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View Diary: Stock market completely loses touch with reality (263 comments)

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  •  While the savings rate drops toward zero (62+ / 0-)

    What's more, all that consumer spending is going toward things like: rising health care costs, rising college tuition, rising food and energy prices.

      In other words, more consumer spending is NOT a good sign.

    “Wall Street had been doing business with pieces of paper; and now someone asked for a dollar, and it was discovered that the dollar had been mislaid.” ― Upton Sinclair

    by gjohnsit on Tue Apr 30, 2013 at 05:50:34 AM PDT

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    •  Ding, ding, ding!"Tell 'em what he's won, Johnny!" (29+ / 0-)

      ...a moped, a Winnebago...

      "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

      by bobswern on Tue Apr 30, 2013 at 05:57:45 AM PDT

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      •  Re: (26+ / 0-)

        I always wanted a Winnebago.

         BTW, found this about consumer spending.

        “Wall Street had been doing business with pieces of paper; and now someone asked for a dollar, and it was discovered that the dollar had been mislaid.” ― Upton Sinclair

        by gjohnsit on Tue Apr 30, 2013 at 06:08:37 AM PDT

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        •  Awesome catch! n/t (15+ / 0-)

          "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

          by bobswern on Tue Apr 30, 2013 at 06:16:38 AM PDT

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        •  Oh dear oh dear (12+ / 0-)

          the summation does not sound good.

          The consumer is clearly delivering a message about the state of the real economy.  Eventually, the disconnect between the economy and the markets will merge.  Unfortunately, there is no historical evidence of such reversions being a positive event.
          I think I'll go to a movie and fuggedaboutit.
          Seriously, it's a good article folks. Go read.

          You..ought to be out raising hell. This is the fighting age. Put on your fighting clothes. -Mother Jones

          by northsylvania on Tue Apr 30, 2013 at 06:52:20 AM PDT

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          •  *sigh* (1+ / 0-)
            Recommended by:
            Lying eyes

            The article has some valid points, but they're so mixed in with mush that it's painful trying to extract them.

            Drawing conclusions from a 0.1% increase in spending on a particular category is like drawing conclusions about plate tectonics from the crack that has started in the sidewalk in front of your house. And yelling about how the fed is blah blah blah asset bubble blah free money blah inflation blah blah blah banks blah, when (as Krugman says over and over and over and over) what the Fed is doing is absolute textbook Keynesian macroeconomics, and deciding you don't believe in such a thing is pretty much only for fools and people on the take, or for those who think they will be benefitted by a significant extension of the economic crisis.

            Look at his commenters. Basically all of them are yelling, 'SAVE YOURSELVES, FOOLS! BUY GOLD! BUY GOLD! FIAT CURRENCY IS JUST PAPER!' Uh huh. Sure. That's the crowd I go to when I want to understand macroeconomics.

        •  This is the first piece I've seen that really gets (2+ / 0-)
          Recommended by:
          3goldens, gjohnsit

          to what I think is going on here...

          All this new money... all these new costs for consumer goods and services... Where is the inflation?

          Durden spells it out, but doesn't give us the pronunciation, IMO...

          Interest rates are being held artificially low to ensure that creditors get maximum return on the money they "lent".

          Central banks are getting ready to become the "public/private" scam that puts citizens on the hook for market failures and to ensure that their institutional investors are made whole when the shit hits the fan. The little people will eat the losses...

          Nice economy we have here...

          Democracy - 1 person 1 vote. Free Markets - More dollars more power.

          by k9disc on Tue Apr 30, 2013 at 09:31:18 AM PDT

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          •  Umm...? (3+ / 0-)
            Recommended by:
            k9disc, tardis10, gjohnsit

            I'm not quite clear on what you're saying. Are you claiming that the Fed pumping money into the system is holding inflation down? Or are you somehow claiming that low Fed interest (loaning) rates are causing low inflation (despite the fact that all previous evidence shows that low interest rates from the Fed directly cause higher inflation?) Or are you claiming that there is some other intentional force at work that is holding down inflation despite the Fed's best efforts to increase it? If so, perhaps you could identify what you think it is?

            In fact, as anyone who has been reading Paul Krugman obsessively for the past few years (or anyone who has taken a couple of college macroeconomics courses) could tell you, the fact that low interest rates and a vast increase of the money supply have not conspired to create high inflation are a direct result of the situation our economy is in, the so-called 'liquidity trap'.

            Basically, here's how low fed funds rates and increases in the money supply cause inflation: when there's more money out there, which both of those things cause, there is more demand. (When you can get a cheap loan, you spend a little more. When more money is pumped into the economy via the fed buying back bonds, people (well, companies, banks, whatever) have more money in their hands, and more is spent.) And when the economy is producing as much as it can, then all this excess money can do is drive up prices. And when prices go up quickly, companies make more money, and there is pressure from employees to raise salaries, and so on.

            Right now, according to that model, the inflation rate should be going up enormously, given the low rates and the huge fed money infusions. But there's a break in the cycle: the economy is NOT producing all it could be, not by a long shot. So when some people have a little more money in their hands, Fred's House of Widgets can just increase production a little bit, maybe rehire someone at 80% of their former wage (what're they going to do, get a job somewhere else?), and produce a bit more. If we were at 'full employment', he'd have to pay his new employee 120% of what he used to, and he'd have to give everyone else raises or they would go to a competitor, and he'd already be running three shifts so maybe he'd have to even invest in a bigger, better factory for widgets. But right now he's producing about 2/3 of what he produced in 2007. Increasing that by ten percent is just not a stretch.

            In other words, if there's a lot of slack in the rope, as there is now, when you pull on the rope all it does is give you some more rope, it doesn't move the weight at the other end. The Fed is pulling on the rope pretty hard right now, but it doesn't appear to be pulling in rope any faster than it's being created, so we still haven't really started to move the weight at the other end of the rope.

            This is why stimulus was so important, and why the fact that we basically have been doing austerity for the past two years in the US is extending our pain so much. Stimulus doesn't have to work with that rope, it can just push on the weight directly.

            •  I think I was more angling on the idea that the (1+ / 0-)
              Recommended by:
              gjohnsit

              interest rates and inflation calculations are bunk - they are cherry picked and/or manipulated because all of this QE money and lean economics has not clicked inflation up.

              Also they keep wailing about inflation - terrifying inflation - when we really should have some officially because cost of living is going out the roof.

              I appreciate the lesson, Fred. Hard to wrap my head around sometimes.

              Democracy - 1 person 1 vote. Free Markets - More dollars more power.

              by k9disc on Tue Apr 30, 2013 at 01:14:11 PM PDT

              [ Parent ]

              •  'Cost of living'? (2+ / 0-)
                Recommended by:
                k9disc, gjohnsit
                I think I was more angling on the idea that the
                interest rates and inflation calculations are bunk - they are cherry picked and/or manipulated because all of this QE money and lean economics has not clicked inflation up.
                Now, that's just assuming your conclusions, and working backward to the evidence. The fact is, the government is quite neutral when it comes to stating inflation, and they're perfectly transparent about it as well. They have to be, because their numbers are analyzed by a thousand people as soon as they come out.

                Don't believe me? Check out the Billion Prices Project at MIT. It is an alternative way of measuring inflation, which tracks the prices for an enormous number of things, including by unit weight or volume (so that the tracking works properly when Lays downsizes their potato chip containers) and so forth. It's meticulous, and it is not run by the government or calculated in the same way the government calculates inflation at all, and yet their numbers track governmental inflation numbers extremely closely (which validates both numbers).

                So, really, if you are accusing the government of cooking the inflation numbers, you have to accuse MIT of being in on it too. And Stanford, which has an inflation project, and several other schools as well. Not to mention all the professors who check the numbers independently, and all the professional investors who depend on them and would notice pretty quickly if something were significantly off.

                All of these people would have to be in on it, or would have to be unable to communicate their knowledge of this conspiracy to anyone. As it is, the only people claiming that inflation numbers are cooked are, well, cranks, and people who make their money causing panics. (Chiefly via gold.)

                Also they keep wailing about inflation - terrifying inflation - when we really should have some officially because cost of living is going out the roof.
                I keep hearing this, and it may well be true in some regions, but aside from housing (which is going nuts around here, because 'here' is the SF Bay Area and housing is ALWAYS going nuts around here) I have not seen prices rising significantly in years. A meal in a restaurant is the same price as it was five years ago. The food I buy at grocery stores has gone up very little. My phone bill, my internet bill, my laundry bill, my auto insurance, none of those have budged in five years. You'd think if there was major inflationary pressure, those companies would have noticed that their costs had increased significantly, and would have raised their prices. Or that they'd have gone out of business, since that's how inflation works.

                I am not saying that you're wrong, though. Because there are significant differences in inflation in different parts of the country. That's always been true. You may well be seeing significant price increases, where I'm seeing even less than the national average (again, aside from housing). But it all averages out to, well, not very much, right now.

                •  No Way. (1+ / 0-)
                  Recommended by:
                  gjohnsit

                  There is no way that we nearly tripled energy costs and there's no inflation. What was the percentage increase in health care costs? Not to mention healthy food.

                  I'd question MIT's numbers as well. There has to be something pretty significant missing when it comes to the bottom 70%.

                  Democracy - 1 person 1 vote. Free Markets - More dollars more power.

                  by k9disc on Tue Apr 30, 2013 at 07:07:48 PM PDT

                  [ Parent ]

                  •  There is both deflation and inflation (0+ / 0-)

                    Debt is deflationary, especially when it is borrowed to pay interest on previous debt.
                    Normally QE wouldn't be inflationary, but only if they sell those assets later (something that isn't happening and won't happen).

                      Thus you have the Fed fighting deflation with inflation, which sounds perfectly fine. You probably picture in your mind a guy in a bathtub turning the hot and cold taps to get it "just right".
                       But there is a problem with that image: the Fed can't control where the inflation goes. Thus the things that are deflating might not be getting any inflation and visa versa.

                      Thus you have energy prices out of control, asset prices at sky-high levels, while wages continue to drop.

                    “Wall Street had been doing business with pieces of paper; and now someone asked for a dollar, and it was discovered that the dollar had been mislaid.” ― Upton Sinclair

                    by gjohnsit on Wed May 01, 2013 at 06:31:19 AM PDT

                    [ Parent ]

                    •  You've got the free money free and the (1+ / 0-)
                      Recommended by:
                      gjohnsit

                      valuable money captured.

                      IBM, Citibank, Target and such don't give a shit. Their money is free. If it costs a shit ton, who cares, just write it off.

                      There's a whole economy out there of throw away purchases and usage of services. I've worked at 5 star hotels where corporate guys stay, repetitively, week or 2 at a time. They'd eat in the restaurant, park their car 3x per day @$30, room service nightly. I'd print out or drop off their $4000 invoice when they'd check out.

                      This feels like inflation to us, but it's not, it's that massive deflation, right? So it must be compensated for by inflation on human things - increased food and energy costs, rent, services, etc.

                      Is that a decent read on the situation?

                      Democracy - 1 person 1 vote. Free Markets - More dollars more power.

                      by k9disc on Wed May 01, 2013 at 10:30:50 AM PDT

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                    •  So this is micro vs macro econ? nt (0+ / 0-)

                      Democracy - 1 person 1 vote. Free Markets - More dollars more power.

                      by k9disc on Wed May 01, 2013 at 10:32:33 AM PDT

                      [ Parent ]

                      •  Macro nt (1+ / 0-)
                        Recommended by:
                        k9disc

                        “Wall Street had been doing business with pieces of paper; and now someone asked for a dollar, and it was discovered that the dollar had been mislaid.” ― Upton Sinclair

                        by gjohnsit on Wed May 01, 2013 at 11:07:08 AM PDT

                        [ Parent ]

                        •  But where and why the inflation is happening (0+ / 0-)

                          is micro, correct?

                          The individual's situation in the economy - experiencing massive inflation and instability - bearing the brunt of the FEDs balancing act, but it's only showing itself on the micro level which is kind of boring to economists so it gets no coverage?

                          Democracy - 1 person 1 vote. Free Markets - More dollars more power.

                          by k9disc on Wed May 01, 2013 at 11:23:43 AM PDT

                          [ Parent ]

      •  hell, a herd of Winnebagos, we're givin' 'em away! (3+ / 0-)
        Recommended by:
        gjohnsit, bobswern, MKinTN

        (gotta go find that song now, it's been years)

        "Watch what you say or they'll be calling you a radical, a liberal, fanatical, criminal..."-7.75, -5.54

        by solesse413 on Tue Apr 30, 2013 at 06:30:34 AM PDT

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    •  "The savings rate" IS a myth as far as the... (20+ / 0-)

      ...the bottom half of our population is concerned. To quite a bit lesser extent than the stock market, it reflects the financial situation with regard to the upper half/third/10% of our population. People in the lower half of the economic spectrum really don't save ANYTHING substantive, at all. They're either in poverty or living paycheck to paycheck. This is all HEAVILY substantiated with statistical facts, of course (as you know). Frankly, I'd call "the savings rate" just another statistic that contorts greater truths about what's really happening in our economy, today.

      "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

      by bobswern on Tue Apr 30, 2013 at 06:43:17 AM PDT

      [ Parent ]

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