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Originally Posted by Fish2006
What Barack is doing to help is:
a.) Rally the dollar by taking money out of the economy. Additional taxes on incomes of $250k+ will do that.
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Say what? That money is not taken out of the economy... it just gets spent right back into it. Even if Obama were to pay down (refinance) the National debt, much of that debt is held by foreign entities.... meaning much of the debt pay-down will get repatriated into local currency, thus devaluing the dollar even more. The only REAL way to improve the value of the US dollar is to a) reduce the trade deficit (becoming independent of foreign oil would help) b) increase interest rates, and c) BUY DOLLARS.
To say Republicans "let the dollar slide" is not a fair argument. I'm sure they are flattered that you think they have so much power, but they really don't. And any criticism of a weak US dollar also needs to be accompanied by the counterbalance to the argument -- the weak dollar has kept this country out of recession (GDP grew by 3.3% in Q2 if you believe the economists -- they've been a bit hit and miss lately). For the first time in a LONG LONG time the trade deficit (Ex oil) is approaching respectable levels... The bottom line is that the US needs to become less of a spender and more of a saver... the alternative looks a lot like Zimbabwe (how would you like to pay $1,000,000 for a coke this time next year?). The current Republican administration is been a big disappointment to me (as a fiscally conservative person), but an Obama administration would be even worse. Perhaps Obama brings change you can believe in, but he also brings policies he won't define other than the cost, which is unaffordable.
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Originally Posted by Fish2006
b.) Put real money into windmills, solar, and yes, new drilling. Basically, the Pickens plan. Some of it will probably piss off the far left wing, so he talks about it less, but rest assured, it will probably happen.
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I would LOVE to see this country move to solar and wind.... but why won't Obama define his plan? He is now promising to break our dependance on foreign oil within 10 years! That would be wonderful. I would LOVE to be free of foreign oil.... I would love for our oil companies to not only DRILL DRILL DRILL but to SELL SELL SELL our oil to the world and reverse the flow of money. Instead of oil being a "natural resource" it could be a "store of value" which can be passed on to our businesses, consumers, and government tax revenues.
But here is the problem... HOW? Here is an inconvenient truth for you -- It will costs hundreds of BILLIONS of dollars to rebuild our country's electrical infrastructure to support wind and solar power on a substantial level. Why? Because it is hard/impossible to store energy once it is collected, and our current antiquated electrical transport system CAN NOT TRANSPORT the energy from where it is easily collected (the midwest for wind, southwest for solar) to where it is consumed the most (the coastal cities).
So, we need to rebuild our infrastructure... but how? Should the government nationalize our electrical production and pay for it with tax revenues? That would be inefficient and impractical. Besides, the tax increases Obama has proposed have already been promised elsewhere. As we all know by now, the most efficient and effective way to implement such a project of great scale is to rely on the free market and for it to be funded by capital markets. WHOOPS.... problem with that... Obama is going to raise corporate taxes by double digit percentage points.... That puts a serious damper on business' ability (and incentive) to re-build our electrical infrastructure as corporate coffers are emptied into the pockets of Washington.... that being said, if oil prices remain high, there will remain potential margin for businesses to seek out in the forms of alternative energy as a mainstream source of power... but where to get the money? YES, that's right.. they'll do what our great producers often do to raise capital to finance these big expenditures: Tap into the capital markets.... perhaps they'll float share issues on the stock market to raise the necessary capital.... WHOOPS.... problem with that.... Obama is going to raise the capital gains taxes (Effectively reducing the demand for the very paper our businesses need to float to replenish the cash the government just took from them). Quite a conundrum.
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Originally Posted by Fish2006
c.) Put restrictions on leverage that our banking institutions can take on. This creates less air for financial bubbles, because hedge funds operating in the context of companies like Bear Stearns can't borrow money at 100x of what they have chasing returns. Having that much leverage in the hands of traders, rather than actual businesses, misallocates capital by putting it into whatever herd mentality says is going up, rather than in the hands of entrepeneurs who can actually put it to move productive uses. Notice the lack of VC money in the last 7 years? I have.
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You make some good points here.... although your attack on hedge funds is misplaced (perhaps you misspoke.... did you mean to attack prop trading?). Asset bubbles are most certainly created by cheap money. And regulation of our banking system surely could use an overhaul... rather, enforcement.... the rules are already there, they are just easy to get around.
Your understanding of leverage is a little lacking though. Leverage doesn't misplace capital (it transfers it).... Leverage is nothing more than a loan that must be repaid (or defaulted upon) like any other loan. Put in that context, everyone (with a decent credit score) has access to leverage. A mortgage is leverage (making a 5% down payment on a home is the same as having a 5% margin requirement in the financial markets -- you're leveraged 20x). The entire world is built upon leverage, and the absence of leverage (i.e. the credit markets) would create economic armageddon. Speaking of putting leverage in the hands of traders... it's not the hedge funds OR the prop trading that is killing the banks right now, it's the repackaging (CDOs, etc) of shady mortgages that are defaulting. Countrywide didn't go belly-up because of leveraged prop-trading... it went belly-up because of shady business practices with respect to mortgage lending and the misguided and uneducated belief that the asset bubble would never pop (just level off). Hedge funds and prop-traders rarely get caught in this mentality - it has happened, but it is rare.... These traders don't lose sight of reality.... they KNOW bubbles pop and they actively take part in the popping (take note of the inversion of the put/call ratios on the oil markets over the past month). Speaking of VC money... according to the National Venture Capital Association, VC money has increased from $22 Billion in 2002 to $30.5 Billion in 2007. I wouldn't call that drying up. Of course it pales in comparison to 2000, when there was $105 Billion in VC money... then again, we know what happened in 2000. I guess, in that context, one could make the argument that VC money is similar to leverage and creates asset bubble....
Just my two cents, I hope I was not offensive.