Am I mistaken or are the traders and investors killing themselves by this constant selling?

Christ, the market is approaching a 50% drop in value from the high of over 14,000 not long ago and the dingbats keep selling.

Don't you generally lose money when you sell like they're doing now?

Aren't they doing the opposite of conventional wisdom; buy low, sell high?

Don't these sellers ever ask why someone is buying
the shares they're panic selling?

I'm not an economist but I think the Government needs to start a massive, ongoing infrastructure spending program. Roads, bridges, the electric grid, windmill farms, alternative fuels, solar energy, geothermal energy, water and sewer programs, river dredging and cleaning, flood control, rebuilding levees..............

Right. Because our problem is that we are not spending enough.

To the extent that World War II helped us get out of hte Depression, it was due to the savings programs of World War II - buying war bonds and stamps, rationing - not due to the huge spending and consumption of the war.

Ironically, this type of saving and rationing would have probably been accomplished by the free market in the early 1930s, ending the Depression a decade earlier, if Hoover and later Roosevelt had not labored so hard to prevent the liquidations and consumption decreases that the economy had been demanding.

Read America's Great Depression by Murray Rothbard for a fuller treatment.

Dean - your plan - where do you intend on getting the money to spend? Is anyone going to be willing to lend to us to finance that huge a deficit? Or are you planning on printing it?

Hello, Hungarian pengo.

After reading Willem Buiter today I am less sure that a stimulus of whatever size would help if, like the banks in his rant, the money just sits on the sidelines waiting. Maybe throwing money at a recession is actually the second lesson of The Great Depression.

Maybe the first lesson has been missed. You know, FDR's 1st Inaugural Address. The one about only thing to fear is fear itself. That's only part of the quote. Here's the whole thing.

So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory.

Now as then we are paralyzed by unreasoning and unjustified terror. No one is going to spend or invest much until the panic subsides and that is not going to happen until it either wears itself out at the bottom of a full blown depression or someone convincingly conveys the impression that they know what happened and how to fix it.

The Keynesian prescription won't work this time.

First, unlike the past, there is no unity of capitalists and entrepreneurs/managers. The people who have capital are operating in the financial realm. It turns out that entrepreneurs like auto dealers are not capitalists: instead of having capital, they just have debt to finance the cars on their lots. Likewise, store "owners" don't own their inventory, much less their buildings.

Second, finance has gone short. The managers of businesses have all tried to capture the financial benefits of investing long term, but financing with short-term debt at lower rates. This works so long as you can turn over the short-term debt, but what we now have is a "run on the mangers" similar to a run on a bank. Banks are required to have liquidity and capital to be able resist a run. Banks are also backstopped by the FDIC and central banks. Managers of highly leveraged businesses have no way to resist a run by their creditors.

Third, we are now seeing a new kind of inverse Gresham's Law at work, where good debt drives out bad. The best debt is that backed by the national government's power to tax. So federal government debt is preferred by lenders over all others. This is particularly true when the owners of financial capital are off-shore.

What we are observing is that the Treasury is able to issue debt at very favorable rates, while other borrowers are hardly able to sell debt instruments at all.

It is likely to get to the point where essentially all lending is from capitalists to the government and thence from the government to corporations and other borrowers. This appears to be the natural outcome of current trends.

Ironically, the evolution of capitalism into the current structure, where the financial system is divorced from the rest of the economy, naturally leads to the demise of the capitalist system.

I don't know how to read the comma in the title of the post: The Stock Market, the Government Just Needs to Spend Money

But spending is not the answer. It is not what made a difference for Roosevelt and it won't help now unless it is very carefully done. WWII did not cure the Great Depression except to the extent that post-war the US was the only undamaged industrial economy around. So clearly we should bomb China, India, SE Asia and parts of Europe. That would easily restore the relative status of American Industry, and return many jobs to the domestic economy.

Government spending is generally only churning when it isn't merely excessive monetary inflation.

But if government can rebuild genuine confidence and genuine economic fundamentals, I'd love to see the cogent summary and the cost analysis. Just like Pelosi says to GM "Show me the plan before I show you the money", I insist on seeing how this proposed spending "stimulus" will be applied and will be expected to work.

Otherwise, count me out.

I'm all for spending money, but it needs to be a true investment, and not merely an expense. Obama's got it covered: public works projects, investments in energy efficiency, infrastructure improvements--he's already there. This is one of the primary reasons I'm willing to sit back and let the Big Three go under: they're heavily invested in stupidity. Their entire business model is built upon 19th century solutions. Let them die. And let the government reemploy displaced workers in jobs that are truly worth doing. Our oil-based economy must become a thing of the past. Our national security, our economic health and our future as a world leader and innovator demand it.

One thing that is worrying me is that we are facing a horrible leadership vacuum right now. While the world economy continues to melt down, we effectively have no president! This is an intolerable situation.

At the foundation of all of the other economic problems is a catastrophic collapse in confidence. I can hear the fear, worry, stress and absence of confidence on the phone all day at my job. Obama needs to leave his transition headquarters, hit the road and start leading ... NOW!

We can't sit around for two more freaking months as our antiquated political system, with it's creaky, absurdly long, colonial-era "transition process" meanders it unresponsive way toward inauguration day. The world moves too quickly now for this dowdy, ritualized minuet. The whole situation is preposterous. It seems to me that a new president should be ready to take office a week or two after he is inaugurated, tops, form his government on the fly, and get right to work on his legislative agenda.

Bush is worse than a lame duck. He has checked out and has been ostracized by the whole world. This political situation is extremely dangerous. Obama needs to get out there and fill the vacuum, protocol or no protocol! He should launch a national tour and campaign, and barnstorm the county with the message that help is on the way. If he can get people exited about what is around the corner, and start giving the business world clearer signals on what they should be investing in, and what the plan is, and if he begins suggesting legislative moves to congress, we may be able to hold off an utter, devastating collapse until is able to take office officially.

I certainly like the idea of Obama going on a road show and laying the ground work for a huge stimulus plan regardless of when the official transfer of power occurs. The reality of course is that Obama (as predicted) is governing a lot closer to the center than most of us would like.

There is a basic economic fact those in power are loath to admit. In order to save money, it must be invested, therefore what determines total savings isn't how much can be reserved from income, but how much can be productively invested. Above this and it just inflates asset values and creates a credit bubble, as more money is built up in shaky investments. Eventually that bubble bursts and all that saved wealth vanishes. What those at the top find very inconvenient is this means that since the size of the pie isn't expanded by saving, those with very large amounts of wealth reduce the effectiveness of investment for everyone else. As the old saying goes, money is like manure. Put it in a pile and it just smells, but spread it around and it makes good fertilizer.
The economy is a convective cycle of rising asset values and precipitating benefits, if there is only a little trickling down, it creates enormous amounts of surplus capital hanging over an otherwise parched economy. So what those in charge would like us to do, is to borrow that surplus wealth, at interest, and spend it to get the cycle going again, so they can siphon even more wealth out of the general economy. Obviously this only compounds the problem. The problem with treating the economy like a game of Monopoly is that in the game, when one person owns everything, the game is over, the money gets redistributed and it starts again. In the real world, this stage is called revolution and it can be quite messy for all involved. We need to accept that economic power corrupts just as easily as political power and it needs to be forcefully regulated.
Money is no longer based on a particular commodity, but on the ability to tax. This makes the monetary system a public utility, just like a road system. We don't need socialism, as that is public ownership of the entire economy, but we do need a public financial system, with a national currency and a banking system organized at all levels of government, from counties and towns, to cities and states and even a few national and international banks. These would be used by the sectors of the economy that would most benefit from the services the profits from the banks would fund. These communities would compete to provide the best services, as poorly run communities would suffer.

I'm all for spending a lot of money... on the people of the United States and those things that will benefit them. I think it important to note that just the act of spending lots of money isn't what is important. It is the amount in combination with what it is spent upon that counts.

Spending lots of the people's money on the few as has been the case for the better part of the last 30 years is not worth it. We know the result of that kind of spending: the rich get richer.

At long last, perhaps some of the comfortable people who have influence on national policy will finally come to realize that all the priorities that have been on the back burner for more than a generation need to be attended to. Those would be: a national health plan (not insurance but a universal, government sponsored healthcare plan), fund infrastructure improvement at the level it should be funded at including and perhaps especially mass transit and passenger rail on a national scale, massive increases in spending on basic scientific and medical research, huge increases on education at every level and a guarantee that every citizen who qualifies will get to attend a 1st rate college or university, drastically cutting the defense budget in order to start weening our country off the counterproductive waste of money on arms and death, and this is only the beginning of the list.

In answer to ideas above

If saving is the solution to this current crisis, Then have the Government finance a Mortgage Superfund.
Allowing WE THE PEOPLE to refinance to a lower rate.
As a Nation we would save trillions of dollars.
Every homeowner saving between $300.00 to $500.00 dollars a month

In line with the old adage "A penney saved is a penney earned." Ben Franklin

or is it "A penney earned is a penney taxed"

Money isn't something I know much about but aren't the dynamics we face today very different than in 1929?

Today we have huge sums, trillions, invested by individuals via 401K and IRA that didn't exist in 1929. People can easily see their losses. Both the number of people invested and the losses are huge.

I'm thinking this has a very pronounced psychological effect on individual spending. Given the losses, I am uncertain if people would spend even if they had it to spend. A lot of people will continue to keep track of the value of their retirement nest egg and may be reluctant to spend until it comes back up (if it does).

These savings vehicles were created and promoted by government. There is at present a major loss of faith in the ability of government to regulate the financial marketplace and thus protect all the millions of regular wage earners who have these investments. Government having encouraged this scheme creates a perceived obligation to see that it actually works and delivers the claimed result. Individual workers are going to examine this and see one thing. They will make the natural determination that they have been royally screwed. People will also make an association with supposedly funded retirement schemes that have gone into default.

In the end, where there is an explicitly devised scheme that provides for retirement savings, it has to work. Deregulating the financial marketplace, in this case via mortgage backed securities, in a way that allows for the ridiculous leveraging of all those trillions of retirement dollars and then having it fail can only be perceived as a failure of fiduciary responsibility.

I suspect this is very much related to manufacturing investment dollars moving offshore, taking away jobs, and concentrating investment opportunities to real estate.

Dean Baker's absolutely right. Paulson's dead wrong. Dean Baker's the solution. Paulson's the cause. Paulson murdered Lehman Bros. all by himself thus bringing on a global catastrophe that threatens every living being, and then makes revisionist speeches to explain his innocence to right wingers who applaud his nonsense.

A good author to read on the subject of reforming monetary policy is Ellen Brown;
http://webofdebt.wordpress.com/monetary-proposal/

We have allowed financialization to blow a huge bubble because we only trust little pieces of paper. Money doesn't store wealth, only prudent investing does and that means loaning it to someone else. That means debtors are a valuable resource that must be supported, not abused, for the economy to function. We have to learn to trust each other, one way, or another.
Excessive wealth is a mirage for most people, but the desire for it enables the few to control the many. Progressive taxation is a necessary economic reality. As it is, people are encouraged to drain value out of their community and the environment to store in a bank at compound interest. If that wasn't encouraged, we would have to invest by increasing the value of our communities and environment.

I'm all down with developing "green" infrastructure, but I don't see how it gets us out of *this* recession--I just don't think we have any clue what "green" infrastructure is going to look like. I don't see the point in pouring money into something only to turn around and pour it into something else again later. The "green revolution" is still largely just an idea.

Coming from a Republican county with a recent FBI sting for contract cronyism, among other things--I'm not too confident in the plan to send money to local governments for "current projects," either.

And, as others have pointed out, Obama seems to be sticking to his "one President at a time" perspective, which means nothing even happens for another two months. It seems like the lame duck Congress is steadily moving in reverse in just that direction. By inauguration day, the stock market-- certainly one well-watched measure on the state of the economy-- will be reporting 2008 results. If it's fugly, and it portends to be, we'll be in for even higher unemployment.

It seems to me that we *are going to* "take the recession now," whether we like it or not. I wonder what that's going to look like, and what we'll think we need to do once that settles in.

The great (Keynsian) British economist Joan Robinson said during the Great Depression

When we were up against sound finance and the Treasury view, we had to argue that any expenditure is better than none. Dig holes in the ground and fill them again, paint the Black Forest white; if men cannot be paid wages for doing something sensible, pay them to do something silly.

It is best if pay people to do sensible things, but if we have them do silly things, that is better than nothing. BUT, bailing out finance firms that use the money for strategic acquisitions, or send the money overseas does not of this. Since we appear to have no controls over the expenditures of those loans Paulson has made, the money may truly we wasted. It certainly won't stimulate demand by putting wages in peoples pockets.

It's sort of funny, isn't it?

The right wingers have rediscovered fiscal responsibility after eight years of reckless spending.

Unfortunately, their timing could not be worse. They want to exercise restraint just as the country sinks into a deep depression -- one of their own making.

To solve the current housing crisis

Nationalize Fan/Fred and rates will go down overnight….so, you have to ask, why aren’t they?

The ONLY reason is this: IF they Nationalize them, the U.S debt level will increase to $18Trillion. They would rather have Obama do that…otherwise, Bush will be on the hook for Quadrupling the U.S debt level.

As I said upthread reading history (The Great Depression) is only valuable if we come away with the right "lessons."

Prof. Michael Pettis has several "lessons" to impart, here and here.

He reminds us that in the 1920s the U.S. economy was export oriented and ran a very large trade surplus. By an accounting equivalency the U.S. had to loan to its counterparties (nations to which it exported). When credit dried up after 1929 exports crashed; and when things got really bad in Europe those loans American banks had made to the buyers of American exports in the '20s defaulted. The "savings" were destroyed.

In other words American "savings" was lent abroad to sustain the export machine. When that machine crashed the depression followed (Smoot-Hawley was an attempt to protect the export machine).

Had the "savings" been invested in capital goods for the domestic market demand in the '20s (there's no limit to human wants) would have risen, accordingly. But banks could earn more rent seeking profits by loaning abroad so that's what they did.

Obviously, the answer in the '30s was to reorient the economy from exports to domestic consumption. And that's why pump priming aimed at increasing domestic consumption may have been the wisest policy -- in the 1930s.

But today, unlike in the '20s we're an import nation with a trade deficit. What we need is to save more and consume less. Those savings -- once accumulated -- will buy the capital factors which will turn out the goods and services of a healthy economy.

Savings and not consumption is still the first priority!

My first question is...

How of you commenters up thread know what you're talking about...and how many of you are just trying to SOUND like you?

I admit freely, I don't know, but will offer my opinion anyway.

Taking the pump-priming metaphor literally, you prime the pump until the pump works on its own and doesn't need more priming.

To me, this means you spend on "things" that, when they start working on their own, generate revenue on their own.

So, putting some to work "painting trees" is fine, as far as I goes. The money does go into the economy to support other businesses. But painting trees itself doesn't put anyone ELSE to work (unless you count the folks you have to pay to strip the paint from the trees).

But if you use the money to keep someone in his house, then you are, in effect, giving work also to the plumbers, electricians and other craftsmen who will be hired to help maintain the house.

If you put the money into weaponry, then, when the bomb is exploded or the bullet shot, you are the end of the value chain. Nothing new is created. There is no potential for new value.

Similarly, if you rebuild a crumbling bridge--while this may be necessary and a wise purchase--you are at the end of the value chain. Cars are crossing the bridge the same as they were before, only more safely and, perhaps, there are more of them.

However, if you spend that money on mass transit, then you are creating opportunity for all the people who will be "working on the railroad" and you are creating economic efficiencies in terms of getting people to and from work, to and from shopping areas, less pollution causing fewer health problems and other benefits I'm too uninformed to list here.

So, bottom line, any spending is good in that it puts some people to work. But the best kind of spending is an investment that has a mutiplier effect--by putting many additional people to work and helping society function more efficiently, helping people live their lives more efficiently and satisfyingly, and reducing the costly side effects and health problems of our current social arrangements, e.g., long commutes, dirty electricity generation.