Senate Everything you always wanted to know about economics*

Just to add further, here's some additional information:

https://www.politifact.com/californ...-khanna/what-percentage-americans-own-stocks/

(this is Half True)

Here's the article on what Ro Khanna was referring to with the study by Wolff: https://www.nytimes.com/2018/02/08/business/economy/stocks-economy.html

Here's also a NYT very basic primer on the two (economy vs. stock market): https://www.nytimes.com/interactive/2018/02/08/business/stock-market-is-not-economy.html

 

@dp4m
Thanks I'll read them. I just want to clarify the reason of my confusion.
I assume that the value of stocks, on average, will be proportional to the actual value of the corresponding company (whatever the measure of this "value" is).
I assume that the value produced every year by US companies is proportional to their value (the bigger the company the bigger the production), and we know that the value produced is the GDP.
Then, if Americans produce 2% more than the previous year, I would think, erroneously, that the average value of the American companies would increase of roughly the same percentage.
This is why I'm puzzled. It's like the US companies grow somehow relatively quicker than the US economy, and it happens consistently every year.

 

GDP is the market value of the goods and services being produced on a yearly basis, not a measure of the value of the company generating the goods and services, per se -- which is what the stock market is.

So, for an example (to use a previous example): Uber is "worth" $52B (based on market capitalization). Uber lost $5.2B just in Q2 of this year. As in revenue - operating expenses was $5.2B in the red. Hence, you see the disconnect between the stock market and market caps and the actual goods and services being produced?

 

Yes, this is a good example to illustrate that it's wrong to consider them correlated.


My original thought was that, in your example, if Uber gets twice bigger, they will, on average, contribute twice to the GDP.

Put in other way, I didn't expect the ratio

total market capitalization / GDP

to be increasing over time.

 

I'm reading a book called "Capital", by Thomas Piketty.

He explains that the First Fundamental Law of Capitalism is
A=B *r
Where B is the capital/income ratio, r is the rate of returns on capital and A is defined as the "share of income on capital". What does it mean?

B and r seem intuitive, but I struggle to understand A.

 

What Richard Wolff explains here very clearly and in simple terms is one of my biggest perplexity about our current economic system.

 

So I am seeing headlines saying the federal reserve has taken interest rates to zero, and that this is a Big and Startling Thing. I think that when interest rate numbers get little, banks do stuff make money get . . . morely. Money embiggens interest rate get small? Economy go more faster?

What means this?
What means this for broke people (me)?

 

Short primer:

https://www.investopedia.com/articles/investing/031815/what-zero-interestrate-policy-zirp.asp

tl, dr: this is something that's not recommended long-term, but was used somewhat wisely after the 2008 recession to stimulate growth. Basically, it'll be harder for banks to make money in general but lending should go up and theoretically offset interest rate losses by the increase.

EDIT: Also, generally, if the Fed is doing it, it's not really under Trump's control and the new Chair -- while a Republican -- was appointed by Obama as a "The Supremes" deal (i.e. The West Wing) but isn't that right-wing. He served under Janet Yellen for quite some time.

 

So I should definitely call my mortgage broker who’s been asking me to look at refinancing options?

 

And it’s the lending thing that theoretically helps non-rich people? The folks who don’t have cash on hand to buy a house or a car or start a business without going into debt? And then these folks are supposed to help the working poor by buying the goods and services that make their jobs viable?

Atm I’m thinking of my nephew, who just lost his restaurant job. The place closed down due to something virus-related, I’m not sure what. Maybe too many customers were staying home. Idk. But in theory, a zero percent interest rate could entice his boss to take out a loan to save the restaurant, and then hire Julian back? And that’s why anyone without a cool million in the bank should care about this stuff?

Y/N?

 

Not really!

 

No, actually.

 

soooooooo... my understanding is the zero interest rate is separate from the QE going on as well. I may be mistaken on that in what I've read.

Generally yes, but not necessarily in the tangible ways you talk about. Yes, it can help a restaurateur create a low-interest bridge loan to cover this lean time, and allow staff to be paid, etc. But generally lended money keeps people in jobs (construction, agriculture, retail/service, etc.) as well as puts money in folks' pockets (i.e. HELOC, motrgage refi, etc.) that then gets injected into the neighborhood. It's not typical voodoo economics in the sense of rich people need money to innovate and invest, and it'll trickle down -- it's more of a direct stimulus.

 

Let me remind folks as well that we've already been doing QE since October of last year, to the tune of $60 billion per month. Chairman Powell made a big irritated statement that it "wasn't QE" because... that's what you do in a recession and clearly we can't be in a recession so it can't be QE. (Anyone who truly thinks Powell doesn't dance to Trump's tune needs to look closer at his actions and less at Trump's diversionary tweets).

 

Debt Cancellation Jubilee - the effects?

Let's say:

1. the U.S. government bought all the debt of developing countries worldwide, and most other other countries too, state/local governments' debts, and most major MNCs' debts

2. the U.S. government did a massive stimulus that paid-off all student loans, medical debt, mortgages, person credit card debt, small business debt and did a massive infrastructure upgrade for the nation and new Marshall plan for countries around the world (and capped future interest rates, expanded and renovated affordable housing, expanded social security, made college/healthcare public-funded, more national support for preK-12 funding and unemployment insurance and paid leave and childcare, hiked minimum wage to a living wage and tied it to inflation, a large rainy-day emergency fund for any future potential financial crash, all in a fiscally-sustainable way for the US government budget and basically balancing the budget)

3. the Federal Reserve was the borrower for the above stimulus, and buys up all other remaining U.S. government debt from China, Japan, UK, etc.

4. the U.S. cancelled all debt it held (of developing countries worldwide, most debt of most other countries, most major MNC debt) and later that day is followed by the Federal Reserve cancelling all debt of the U.S. government. Having barely a balanced-budget before, even with the expanded economic programs through progressive taxation, with no debt it means no interest payments and a large budget surplus. The U.S. government begins to build its savings account. Individuals and businesses across the U.S. are freed of debt and can now manage any new low-interest debt with a fresh start, and developing countries are finally free from their own debt around the world.

What are the economic effects: in the first month?

In 1 year?

In 5 years?

In 10 years?


I'm sure an economist or banker will read this and pull their hair out on why this would be terrible. But why? And how could something similar enough be done with those improvements of whatever the criticisms would be?

 

We're paying for the stimulus by printing money. And thats a good thing!

I'll be reading this again, as gov vs the fed and securities and treasures and debt this and that are a tad confusing.

 

Fed Makes Initial Purchases in Its First Corporate Debt Buying Program
https://www.nytimes.com/2020/05/12/business/economy/fed-corporate-debt-coronavirus.html

The Federal Reserve is buying corporate debt ETFs - another creative money-printing mechanism to keep the businesses afloat.

 

This’ll turn out really well when Trump and Co decide to cancel all US Treasury debt to China as punishment for the virus.

 

Anyone got an answer to this? As this is my question also.

 

I don't understand the question. What do you mean by "does not physically exist" ?