stimulus part 2

Monday November 10, 2008 - 8:31AM EDT

The more I think about the new stimulus package China announced the more I think about the one the US passed a while back. It seems as if the majority of China's stimulus will go into projects to build infrastructure and address problems with the populace. While the US one involves (so far the plan seems to be) to buy insolvent companies assets in the hope they will eventually be valuable again. There are important differences between the two that shouldn't be overlooked and it is not a simple comparison. But it does server as a good thinking exercise in ideas of what economic stimulus can be defined as. In all the talk about it in the United States there has been almost no talk of economic stimulus taking the form of infrastructure improvements or investment in the populace. Recently it has taken two forms, tax rebates and loans to badly run companies or the purchasing of their low value assets.

Maybe this is the perfect opportunity for a paradigm shift in economic policy and or structure. No one would argue that vast infrastructure improvements are needed but little has been said of action on them. Why continue to fuel the companies that have ultimately failed not only themselves but everyone connected to it. The talk of credit system collapse is not a false alarm, but it effects are still strangely predominantly psychological. What I mean to say is that based on a traditional standard of economics it is a disaster. So maybe we can take this time to introduce a new better standard. I guess no one really has a better one, or no one is willing to make that jump, or in the third case some ass clowns still think this current one works it just needs more money, ha.

Lets look at what is happening in some simple terms. At a basic level companies cannot raise capital for investment because they can't get credit. The usually free flowing credit markets have slowed down tremendously. When large entities can get extra capital for investment then the effects cascade down until it hits even the individual, can't get a car or house loan. Large purchases that require loans are halted, revenues go down for those selling large things and they need to cut back or go under.

Money is an concept, there may be corporeal representations of it, but it is still an abstract concept that can be said on some levels to be loosely tied to a perceived contribution to society, more precisely it is tied to representations of resources both natural and human (work).

Lets just think about the housing forclosure situation. Banks take in money to lend it out. By some formula that varies, banks need to have a certain amount of liquidity to stay solvent. Basically they need enough money to be able to give back the money that we as consumers gave them to hold whenever we ask. Not every single cent but an amount to where they feel comfortable they can serve the need.  So the money you deposit into the bank, the bank uses to loan out to that new neighbor moving in. It's a bit more detailed than that but that is the general idea. That not everyone is going to be using their money at the same time.

So continuing with the foreclosure people suddenly couldn't pay back the loans because they never really couldn't the first place. Terrible risk assement was done by the banks. So when they can't pay back the banks the banks suddenly have lots of property but reduced liquidity and eventually get to a point where they say we don't think we can serve people who want their money that they deposited into us.

My question is this measure to decide when they are in trouble. Something about it needs to change. It is an arbitrary measure that they come up with themselves. So instead of giving them money to continue their arbitrary measure lets reasses how they are making that measurement and switch their made up standards. Ok I'll admit the measurements aren't some fluky arbitrary measurement they are arrived at based on generations of data and many other factors. But still though, the aim should be the same. To revaluate the system of measurement. Damn I am tired.