The real problem behind our stimulus package and the gov'ts way of thinking (loans, percentage)

[hskrfan2187]

I was reading a post just now (from someone that seemed to have a liberal mindset based on the argument he was having with someone that seemed to be a conservative) that said some people can't save to get ahead because they don't make enough to pay for basic things like food and shelter. I will leave the political stuff aside, but this leads into the problem behind the gov'ts way of thinking. The federal reserve is so worried about deflation because then they lose their "control." They want to keep away deflation and would rather cause inflation because they can somewhat control it with interest rates and we are headed for an inflationary period much greater than that of the late 70's thanks to this stimulus package. We can blame BOTH Bush and Obama for that.

Lets take a look at history. During the 1800's it was arguably a more productive economy than the 1900's and we developed many more things that we are now dependent on in our every day life. During this period the US economy grew at a substantial rate and there was plenty of job growth (and people were growing their wealth at the same time), but during the course of that century there was massive DEFLATION. We seem to consider deflation a bad thing but look at it in real terms. During the 1800's unemployment was very low and wealth was INCREASING. So imagine this, you're wealth is increasing but the price of living is DECREASING.

This sounds great because then the price of living decreases allowing more people to save (that otherwise would not have been able to). So why doesn't deflation occur now? Well during the 1800's there was a gold standard on every dollar. We couldn't print more money (which results in inflation) because you can't make gold out of thin air and each dollar was backed by a certain amount of gold. So it actually caused the government (get this) to BALANCE their budget, and when they couldn't spend anymore...they just couldn't spend.

Inflation eats away at the average persons savings (the person that hasn't learned the intricacies of investing). Most people just throw their money in a savings account, not realizing that the interest they earn doesn't keep pace with inflation and that treasury bonds very seldom out pace inflation. So this results in a decrease in buying power, only over the next decade we're going to see a dramatic decrease in buying power. Thanks to the governments way of thinking we are going to have a huge amount of inflation, instead of deflation (like the free markets would have done). The government needs to allow the recession to occur so that the price of goods, real estate, businesses, etc are on par with what they should be valued at. Right now (even with the 30%+ decrease in home prices) the average house is still substantially over priced in relation to what you can rent it for. Unfortunately the government has put us farther in to debt and instead of a decrease in prices we're going to get an increase in prices but it will all be relative when the price of a loaf of bread is now $20 at the store.

[golfgod]

Hskrfan wrote;

that said some people can't save to get ahead because they don't make enough to pay for basic things like food and shelter.

REAL WAGES for a large number of Americans (don't recall the exact % but maybe the bottom ONE HALF) DROPPED over the last 30 years! Maybe that's why.

During the 1800's it was arguably a more productive economy than the 1900's and we developed many more things that we are now dependent on in our every day life.

While we did develop many new items, the 19th century was NOT a more productive time. The OVERALL PRODUCTIVITY of the average person probably grew at a faster rate, but that was more due to a few things; steam power on boats and rails, large scale production of steel, rapid/electonic communication.

During this period the US economy grew at a substantial rate and there was plenty of job growth (and people were growing their wealth at the same time),

Check your statistics. The lower 1/2 were NOT growing their wealth, the top 1% were.

when the price of a loaf of bread is now $20 at the store.

Hmmm, is Nixon coming back? I'd bet that bread is within a % or so of what it was 15 years ago. No statistics on this, just my own experience.

Unless you've taken a couple of introductory economics classes I'd suggest you do so.

[sean98125]

The economy in the 19th century was pretty bad a lot of the time. There were major financial panics that lead to major depressions in 1819, 1837, 1857, 1873, and 1893.

We haven't had a major depression for 70 years now.

[jimhcom]

The world is now controlled by Banks. Banks thru loans create money by the fiat system. They then charge interest on that money they have created out of thin air. Because there was no product produced by them in exchange for that money it is by nature inflationary. Banks make their money from inflation. The Fed represents the banks. Is it any wonder they fight to keep inflation going? There was no inflation prior to the creation of the Fed. in 1913. Of course this process is detrimental to the people and has put the Federal Government, State and Local Governments, not to mention individuals in a state of debt that now threatens to destroy our very way of life, but none of that matters to the banks, as their obscene profits in the face of a disaster of an economy proves. At some point we have gone down the rabbit hole, and no one seems to be aware of what is happening. I would never have believed it, had I not witnessed it.

[hskrfan2187]

golfgod:
So I'm assuming you think that it's only the top 1% of Americans that build their wealth now as well? Do you have any idea why this misconception is out there? It's because common sense (or basic math) will show that a 10% return on $1,000,000 is a lot more than a 10% return on $100,000. So of course, if you have more money, you make more for each percentage point. This isn't something you can change, this is THE RULES OF MATH!! What's more important is how did the people get to that point? 80%...let me repeat that 80% of millionaires in this country are self-made. That's because they create a vision for their life and work their butt off to achieve something great. Don't be pissed at others that are more successful than you just because they were willing to work harder. That also goes along with common sense. Everybody in this country can grow wealth, it's living within your means (maybe that means you don't have a car, can't pay for cable, etc) then DON'T pay for those things so you can build your wealth.

About the bread comment, I know what inflation has been like over the last 15 yrs. I'm not talking about a small 3% increase trend that will continue into the future. The government is spending more than we have seen in our lifetime. They are trying to re-inflate a spending bubble that we can't sustain. All this stimulus is for not. Over the last 5 months the average american has taken on 3x as much debt as they have disposable income, but the gov't has the nerve to say we are in recovery? We already have too much debt and they're trying to make us borrow more money, otherwise they wouldn't be trying to "free up credit markets" if they weren't trying to make us borrow more. Those numbers are on the bea.gov website, so I didn't just make them out of thin air. The only thing the gov't points to when they say we are on the road to economic recovery is that GDP is up this. Well didn't you just see, we are putting ourselves farther into debt to keep our spending up. Our debt is increasing and a higher pace than GDP.

GDP is just a measure of our spending habits. So apparently I can walk out and get a $30,000 loan today and if I go spend it all I'm in a better economic situation than the frugal neighbor that won't spend unless they have to. Brilliant Geithner, that's a brilliant way of measuring economic recovery.