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View Full Version : NYT Op-Ed: PM David Einhorn - "Easy Money, Hard Truths"




Cowlesy
05-27-2010, 07:43 AM
David Einhorn is well known for his bearishness on Lehman Brothers, which challenged their CFO to rebut his points about their lack of tangible common equality, which she could not. He is the PM of Greenlight Capital.

It's a long article but worth the read.

http://www.nytimes.com/2010/05/27/opinion/27einhorn.html?pagewanted=1&ref=opinion&adxnnlx=1274961836-S2GIT5PS9HpCY%20wdOins2w


Are you worried that we are passing our debt on to future generations? Well, you need not worry.

Before this recession it appeared that absent action, the government’s long-term commitments would become a problem in a few decades. I believe the government response to the recession has created budgetary stress sufficient to bring about the crisis much sooner. Our generation — not our grandchildren’s — will have to deal with the consequences.

According to the Bank for International Settlements, the United States’ structural deficit — the amount of our deficit adjusted for the economic cycle — has increased from 3.1 percent of gross domestic product in 2007 to 9.2 percent in 2010. This does not take into account the very large liabilities the government has taken on by socializing losses in the housing market. We have not seen the bills for bailing out Fannie Mae and Freddie Mac and even more so the Federal Housing Administration, which is issuing government-guaranteed loans to non-creditworthy borrowers on terms easier than anything offered during the housing bubble. Government accounting is done on a cash basis, so promises to pay in the future — whether Social Security benefits or loan guarantees — do not count in the budget until the money goes out the door.

A good percentage of the structural increase in the deficit is because last year’s “stimulus” was not stimulus in the traditional sense. Rather than a one-time injection of spending to replace a cyclical reduction in private demand, the vast majority of the stimulus has been a permanent increase in the base level of government spending — including spending on federal jobs. How different is the government today from what General Motors was a decade ago? Government employees are expensive and difficult to fire. Bloomberg News reported that from the last peak businesses have let go 8.5 million people, or 7.4 percent of the work force, while local governments have cut only 141,000 workers, or less than 1 percent.

angelatc
05-27-2010, 07:48 AM
Our generation — not our grandchildren’s — will have to deal with the consequences.

I don't mean to sound like I want the economy to collapse, because certainly I don't. But I almost do hope this is true, because we're the last generation to have a clue about what's wrong. Once our elders go, the common-sense voice will largely be gone. The younger generations don't know what it's like to be free. It's not their nature.

Cowlesy
05-27-2010, 07:53 AM
I don't mean to sound like I want the economy to collapse, because certainly I don't. But I almost do hope this is true, because we're the last generation to have a clue about what's wrong. Once our elders go, the common-sense voice will largely be gone. The younger generations don't know what it's like to be free. It's not their nature.


Our government leaders are faced with the same risk today. At what level of government debt and future commitments does government default go from being unthinkable to inevitable, and how does our government think about that risk?
I recently posed this question to one of the president’s senior economic advisers. He answered that the government is different from financial institutions because it can print money, and statistically the United States is not as bad off as some other countries. For an investor, these responses do not inspire confidence.

I'm wondering if that was Larry Summers....

angelatc
05-27-2010, 07:59 AM
Despite the promises by the Federal Reserve chairman, Ben Bernanke, not to print money or “monetize” the debt, when push comes to shove, there is a good chance the Fed will do so, at least to the point where significant inflation shows up even in government statistics. :)

Cowlesy
05-27-2010, 08:04 AM
Yeah, speaking of government statistics....


Why does the government understate rising costs? Low official inflation benefits the government by reducing inflation-indexed payments, including Social Security. Lower official inflation means higher reported real G.D.P., higher reported real income and higher reported productivity.

;)

Cowlesy
05-27-2010, 08:08 AM
He channeled some Ron Paul here.


The Fed hopes that by denying savers an adequate return in risk-free assets like savings deposits, it will force them to speculate in stocks and other “risky assets.” This speculation drives stock prices higher, which creates a “wealth effect” when the lucky speculators spend some of their gains on goods and services.