Stock Market, Bailout, My Retirement, My Future.
- Thread starter Jeremy
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Basically, it works like this:
When the government runs a budget deficit--spending more money than it's taking in through taxes and bonds--it needs to get that money from somewhere else. It can either print new money, causing some level of inflation depending on how much, or by borrowing money from other countries. When the U.S. borrows money from other countries, that lowers the demand for American dollars relative to other currencies. This shift in the relative demands is then reflected in the relative value of the currencies, which is exactly why the dollar has fallen so far over the past few years.
Now, how do foreign countries buy domestic goods? With domestic currency. Because a country in Europe can now get $1.50 with one euro instead of $0.90, they can get more dollars and hence buy more "stuff" in America, including American businesses.
That is the danger of having a falling dollar. When it weakens, we lose ability to buy foreign goods, and foreign countries gain ability to buy our stuff. You can blame going to war and cutting taxes simultaneously for that.
Though, I'm optimistic the dollar will pick up (it's already starting) and we'll start buying things back and buying stake in other countries again.
When the government runs a budget deficit--spending more money than it's taking in through taxes and bonds--it needs to get that money from somewhere else. It can either print new money, causing some level of inflation depending on how much, or by borrowing money from other countries. When the U.S. borrows money from other countries, that lowers the demand for American dollars relative to other currencies. This shift in the relative demands is then reflected in the relative value of the currencies, which is exactly why the dollar has fallen so far over the past few years.
Now, how do foreign countries buy domestic goods? With domestic currency. Because a country in Europe can now get $1.50 with one euro instead of $0.90, they can get more dollars and hence buy more "stuff" in America, including American businesses.
That is the danger of having a falling dollar. When it weakens, we lose ability to buy foreign goods, and foreign countries gain ability to buy our stuff. You can blame going to war and cutting taxes simultaneously for that.
Though, I'm optimistic the dollar will pick up (it's already starting) and we'll start buying things back and buying stake in other countries again.
Not specifically, but effectively. Just as the almost $1 trillion for the Iraq war can be looked at as having come from overseas, but not directly for that stated purpose.
Foreign countries buy our Treasury Bonds, which are basically IOUs, and give us money or credit. This is what the US National Debt is about. It's officially almost $10 trillion. And that doesn't even take into account the governent's promised future Social Security and Medicare benefits, which we've already squandered.
All told our actual National Debt is $50-80 trillion and growing by $2-3 trillion a year. That's if we don't spend any more money. So if we owe $10-80 trillion dollars, where would $700 billion more dollars come from? Out of thin air. Whether we call it taxpayers or overseas countries or military and civilian pensions or social security, it's the same non-existent money, otherwise known as credit. An economy that lives on credit, dies by it as well.
Foreign countries buy our Treasury Bonds, which are basically IOUs, and give us money or credit. This is what the US National Debt is about. It's officially almost $10 trillion. And that doesn't even take into account the governent's promised future Social Security and Medicare benefits, which we've already squandered.
All told our actual National Debt is $50-80 trillion and growing by $2-3 trillion a year. That's if we don't spend any more money. So if we owe $10-80 trillion dollars, where would $700 billion more dollars come from? Out of thin air. Whether we call it taxpayers or overseas countries or military and civilian pensions or social security, it's the same non-existent money, otherwise known as credit. An economy that lives on credit, dies by it as well.
I wasn't stating that as the reason for the sub-prime bubble to burst. I agree with what you are saying. It is completely true. But legislator's DID try to put oversight over fannie and freddie. Many times. According to one article I read he tried 17 times, but it was always blocked by the democrats. McCain predicted this was going to happen back '05 and tried to get bill passed then and in '07. Blocked along party lines.
But don't you think the Community Reinvestment Act encourages risky lending to some degree also? Especially some of the changes the President Clinton made to it.
Thank you James Johnson and Fraklink Raines. Wait...who are they advisors too again? It couldn't be the person who has received more money from fannie and freddie in just 3 years than John Kerry received in 20, could it?
But don't you think the Community Reinvestment Act encourages risky lending to some degree also? Especially some of the changes the President Clinton made to it.
Thank you James Johnson and Fraklink Raines. Wait...who are they advisors too again? It couldn't be the person who has received more money from fannie and freddie in just 3 years than John Kerry received in 20, could it?
To say they contributed nothing would be asinine, but I would say it's insignificant. It's like in the movie Lumo where the government representative blamed the rapes in the Congo on the women who dress too provocatively. I'm sure that has something to do with making them targets, but to blame the women for being raped? That's pretty ignorant and disgusting.
Same applies here. The financial corporations were in high demand for investment opportunities after the dot-com bubble burst, so they move to the housing market. The problem is that prime mortgages are in short supply. Thus, with no regulations or accountability, you can lower your lending standards and start pushing into the subprime market. This pushes housing prices way up, and Bear Sterns and the like saw no end in sight. Since these companies were not regulated, they could leverage at 30-1 and push massive amounts of money into these risky assets. When the bubble bursts, the risk eats you alive when you have no assets to back up your debt.
It's all about a creative response that occurred because their balance sheets weren't regulated like banks. It turned out to be creatively disastrous.
To be honest--and I don't mean to sound partisan or politically biased--I think the CRA is just an excuse that fiscal conservatives use so that they don't have to blame laissez-faire market economics.
Same applies here. The financial corporations were in high demand for investment opportunities after the dot-com bubble burst, so they move to the housing market. The problem is that prime mortgages are in short supply. Thus, with no regulations or accountability, you can lower your lending standards and start pushing into the subprime market. This pushes housing prices way up, and Bear Sterns and the like saw no end in sight. Since these companies were not regulated, they could leverage at 30-1 and push massive amounts of money into these risky assets. When the bubble bursts, the risk eats you alive when you have no assets to back up your debt.
It's all about a creative response that occurred because their balance sheets weren't regulated like banks. It turned out to be creatively disastrous.
To be honest--and I don't mean to sound partisan or politically biased--I think the CRA is just an excuse that fiscal conservatives use so that they don't have to blame laissez-faire market economics.
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