Pepper sprayed for public safety.

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Originally Posted by sebastian_dangerfield

You're aware how the old invest, right?

In all kinds of different ways. Perhaps they are more likely to have money parked in a shitty CD somewhere, but they also get cost of living increases in the Social Security that others in the world do not get.

But now we have to make economic policy for everyone because Grandma's a shitty investor? No thanks.

Yes it is.

I don't know what this means.

We've been coddling investors for four years at cost to youth and workers.

Huh? The cost to youth and workers, who are more likely to be workers than savers, is in persisting with low inflation and low growth.

The best we can get with blunt monetary policy is selective inflation.

The best we can get with blunt monetary policy is growing NGDP. Some of that will be real growth, some of that will be inflation. As we have no policy tool that allows us to separate the two, we can do what we can do.

But growing NDGP means growing income which means lessening relative debt burden and more nominal spending.

Allow bkcy modification of mortgages.

I'm not opposed to that, but it really isn't that simple.

And we have to admit that this will make credit more difficult and more expensive to get.

The banks will start writedowns and modification in earnest very quickly after that.

Woo hoo! The bank's actually insolvent now (rather than virtually) and your savings are either gone or on the taxpayer now. Success!

On top of that, which bank agrees? The servicer? The one who sponsored the MBS? The many who hold the MBSs? The one who sponsored the CDO that included the MBS? The holder of those CDOs?

No I'm not.

Okay then, but I don't follow why you keep saying the things they said about how everything will right itself if only we go through enough pain/prices fall enough.

They don't serve a purpose.

Funny how I have this distinct memory that you said otherwise just moments ago.

But they happen for a reason, and when they occur, to fight them endlessly with monetary policy is simply to prolong the things.

Now you're going Austrian? To fight them endlessly with monetary policy is to help solve them.

This is different from the current situation how?

Your approach is to make the current hole deeper. Granted, you believe that will make it shorter and I think it will make it longer, but nonetheless, your position is that we should make things worse so they can get better.

On Hayek's timetable, it'll go faster.

Yes, that worked so well in the Great Depression.

The problem with Hayek in times like these is that interest rates cannot fall to the market clearing level because they are already at zero. That's why Hayek disciples, in this situation, should actually be calling for more inflation. The resulting negative real interest rates are how you make the market for loanable funds clear.

We need jobs. Credit is not jobs.

Businesses invest via credit.

We need wage-created economic activity.

Yes, that's why we need more national income (NGDP).

For starters:

1. Allow bkcy modifications of primary residence mortgages;
2. Allow bkcy discharge of student loan debt to 50% of face;
3. Expand HARP to cover all underwater homeowners with closing costs capped at $1000;
4. Reduce bankruptcy refiling bar from 7 to 5 years.

I like all of those as ways to help people who are in trouble.

None of them should be expected to be particularly stimulative. To the extent it means more spending elsewhere, it's directly at the expense of the investors holding the mortgage and the housing industry (not to mention the other homeowners whose home values will drop yet further).

You're missing my point, which is an investor in a bad risk deserves to lose.

First and foremost, macroeconomics is not a morality play, and enforcing moral judgment doesn't help. All of the big banks deserved to go under back in 2008. We don't allow that because the outcome of enforcing those just desserts is 1929 (or any of the bank panics of the late 19th and early 20th centuries).

If you can't see the current rally is build on quicksand

I don't know what you mean by current rally. Stock prices are basically where they were a decade ago. That's not a rally, that's a lost decade.