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Senate Everything you always wanted to know about economics*

Discussion in 'Community' started by 3sm1r, Aug 14, 2019.

  1. dp4m

    dp4m JCC Playoff Pick 'Em Winner, Also a Narc star 10 VIP - Game Winner

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    Nov 8, 2001
  2. 3sm1r

    3sm1r Force Ghost star 5

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    Dec 27, 2017
    @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.
     
  3. dp4m

    dp4m JCC Playoff Pick 'Em Winner, Also a Narc star 10 VIP - Game Winner

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    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?
     
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  4. 3sm1r

    3sm1r Force Ghost star 5

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    Dec 27, 2017
    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.
     
  5. 3sm1r

    3sm1r Force Ghost star 5

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    Dec 27, 2017
    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.
     
  6. 3sm1r

    3sm1r Force Ghost star 5

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    Dec 27, 2017
    What Richard Wolff explains here very clearly and in simple terms is one of my biggest perplexity about our current economic system.


     
  7. poor yorick

    poor yorick Ex-Mod star 6 VIP - Former Mod/RSA VIP - Game Host

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    Jun 25, 2002
    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)?
     
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  8. dp4m

    dp4m JCC Playoff Pick 'Em Winner, Also a Narc star 10 VIP - Game Winner

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    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.
     
    Last edited: Mar 15, 2020
  9. DarthIntegral

    DarthIntegral Baseball Draft Commish/SFTC Tiemaster star 9 VIP - Former Mod/RSA

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    Jul 13, 2005
    So I should definitely call my mortgage broker who’s been asking me to look at refinancing options?
     
  10. Darth Punk

    Darth Punk JCC Manager star 6 Staff Member Manager

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    Nov 25, 2013
    American economy be like “I’ve Yellen, and I can’t get up”.
     
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  11. poor yorick

    poor yorick Ex-Mod star 6 VIP - Former Mod/RSA VIP - Game Host

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    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?
     
  12. Darth Punk

    Darth Punk JCC Manager star 6 Staff Member Manager

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    Nov 25, 2013
    It's the same as before. Remember quantitative easing (QE), from back in 2008? the Fed are making another $700B in asset purchases (bond buying). Did you benefit last time around?
     
  13. Darth Guy

    Darth Guy Chosen One star 10

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    Aug 16, 2002
    Not really!
     
  14. poor yorick

    poor yorick Ex-Mod star 6 VIP - Former Mod/RSA VIP - Game Host

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    No, actually.
     
  15. Darth Punk

    Darth Punk JCC Manager star 6 Staff Member Manager

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    Nov 25, 2013
    Flood the system with this much (liquidity) money, and that money has to go somewhere. The last lot found it’s way into the stock market, and property.
     
  16. dp4m

    dp4m JCC Playoff Pick 'Em Winner, Also a Narc star 10 VIP - Game Winner

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    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.
     
  17. Darth Punk

    Darth Punk JCC Manager star 6 Staff Member Manager

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    Nov 25, 2013
    @dp4m I think you're right. For the most part it's all a copy/paste response to keeping the machine lubed
     
  18. blackmyron

    blackmyron Chosen One star 6

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    Oct 29, 2005
    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).
     
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  19. Ghost

    Ghost Chosen One star 7

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    Oct 13, 2003
    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?
     
    Last edited: Mar 25, 2020
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  20. VadersLaMent

    VadersLaMent Chosen One star 10

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    Apr 3, 2002
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  21. Rylo Ken

    Rylo Ken Force Ghost star 6

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  22. Vaderize03

    Vaderize03 Manager Emeritus star 6 VIP - Former Mod/RSA

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    Oct 25, 1999
    This’ll turn out really well when Trump and Co decide to cancel all US Treasury debt to China as punishment for the virus.
     
  23. Darth Punk

    Darth Punk JCC Manager star 6 Staff Member Manager

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    Nov 25, 2013
    Watch Peter Schiff break down how ****** up the economy really is.
     
  24. BRE

    BRE Jedi Master star 3

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    Nov 30, 2009
    Anyone got an answer to this? As this is my question also.
     
  25. 3sm1r

    3sm1r Force Ghost star 5

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    Dec 27, 2017
    I don't understand the question. What do you mean by "does not physically exist" ?
     
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