AlexMerced
Member
- Joined
- Nov 8, 2007
- Messages
- 7,373
Correlation doesn't mean causation, for example Keynesian economists like to blame tax cuts for speculation by the rich and blame bubbles on this speculation. They blame the Harding/Coolidge tax cuts of the early 20's for the recession of 1929 or the Bush tax cuts for the events of 2008 yet this totally misses the sources of speculation/risk taking.
People are only able to tolerate a certain level of risk they perceive, so if they perceive less risk they'll take more risk. Basically, people take risk not cause they have more money but because they perceive less risk. In the late 1920's this was caused by easy credit from the federal reserve who began open market operation in the early 1920s and 2008 was also fueled by lower interest rates from Fed Chairman Greenspan in the 2000s. These lower rates in particular the discount rate/fed funds rate represent the cost to the financial system of overleveraging/speculating (because these rates come into play when banks lend too much and don't have enough reserves to meet their reserve requirements) so if these rates lower the perceived risk of risky lending is less. To throw more fuel into the fire post-1929 you can add several other risk perception minimizing institutions such as FDIC,SIPC, PBGC, FNMA, Freddie, etc. which all put guarantees from government in different parts of financial system facilitating for further risk taking.
An understanding of this phenomena is vital to understand bubbles and mal-investment although weird arguments like these Keynesians and Progressives will use to attack tax cuts for example Cenk Uyger in this debate on economics on Russia today
[video=youtube;LA96U4ea604]http://www.youtube.com/watch?v=LA96U4ea604[/video]
So here's my video debunking bizzarre tax cuts claims such as they always increase deficits and that they lead to more savings which is bad for some reason.
[video=youtube;BIxhkGTvkzc]http://www.youtube.com/watch?v=BIxhkGTvkzc[/video]
People are only able to tolerate a certain level of risk they perceive, so if they perceive less risk they'll take more risk. Basically, people take risk not cause they have more money but because they perceive less risk. In the late 1920's this was caused by easy credit from the federal reserve who began open market operation in the early 1920s and 2008 was also fueled by lower interest rates from Fed Chairman Greenspan in the 2000s. These lower rates in particular the discount rate/fed funds rate represent the cost to the financial system of overleveraging/speculating (because these rates come into play when banks lend too much and don't have enough reserves to meet their reserve requirements) so if these rates lower the perceived risk of risky lending is less. To throw more fuel into the fire post-1929 you can add several other risk perception minimizing institutions such as FDIC,SIPC, PBGC, FNMA, Freddie, etc. which all put guarantees from government in different parts of financial system facilitating for further risk taking.
An understanding of this phenomena is vital to understand bubbles and mal-investment although weird arguments like these Keynesians and Progressives will use to attack tax cuts for example Cenk Uyger in this debate on economics on Russia today
[video=youtube;LA96U4ea604]http://www.youtube.com/watch?v=LA96U4ea604[/video]
So here's my video debunking bizzarre tax cuts claims such as they always increase deficits and that they lead to more savings which is bad for some reason.
[video=youtube;BIxhkGTvkzc]http://www.youtube.com/watch?v=BIxhkGTvkzc[/video]
