When the Fed buys mortgages from banks is it trickle down economics?

[bb113]

Why or why not?

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[Charlie Prime]

Define:  "trickle down economics".

[bb113]

But as our world and our economy have changed, only Washington has stood still. The progress we made during the 1990s was quickly reversed by an Administration with a single philosophy that is as old as it is misguided: reward not work, not success, but pure wealth. Give massive tax breaks to big corporations and multimillionaires and hope that prosperity trickles down to everyone else. Sacrifice investments in health care and education and energy and technology to pay for these tax breaks, and borrow the rest from countries like China, leaving our children to foot the bill.

http://www.realclearpolitics.com/articles/2008/07/an_agenda_for_middleclass_succ.html

[Richy_T]

I can tell you this much: It's wrong.

[nevafuse]

Trickle down economics requires equality.  You can't favor specific markets, companies, or people.  If the government only collected a fair tax & lowered the tax rate - trickle down economics would work.  But we have millions of specialized taxes that favor specific markets & hinder others making tickle down economics impossible by altering tax rates. 

Giving money to one industry isn't going to trickle down either - there's no incentive.  Especially an industry with high barriers of entry - aka only a few companies.  These companies can easily collude together & decide to keep prices & salaries the same.  Assuming it does create some competition between direct competitors lowering prices & raising salaries - what is the cost?  Every dollar everyone else now owns is worth 99 cents because the money supply increased?  This may be worth it for people that can afford new homes & take advantage of the better rate & ease of getting a loan.  But what about poor people that are forced to rent?  The apartment complex they live in may cost millions to refinance or already be paid off.  So their rent isn't going to change.  Or what about the owner of that apartment complex that loses a few customers that can now afford a new home?  When he purchase the apartment complex earlier that year, he had no idea the banking industry was going to be bailed out.  Now he has 5% less occupancy & can't afford the loan payment.

[Lethos]

Trickle down economics is flawed for two reasons.
- Human greed
- Trying to fix a complex problem with a simple solution in the wrong place.

Covering point 1, just because you give tax breaks, or in some way make it less expensive for big Corps to do something that the Government controls, does not end up translating into them deciding to reward those below them. If anything they reward the already high paid executives first, then stash abit more money away (invest or otherwise not seen by any low or middle pay worker).
By then their is very little extra cash left to go around and they are happier to just report a nice big profit to shareholders rather than spend it on any low or middle pay worker, since their salaries are usually industry standard and do not change much. Also since shareholders like to see big profits they aren't going to risk changing their business model too much by rewarding their customers in some way, unless the whole market also appears to be doing so. Most big business' are like sheep in that way, they won't change unless one company is brave enough to try it first and it is seen as a success and they risk losing business if they don't do it too. There is no incentive for them to follow through with trickle down economics, it's counter productive to their business profit margins.

Covering point 2, Trick down economics is usually applied to help growth, however to aid growth most business really require the low and middle class to have a decent amount of money to spend. The more excess income, the more spending power the masses have.
So why make it so the already rich have even more money? It doesn't help, give tax breaks, to the poorest so they do have more money available to go out and spend. Trickle up economics makes more logic sense, but take a guess who does the more potent lobbying for which method? Of course it's the big companies who have government convinced they can solve all the problems with the economy if they just had a few tax breaks here or there. The masses love to spend money, for the most part they have to, just how much they can afford to is their limitation, so if the masses have more money you've already given them all the incentive they need to go out and spend it.

[Richy_T]

Covering point 2, Trick down economics is usually applied to help growth, however to aid growth most business really require the low and middle class to have a decent amount of money to spend. The more excess income, the more spending power the masses have.
So why make it so the already rich have even more money? It doesn't help, give tax breaks, to the poorest so they do have more money available to go out and spend. Trickle up economics makes more logic sense, but take a guess who does the more potent lobbying for which method? Of course it's the big companies who have government convinced they can solve all the problems with the economy if they just had a few tax breaks here or there. The masses love to spend money, for the most part they have to, just how much they can afford to is their limitation, so if the masses have more money you've already given them all the incentive they need to go out and spend it.

Broken window fallacy. Without trying to pull a Mitt, many of the poor are poor because they have shitty money management strategy and will just end up wasting the money, probably giving it to those corporations who you decried above.

Trickle-down economics does have issues and has been abused and used to justify some truly crappy policies though. But in principle, it benefits nearly everyone to have money stay in the private sector than funnel it through the flaming-money-pits of government coffers.

[Fjordbit]

Yes. See also Cantillon Effect

[Etlase2]

Broken window fallacy.

LOL. You apparently lack any understanding of the broken window "fallacy" at all.

Without trying to pull a Mitt, many of the poor are poor because they have shitty money management strategy and will just end up wasting the money, probably giving it to those corporations who you decried above.

The wage stagnation of the middle and lower classes has nothing at all to do with this, of course, and the fact that most can only afford to buy that which they helped produce on credit because credit is more readily available than wages. This is obviously the way it should be and it makes for a thriving economy. See: economy.

Trickle-down economics does have issues and has been abused and used to justify some truly crappy policies though. But in principle, it benefits nearly everyone to have money stay in the private sector than funnel it through the flaming-money-pits of government coffers.

Obviously, in principle, it does not because of how much influence extra "trickle-down" money can have over politicians, and this sway is almost unilaterally used to benefit those who have the money to influence, not the general population. The "flaming-money-pits of government coffers" is simply a step removed from the private sector as all government spending does reach the private sector, and it in effect redistributes the wealth more evenly across the population. It certainly is not the greatest way to do it, but it is the only countermeasure to the private control of money.

[Richy_T]

Broken window fallacy.

LOL. You apparently lack any understanding of the broken window "fallacy" at all.

You apparently think it is about throwing rocks through windows.

[Etlase2]

You apparently think it is about throwing rocks through windows.

You have equated it with trickle-up economics. You are retarded and should have your posting privileges removed.

[myrkul]

You apparently think it is about throwing rocks through windows.

You have equated it with trickle-up economics. You are retarded and should have your posting privileges removed.

If intelligence were a factor in free speech, this forum would be a ghost town.

[Richy_T]

You apparently think it is about throwing rocks through windows.

You have equated it with trickle-up economics. You are retarded and should have your posting privileges removed.

A quite astounding defense of your position right there. A round of applause for you.

Your bi-polar histrionics make you of no further interest.

[SgtSpike]

The difference between the two is pretty simple.  With trickle down economics, you have people PRODUCING goods in exchange for the "free money" from the government.  With trickle up economics, you have people CONSUMING goods without correlating production.  It (partially) corresponds to the whole "give a man a fish" idea.  I realize that in the case of trickle down, not all the money makes it to the bottom, and probably very often only a very small portion of it does, but it does help people to be better tomorrow than they are today, vs just being passive consumers of government money.

My thought has always been, if people want to freeload off the government, at least make them work for it.  I don't care what it is, digging ditches, roadside cleanup, web programming, daycare, but make them do SOMETHING.  Call it a temporary government job.  It's month to month work, there's always a variety of jobs to do, regardless of the number of people "hired" to do those jobs, and the pay is minimal without benefits (a person could do better in the private industry).  Basically, it's a bottom of the barrel guaranteed job for when people don't have anything else.  But at least we'd be giving these people incentive to get off their butts.  No pay unless you work.  And, perhaps much more importantly, we'd be giving those people skills they can use later on in a "real" job, helping to increase our national productivity and decrease the burden on the national budget.

[Etlase2]

A quite astounding defense of your position right there. A round of applause for you.

Your bi-polar histrionics make you of no further interest.

I'm not here to educate you on what you could spend 3 seconds on wikipedia learning about. Your post was a complete mishmash of misguidance, but "opinion" comes more in to play on the other issues to which I replied in more detail. If you can't grasp the basic concepts, why on earth should anyone listen to anything that you have to say?

[whenhowwho]

It is not trickle down economics. It is a scam and I will explain why. The fed is made up of the same banks that the mortgages are coming from. Except the fed is not buying the mortgages it is buying securities on these mortgages. So basically they are buying what amounts to stocks on assets that they already own and both of those in the end will be paid for by the taxpayer with interest of course. All this is going to do is further devalue the US dollar. The fed is loaning itself basically 45 billion dollars a month for the securities and an additional 35 billion per month for other things. The only thing giving the dollar some sort of value is the fact that it is the world's reserve currency. For people who do not know what this means, it means that every country must purchase crude oil with the US dollar. The problem is that there is a shift happening where some countries are using gold or their own currencies to purchase crude oil. If this becomes a larger trend then the US dollar will become valueless and if this happens it ill go the way the zimbabwe currency went. 

[Richy_T]

What happened there? I thought the forum software blocked empty posts.

[bb113]

Obama on classical Trickle Down economics:

Give massive tax breaks to big corporations and multimillionaires and hope that prosperity trickles down to everyone else.

http://www.realclearpolitics.com/articles/2008/07/an_agenda_for_middleclass_succ.html

Obama on QE:

For our part, we will pursue measures to support the recovery in private demand and return the unemployed to work.

....

To support the recovery and strengthen the ability of our financial systems to deliver needed credit, we must maintain the momentum of financial repair. Resolving ongoing uncertainty about the transparency of bank balance sheets and the adequacy of bank capital, particularly in Europe, will help reduce financial market volatility and the cost of borrowing. We should support efforts to enhance transparency and increase disclosure by our large financial institutions and to act, where necessary, to strengthen the capital positions of our banks.

http://www.msnbc.msn.com/id/37777339/ns/business-world_business/t/obamas-letter-g-financial-reform/#.UIr7hYb2Zf0

The proposed mechanism of both seems to be:
Give more money to those who already have money in the hope that they then pass it on to those without money.

[Richy_T]

The proposed mechanism of both seems to be:
Give more money to those who already have money in the hope that they then pass it on to those without money.

Indeed. Anyone who is anti-big-corporation and is rooting for Obama needs their bumps read. Similarly for tea-partiers and Romney.

[bb113]

The proposed mechanism of both seems to be:
Give more money to those who already have money in the hope that they then pass it on to those without money.

Indeed. Anyone who is anti-big-corporation and is rooting for Obama needs their bumps read. Similarly for tea-partiers and Romney.

Oh yea definitely, this is not supposed to be a pro-Romney thread.