGDP returns to trend) then interest rates will rise sharply.

no. you're the one who needs to think about this harder. if the government takes an action which both raises the price of an asset in the market and provides a buyer (itself) for that asset, that is obviously a clear benefit to people holding that asset.

The only thing necessary is the (credible) announcement that the bonds are going to be purchased; the Fed could promise to instead buy them only from private citizens and the effect would be precisely the same modulo transaction costs.

there's has been an awful lot written about QE and how it has benefited the banks (at the expense of the taxpayer), and how this was achieved.

And the second part of that is wrong. When the Fed announces QE, asset prices respond immediately. It buys the bonds after asset prices have risen. The government doesn't lose or gain anything because asset prices change before, not after the purchase.

[Jaguar]

Alex, you are a very patient man.

[snoopy369]

Kuci, there is one problem with your outline. When prices rose to 'distribute goods intertemporally according to expected demand', they made it rather harder for people to afford to buy things... which in turn led to the economy weakening, which in turn led to the expected demand not existing. For better or for worse, humans have a tendency to be overly optimistic about the future, which sometimes is helpful, sometimes not. Perhaps not in this case.

[Aeson]

The price of food rises only because the wages of the poor are expected to rise.

No. Perhaps if you went somewhere where poor people actually exist you would realize how silly your argument is.

[DanS]

GE has paid either no income tax, got tax benefits, or paid income tax well under the posted rate for many years before Obama came to power. Obama did not change the tax laws for GE in his first year in office.

You are a tool.

Additionally, GE is just but one example. You cannot even point me to a single large US company that paid 35% tax.

There are large corporations that pay close to this rate. Case in point, Berkshire Hathaway (run by Buffett), which paid 33% on its latest quarterly earnings.

[Asher]

Buffett

[DanS]

I haven't been following this thread, but has anybody really talked about the essence of his critique? Buffett is being a little simplistic here. In addition to the 17% tax rate that he pays on his investment income, Berkshire pays 33% in income taxes.

Capital is paying extremely high taxes, not low taxes.

[Asher]

15% is not extremely high.

[DanS]

15% and 33%.

[Asher]

That's perhaps the most disingenuous way you could possibly look at it. Congratulations.

[Kuciwalker]

No. Perhaps if you went somewhere where poor people actually exist you would realize how silly your argument is.

Think about this a little further, Aeson. The only way the price of food rises is either if someone spends more money on food now, or if someone is expected to spend more money on food later (ceteris paribus). If now or in the future the rich or the middle class had more money, how much of that additional money would be spent on food?

[Kuciwalker]

Kuci, there is one problem with your outline. When prices rose to 'distribute goods intertemporally according to expected demand', they made it rather harder for people to afford to buy things... which in turn led to the economy weakening, which in turn led to the expected demand not existing.

harder for poor people to buy things -> economy weakening is your unjustified step here.

Specifically, you have to explain how this reduces nominal expenditures, not real expenditures.

[Aeson]

Kuci,

I have thought about this a lot more than you have. I also lived through it seeing the effects first hand here in a rather poor area (still not the poorest though). The poor people here did not get more money from QE (or the high oil prices). They got less food or had to sacrifice other expenses for food. Either way they were poorer. That's what happened in reality. If the market was pricing oil because it thought people with little to no money were going to have more money to buy food, then it was retarded.

If now or in the future the rich or the middle class had more money, how much of that additional money would be spent on food?

Much more than the poor will. They can pay higher prices for their food. The poor, especially the poorest of them living on subsistence wages, cannot afford more food.

Very long term (decades) a healthy economy will lead to more poor being raised up. QE is not going to make any dramatic difference in the short term though. But what we got (I'm not saying it was all because of QE) here was 2x food prices at times. It's absurd to claim those prices represented earnings increases for people who had no earnings increases (and since many of them were in agriculture they actually had less) in the same timeframe.

[Tupac Shakur]

You're really not very smart, Aeson. Please just stop.