Is Citigroup "too big to fail"?

[Tippit]

This is simply untrue.

Pick almost any single necessity -- food, shelter, clothing, transportation, medical care, entertainment, work tools -- and you'll find that when measured as hours-of-labor-at-prevailing-wage, it almost certainly costs less today than it did in 1935. The exceptions are generally things where you can't buy the 1935-equivalent any more because they have been so overtaken by technology that no one is interested in owning a horse-drawn plow.

That's nice, except the discussion is about dollars, not the abstract economics concepts like "hours-of-labor-at-prevailing-wage". I can't pay the rent with "hours-of-labor-at-prevailing-wage", or buy food and fuel, I have to use Federal Reserve Notes. You're comparing apples with oranges, and then insinuating that the lower real cost of oranges is due to that wonderful beacon of prosperity that is the Federal Reserve, which is a lie. While technological and productivity gains have reduced the real cost of many goods between now and 1935 none of this has anything to do with the Fed or its inflation tax. In fact at the height of the Fed's multi-decade inflation-induced real estate bubble, median home prices in terms of minimum-wage hours were at the absolute highest point in US history, pricing poor people completely out of home ownership. Of course, then the predatory lenders were willing to step up with their negative amortization loans and other ridiculously unscrupulous terms. In essence, those people who "bought" homes over the past few years were nothing but glorified renters at outrageous terms.

Even in housing, where there has been a substantial increase, that's because 1935-era housing conditions were so bad by modern standards that they're often not legal any more. (The 2006 International Residential Code, for example, specifies that habitable rooms must have at least 70 square feet -- many municipalities are even more generous.)

So while it's true that I pay twenty times as much in nominal dollars for a nickel candy bar, I also make twenty-five times as much an hour.

And it's also true that inflation has wiped out the savings of anyone who attempted to save money over that period. I would also point out that the same principle which makes compound interest apparently difficult for some people to grasp, works the same way for the inflation. The effect of the inflation tax on savers is devastating.

As an example, a cheap new car cost $625 in 1935, when the average wages were about $1600/year. Today, average wages are about 25 times that ($40,000), and a cheap new car costs about $15k, or 24x what it cost in 1935 -- and it's a substantially better car.

Your analysis is lacking. A better way to look at the situation is in terms of proportional cash flows. While some prices may be relatively lower in terms of wage-hours, asset prices have skyrocketed due to persistent long term inflation. This forces poor people to become heavily indebted in order to purchase homes and cars, and the cost of debt-service is very high as a proportion of people's income. Even though debtors benefit from inflation because the value of their debt is inflated away, they still have to compensate creditors for this in the form of higher interest rates.

 

[ponderingturtle]

Broadly speaking when the failure will result in the collapse of all the other major finacial institutions in a major world economy.

But the world ecconomy would recover is 20 years or so, what is the big deal.

It is like all that crap about the great depression and it didn't even last 20 years.

Bah(waves hand dismissively)

 

[drkitten]

That's nice, except the discussion is about dollars, not the abstract economics concepts like "hours-of-labor-at-prevailing-wage".

Yes. That's one of the reasons that it's bat-guano insane.

I can't pay the rent with "hours-of-labor-at-prevailing-wage", or buy food and fuel, I have to use Federal Reserve Notes.

Really? I haven't used Federal Reserve Notes to pay the rent or to buy fuel in years.

That's what direct-deposit does. I work, it goes into a bank, and it gets paid through my ATM card. It doesn't matter what the unit is that the bank decides to measure it in, as long as my workplace and my gas station accept the same units.

You're comparing apples with oranges, and then insinuating that the lower real cost of oranges is due to that wonderful beacon of prosperity that is the Federal Reserve, which is a lie.

Well, at least you admit your statement is a lie.

Your analysis is lacking. A better way to look at the situation is in terms of proportional cash flows. While some prices may be relatively lower in terms of wage-hours, asset prices have skyrocketed due to persistent long term inflation.

Not in any reality-influenced metric. The ONLY metric for which this is true is in nominal dolalrs.

This forces poor people to become heavily indebted in order to purchase homes and cars,

Wrong as usual, King Friday.