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Governments Preparing To Bail Out DRAM Makers 494

Posted by timothy
from the bailing-buckets-the-new-best-conference-swag dept.
An anonymous reader writes "DRAM makers are facing one of the worst downturns in their history and governments around the world are lining up to help companies through the mess. Taiwan, Germany and South Korea all appear poised to offer some assistance to their DRAM chip makers. The chip makers' problems are indicative of global woes. Easy lending terms and a bright view of the future prompted them to build too many new DRAM factories. Much of the new output was aimed at Microsoft's Windows Vista, which has higher memory requirements than XP."
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Governments Preparing To Bail Out DRAM Makers

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  • Bailout Bandwagon (Score:5, Insightful)

    by slifox (605302) * on Monday December 15, 2008 @05:16AM (#26117725)

    Do government bail outs happen all the time, and its only recently that the term "bail out" has become popular? Or are all industries everywhere simultaneously going broke just now?

    I don't follow the financial world much, so all of a sudden I see * industry bailouts over and over again... From an outsider's perspective, it kinda seems like a bandwagon

    Where do I sign up to get bailed out of my personal company's (i.e. me) financial problems by the government?

    Anyways, isn't bankruptcy supposed to be the "bail out," but with accountability instead of just writing large checks and calling it a successful bail out?

    If anyone gets any government money, they ought to be held accountable for its use and for making sure that this situation never happens again.

    I wish politicians, CEOs, and just the general public would start looking at the long term costs and benefits rather than focusing on immediate reward. Think of all the current worldwide problems we wouldn't have to worry about! Then again, thats much easier said than done...

  • by Anonymous Coward on Monday December 15, 2008 @05:22AM (#26117765)

    Bail out people, not businesses. How about instead of spending $8 trillion or so on bailouts for businesses, just give each man, woman, and child a check for $25k?

  • by Whuffo (1043790) on Monday December 15, 2008 @05:23AM (#26117771) Homepage Journal
    It used to be that if you made a poor business decision and lost money you went out of business. But somehow in the recent past someone came up with the idea that just because someone is running a business they deserve to make a profit and stay in business.

    It's not just the financial institutions - now it's the car companies (stalled for the moment), airlines - and foreign businesses are lining up for a handout now too.

    Why bother with improved products or competitive pricing? Let's just build a factory, make some overpriced junk, then have the government give us a bunch of money? Seems like this is the new gold rush...

  • by jcr (53032) <jcr@mac. c o m> on Monday December 15, 2008 @05:27AM (#26117795) Journal

    Bail out people, not businesses.

    No.

    Robbing Peter to pay Paul is wrong, whether Paul is a corporation or an individual.

    -jcr

  • by setagllib (753300) on Monday December 15, 2008 @05:29AM (#26117799)

    I'm all for fair and equal, free market economics, but if it looks like a whole industry is going down, not just a single company, fair and equal bailouts are the right thing to do. If any one industry fails, it could cause a chain reaction that stalls virtually all production and maintenance, and things degenerate into the stone age or at least third world.

    Without RAM we don't have new computers, without new computers we can't even sustain the infrastructure we have, let alone grow it to keep up with new demand and progress. Recycling everything can only take you so far, especially with computer parts whose MTBF is a few years.

  • Bail Out Madness (Score:3, Insightful)

    by CuteSteveJobs (1343851) on Monday December 15, 2008 @05:35AM (#26117833)
    These Bail outs are out of control. Australian Prime Minister Kevin Rudd just bailed out Australian Car Dealers to the tune of $2B -- yes! That's car salesman! -- , hot on the heals of an $6B Bailout of Australia's world famous COUGH COUGH car industry. Not that America's $15B car industry is any more deserving. Oh and he just bailed out a failed child car company to the tune of $40M, but no one noticed. Hey real estate agents and IT workers are hurting too. What about bailing out us?

    Now I understand bailing out banks via FIDC, but now we're bailing out investment banks too, and now of all things DRAM Makers? Because they overmanufactured? There comes a time to let nature take its course and let more efficient *smarter* companies rise from the ashes. Why are we propping up dinosaurs? With taxpayer dollars at that?
  • by supernova_hq (1014429) on Monday December 15, 2008 @06:01AM (#26117953)
    Ok, I see your point, but I still think it's flawed. If you just hand money over to corporations so they don't fail, those corporations are going to use that money the same way they used the money the earned...badly. If, however, we pay the employees (who are layed off), the companies will realize the fucked up, and change their business plans. The coporations will lose some money (short term), the layed off employees will get some money till they find new jobs and the corporations will finally learn that daddy-USA is not going to bail them out every time they screw up.

    Auto Industry Poster [treehugger.com]
  • by jerk (38494) <cherbert@@@gmail...com> on Monday December 15, 2008 @06:03AM (#26117963)

    As the only remaining DRAM manufacturer in the US, what does this mean for Micron? How will they be able to compete if the overseas companies get bailed out?

  • by jcr (53032) <jcr@mac. c o m> on Monday December 15, 2008 @06:06AM (#26117975) Journal

    Corporations should never get the money,

    Up to this point, you're correct.

    people should. ..and here's where you go wrong.

    There is no action that is immoral for an individual, that becomes right when done by a collective. If I take losses in the stock market, I have no right to rob you to make up what I lost. It doesn't become right if I employ a gang of thugs to rob you. It doesn't become right if I have the government do it for me.

    -jcr

  • by cheekyboy (598084) on Monday December 15, 2008 @06:14AM (#26118021) Homepage Journal

    Economists have no mathamatics training.

    They think the world is an infinite size with zero stoppage.

    Try growing 1000 fish in a small fish tank, eventually it will get so crowded, that 90% die.

    I think that 2B bailout wasnt free cash, it was just no questions asked loans, which the banks wont do anymore. Hello banks, you can keep all the billions in cash, but its useless if you cannot spend it, or loan it.

    But no amount of free cash or 0% loans will save the economy. Its unsavable, it has to crash/reboot/reformat/reinstall a new system.

  • by jcr (53032) <jcr@mac. c o m> on Monday December 15, 2008 @06:14AM (#26118025) Journal

    The Chrysler loan guarantee is usually cited as an example of a successful intervention by the government, but that's a rather shallow analysis. The money lent to Chrysler because of the guarantee wasn't available for other uses. Even though Chrysler paid back those loans ahead of schedule, the bailout allowed them to go on to destroy tens of billions of dollars of capital since then.

    -jcr

  • by martin-boundary (547041) on Monday December 15, 2008 @06:24AM (#26118095)
    I disagree. Moral imperatives are a function of the social system, there are no absolutes. In a democratic system where the people are sovereign, robbing corporations to benefit the people (for example) can easily be justified within the system, while the converse (for example) cannot (easily). There is a fundamental asymmetry.
  • by jcr (53032) <jcr@mac. c o m> on Monday December 15, 2008 @06:32AM (#26118145) Journal

    Moral imperatives are a function of the social system, there are no absolutes.

    If you believe that, then I certainly don't want you for a neighbor.

    robbing corporations to benefit the people (for example) can easily be justified within the system

    Rationalization and justification aren't the same thing.

    -jcr

  • by jcr (53032) <jcr@mac. c o m> on Monday December 15, 2008 @06:35AM (#26118153) Journal

    Libertarian philosophy does not justify itself.

    Freedom doesn't require justification. If you want to use force to impose your will on someone else, the burden of proof for the necessity of doing so lies with you.

    -jcr

  • by jcr (53032) <jcr@mac. c o m> on Monday December 15, 2008 @06:38AM (#26118167) Journal

    It's not justified in any case.

    Besides failing morally, it also fails from a utilitarian standpoint. When a company fails, the market has shown that people don't want that organization to persist. Keeping it alive misallocates capital that can be better used elsewhere.

    -jcr

  • by davester666 (731373) on Monday December 15, 2008 @06:38AM (#26118169) Journal

    It's just that more businesses are eligible for getting a bailout now.

    The basic rule for getting a government bailout, is that you need to be actively botching the handling of AT LEAST 1 billion dollars. Anything less than this, and you are just some nickel and dime mom and pop corner store, and don't deserve a handout. Once your company has reached the ability to loose over 1 billion dollars, you finally are in the range of handling real amounts of money, and thus, you must receive the backing of the government when you make incredibly stupid decisions about how to spend your money.

    Even ten years ago, the number of companies eligible for a bailout was much lower (of course, all the companies already receiving them in the US have been eligible for decades). Now, a lot more companies have reached the billion dollar range.

    10,000 small businesses, each employing 10 people can go out of business and the federal gov't wouldn't bat an eyelash, but 1 company with 100,000 just must not be permitted to fail, no matter how boneheaded the management of the company may be...

  • by Xanius (955737) on Monday December 15, 2008 @06:43AM (#26118207)
    The bail outs have a very specific purpose that ideally will be held to.
    I think they should be handled better than they are but the theory behind them makes sense.

    Let's assume all 3 major autos go out of business. With out the manufacturer to perform warranty repairs and someone to be held accountable for defects that are life threatening people will not buy those cars.
    This causes layoffs and closings of the dealerships, potentially 10's of thousands or hundreds of thousands of people.
    On top of the dealerships going under you'll have the parts suppliers losing both of their major clients, the auto makers and the dealerships that do repairs for those makers, this causes them to lay off people and close down, another potential hundreds of thousands of people for just the warehouse/store work. Without the store fronts and warehouses selling merchandise the manufacturing aspect of these companies will also be shut down, another potential 10's of thousands or hundreds of thousands of people laid off.

    At this point you get the picture of how it could spiral downward from 3 companies going out of business.
    They are major companies that are the backbone of a gigantic section of the US economy.
    They need to fix their business model, last I heard they are losing several thousand dollars on each car sold and expecting to stay in business which is why they need another bailout, that and people not wanting to buy gas guzzling monsters when gas is $4/gallon.
  • by Z00L00K (682162) on Monday December 15, 2008 @06:59AM (#26118281) Homepage

    The real estate values has been inflated much by the ability to pay, which in turn is a result of the ability to get loans with low security.

    Very few considers that the value of a property may have to be looked at for the long term, and not just short term.

  • by stephanruby (542433) on Monday December 15, 2008 @07:00AM (#26118285)

    I'm all for fair and equal, free market economics, but if it looks like a whole industry is going down, not just a single company, fair and equal bailouts are the right thing to do. If any one industry fails, it could cause a chain reaction that stalls virtually all production and maintenance, and things degenerate into the stone age or at least third world.

    Come on, let's say a couple of car manufacturers go down, then the surviving car manufacturers just come in and buy up the contracts and factories for pennies on the dollar. If you don't let this natural garbage collection process occur, then you're effectively choking the entire system -- you're not releasing resources -- and you're compounding the problem even more. Keep this up, and then yes, we'll get to the stone age/third world doomsday scenario you speak of.

    If you ask me, this entire mess proves that bankruptcies are taking way too long. We should fast-track the bankruptcy system (at the very least, for the people we know who purposefully lied on their loan applications, and the bankers/lenders who helped them do it). The sooner we can do these quick fire sales, the quicker we'll get the economy up and running again.

  • by martin-boundary (547041) on Monday December 15, 2008 @07:10AM (#26118325)

    If you believe that, then I certainly don't want you for a neighbor.

    Luckily, where I can or cannot live is not up to you, so your concern is unnecessary, thank you :)

    Rationalization and justification aren't the same thing.

    True. Justification means proving legality within a system of laws, which is exactly what I'm claiming in this instance. However, your ideological preconceptions about right and wrong have clearly caused you to rationalize an absolute opposition to government bailouts, regardless of the circumstances.

  • by Nursie (632944) on Monday December 15, 2008 @07:16AM (#26118349)

    Pure libertarianism is a recipe for disaster, poverty, concentration of wealth and power, abuse of the weak and, before long, an aristocracy and indentured servitude for the rest.

    It is a step backwards to the medieval.

  • by geighaus (670864) on Monday December 15, 2008 @07:19AM (#26118371)
    The dollar got stronger, because everyone is busy paying back their loans denominated in dollars. This creates a temporary demand for dollar. But rest assured with injections of trillions of newly-created dollars into the economy, little of the value dollar has left will be disintegrated. Correct me if I am wrong.
  • by ffoiii (226358) on Monday December 15, 2008 @07:19AM (#26118377) Homepage

    Weren't DRAM manufacturers just involved in a huge price fixing scheme? Oh yeah, http://en.wikipedia.org/wiki/DRAM_price_fixing [wikipedia.org].

    So the industry that flouts the law is now requesting artificial support to help them through hard times? What's the real impact if these companies fail? Their assets get sold at a discount, their creditors take a loss, and the world moves on. The technology doesn't disappear. The knowledge of their employees doesn't evaporate. If the business can't survive without manipulating the market or government support, it doesn't deserve to exist.

    If DRAM is a valuable technology, somebody, somewhere, can run a business doing it. If that's not possible, then stop doing it.

    Maybe everyone should just name a new industry and then mandate that people give them money. That would be so much easier, than say, actually creating value.

  • by Xest (935314) on Monday December 15, 2008 @07:30AM (#26118451)

    It's a little more complex than that. You're right as you say, the companies asking for bailouts wouldn't completely collapse, they'd sell off some of their factories that's true.

    But not all their factories would get bought up- the whole point is there's overproduction for the market's current demands so a small company isn't going to have anymore demand for their extra supply than the big company did for it's oversupply. Essentially, whatever happens, jobs are going to be lost to cut company costs, and there's the problem.

    As jobs are lost because of this sort of thing, there are a greater number of unemployed no longer available to buy products such as DRAM or whatever and so demand falls further, this has the inevitable result of further redundancies and the cycle continuous.

    So, particularly in the case of the US car manufacturers where so many people have the potential to lose there jobs there could indeed be an absolutely massive impact. I don't generally subscribe to doomsday scenarios so I don't think we'll see complete melt down, at the end of the day, the guys at the top will fiddle the system and magically conjure up some more money from their magical money device as usual. If things were left to run their natural course though, then there certainly is the theoretical possibility that everything could indeed go down the drain as collapse leads to collapse.

  • by Nursie (632944) on Monday December 15, 2008 @07:41AM (#26118499)

    "taxing corporations in order to feed the poor sectors" is inherently prejudicial.

    Please explain how a tax on business profits to feed the poor is "prejudicial"?

    You'd rather people starve or rely on charity? Welcome to grinding poverty and people starving to death. Whatever your "moral" feelings about tax and people or corporations right to keep their profits, you have to realise that no man (or company) is an island. Without the society they are in they would not be able to get where they are. Contributing back (yes, forced contributions in the form of tax) is not immoral in that light.

  • by node 3 (115640) on Monday December 15, 2008 @07:41AM (#26118503)

    Your assessment sounds a lot like the idea that a doctor saved a person's life is a 'shallow analysis', because the patient spent the next three decades smoking and eventually died of lung disease.

    A better example of shallow analysis comes from people who simply jump to the conclusion that government intervention always turns out badly.

  • by theaveng (1243528) on Monday December 15, 2008 @07:47AM (#26118541)

    Chrysler did make fuel-efficient cars upto 1995 (like the 30mpg Dodge Shadow and 35mpg Neon), but outward pressure from Americans forced them to start making gas-guzzling Bricks known as SUVs.

  • by TapeCutter (624760) on Monday December 15, 2008 @08:00AM (#26118631) Journal
    I left HS in 76, just after the oil crisis and the same year that the gang of four lost control of a famine infested China, since then I've seen bubbles pop, I've seen nations go broke, Japan make a decent car, the USSR military machine reduced to rust. There used to be a saying, "if the US economy sneezes the world catches a cold". As far as I can tell the US economy has just had a seizure, fell into a coma, and is still heavily sedated. Everyone else is hoping some Chinese medicine will save them.
  • by El Yanqui (1111145) on Monday December 15, 2008 @08:23AM (#26118749) Homepage

    However, don't forget that intervention *is* the purpose of government. It is the official mechanism for imposing the will of the people, whatever that will happens to be.

    That is a really scary sentence and one that I don't think you've thought through. The purpose of the government is to enforce the laws not to impose the 'will of the people' willy nilly. That shifts like the wind and is often counter to what needs to be done, should be done and is right to do. There is such a thing as tyranny of the masses.

  • by timmarhy (659436) on Monday December 15, 2008 @08:42AM (#26118823)
    please stop talking nonsense - where did you get this idea we are over producing? we have been unable to meet demand for years now for most commodities that are used in the production of "things". if we really were over producing we wouldn't have had such massive commodity price rises.

    the issue here is purely over speculation and a lack of a reality check in the financial sector. this has resulted in no more capital left for large projects, which has a down stream effect on everything.

    as for the USA not being a super power anymore, your on drugs, their military can wipe the floor with anyone. i suspect this talk of over production is a cover for some other ideology you have...

  • by JasterBobaMereel (1102861) on Monday December 15, 2008 @08:46AM (#26118847)

    The problem is that there is currently too much capacity so one or more of the DRAM plants should close ...but which ones, each country has the attitude "not the one in my country" since they quite rightly assume that the survivors will be profitable and when economic times improve the countries without a DRAM plant won't get one in the short term

    DRAM plants are very costly to build and take a long time to get going but are very profitable when working near capacity ... the problem is there are currently too many and so all are working under capacity and so are losing money ..

  • by AlecC (512609) <aleccawley@gmail.com> on Monday December 15, 2008 @08:47AM (#26118851)

    One problem with this is to define a market. All vehicles, or just passenger cars, or just "traditional American gas guzzlers". All aircraft, or only 400+ seat aircraft (i.e. Boeing's thirty year monopoly with the 747)? If you introduce a brand new product (the microprocessor, USB sticks, commercial orbital launchers, a new drug) then by definition you own 100% of the market the day you sell your first product. Windows has 90% of the market for desktop OSes. Would it do any good to split MS up into four different suppliers of the identical code? Or to have four diverging implementations of Windows because the four companies would be prevented from co-operating by anti-trust laws. Splitting off, say, Office wouldn't reduce the OS competition.

  • by Anonymous Coward on Monday December 15, 2008 @08:49AM (#26118859)

    Bailing out an industry or business is a huge form of government management of the economy. I do not recall any government managed economy that could be described vibrant and thriving in any sense of the word.

    The rationale for the bail outs is to avoid the pain that would result should the companies fail. I wonder if anyone has balanced this against the pain that will result from a government managed economy.

    Isn't the former USSR economy famous for producing an excess of shoddy shoes? Will the US economy become famous for producing an excess of shoddy cars? Never mind. I think we're already there.

  • by n17ikh (750948) on Monday December 15, 2008 @09:44AM (#26119189) Homepage

    Have you ever driven a Dodge Neon? Worst car I've ever been in, hands-down. It's no wonder Chrysler is in trouble if the best build quality they can manage is a throwaway car.

  • by sumdumass (711423) on Monday December 15, 2008 @09:49AM (#26119239) Journal

    The problem with short term values is that not too many people in that position are actually being effected compared to all of the people who rode the wave for the right reasons.

    The ability to pay however is the key to this. Energy costs had skyrocketed which greatly effected the ability to pay. Not only does it suck the disposable income from your pocket, there was a breaking point in which everything else from food to toilet paper started costing more because of it. There is nothing in the US or most modern countries that isn't effected by energy costs if not just to ship them to the store.

    Unfortunately, energy costs are sort of a pet peeve of mine. There is a big push for alternative energy that simply doesn't compete with traditional sources in costs, efficient, and reliability, which will cause costs to increase again. Carbon taxes and use taxes based on carbon output seems to be in the future too, with both presidential candidates drinking so much cool aid this last election cycle and making sure the public knew about it, they are going to impose artificial limits to energy use and production in order to encourage the more expensive alternative energies. We have even seen certain party officials making statements that they want to raise gasoline taxes to bring the cost of fuel back up to $4.00 a gallon because it effected people's usage the most. For these reasons alone, it will be longer then two years before there is a recovery because now instead of adjusting and coming out of the problems, we will be adding back to them as soon as we start clearing them.

  • by jcr (53032) <jcr@mac. c o m> on Monday December 15, 2008 @09:51AM (#26119255) Journal

    You have that exactly backwards. Nobody abuses the weak more than governments, and government is the ultimate monopoly. The more power you cede to government (to save you from the scary rich people!) the less freedom you will have.

    -jcr

  • by RogerWilco (99615) on Monday December 15, 2008 @09:51AM (#26119261) Homepage Journal

    I haven't read all of the website you're linking too, but I don't really agree with a lot of the assumptions it makes.

    I'll pick one, in that it says that according to Keynesian Economics and Karl Marx the boom and bust cycle is inherent in the system, is contradicting the assumption that the free market always tries to maintain equilibrium between supply and demand.

    I think that the free market only works if the market is fully transparent and all players on it are known. Next to that, is assumes there is no inertia in investment.

    This is why often recessions and depressions happen after a change in technology and subsequent over investment in it. For an emerging technology it's fundamentally hard to get a good idea of what the limit is on it's demand, and investment and supply of it keep growing until the real limit on demand is met. Due to the inertia of investment there will be an overshoot, creating the "bubbles".

    We've had other crises when one party controlled supply, oil for example.

    My country is known for one of the earliest boom-bust cycles, the Tulip Mania of 1637.

    What I've seen if you look back in history is that most bubbles work like pyramid schemes, but not just with people spending their own money, but also borrowed money, in the hope that their profits in the scheme will have them repay the borrowed sum and have a profit.

    As lending is culturally accepted and popular in the USA, most of the bubbles have been created in the USA, at least since the early 1800's. The credit crisis is a perfect example of this American tradition.

    The mechanisms of the Tulip Mania is still alive today, but what happened in 1637 is one of the least complicated examples to study.
    It's closely linked to the mechanisms of the Pyramid scheme.

    It's one danger of the stock market system, that it easily creates positive and negative feedback loops, instead of the equilibrium that market economy laws of supply and demand would suggest.

    Not all crises are caused by such mechanisms, as I said, someone creating a monopoly and using it, can also create a crisis.

  • by jcr (53032) <jcr@mac. c o m> on Monday December 15, 2008 @10:01AM (#26119347) Journal

    Justification means proving legality within a system of laws

    Nope. Justification means to show or prove that something is right or reasonable. What you're doing is rationalizing.

    -jcr

  • by sumdumass (711423) on Monday December 15, 2008 @10:30AM (#26119565) Journal

    Lack of sales is directly related to disposable income that has been shrinking due to energy costs.

    Those energy costs were largely the result of over speculation as the OP had stated. People can't buy things when their paycheck goes to getting to and from work and keeping food on the table and making sure the kids don't freeze. In the last two years when energy costs started skyrocketing, (yes, when the dems took over congress in 2006) we saw food increase between 11 and 19 percent, home heating and electricity in many areas increased by 40% while some either already have or are in the process of increasing their rates by 50 percent or higher. Propane and home heating oil kept pace with gas inflation and so on. This was all accountable to energy costs. The gap between disposable income and discretionary income has gotten so wide that the workforce can't buy anything anymore, they can't keep their homes because they can't afford to work and pay their mortgage, and so on. The sub prime mortgage problem wouldn't have been near as big of a problem is energy costs, directly or indirectly, suck up so much disposable income.

  • by russotto (537200) on Monday December 15, 2008 @10:37AM (#26119623) Journal

    Welcome to the new socialism.

    This "new socialism", where governments don't own the means of production outright, but rather have "partnerships" with private companies where the governments cover the risk and have a large degree of control (perhaps via an overseer, or "auto czar" in the case of car companies)... it looks suspiciously similar to the old fascism.

  • by russotto (537200) on Monday December 15, 2008 @10:41AM (#26119667) Journal

    Could you explain why the dollar gain strength when the american economy fails? Is it just because it's so big people trust it more?

    Because the American economy dragged down many other world economies with it. Surprised a bunch of smug Europeans who were rubbing their hands with glee waiting for the impending American collapse. The pound was especially hard hit because not only were UK banks invested in US real estate securities, but the UK had a real estate bubble of its own.

  • by Hognoxious (631665) on Monday December 15, 2008 @10:59AM (#26119855) Homepage Journal

    please stop talking nonsense - where did you get this idea we are over producing?

    By the amount of stuff that gets thrown away?

  • by drsmithy (35869) <drsmithy@gma i l . c om> on Monday December 15, 2008 @11:03AM (#26119885)

    Show me an example of a government intervention in the economy which turned out well.

    Is your benchmark for "turned out well" the most efficient allocation of money, or not having people dying of starvation because they can't afford to buy food ?

  • by flyingfsck (986395) on Monday December 15, 2008 @11:20AM (#26120067)

    "The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."
    -- Marcus Cicero, circa 50BC.

    Some things never change.

  • by FiloEleven (602040) on Monday December 15, 2008 @02:59PM (#26122689)

    I always thought the boom and bust was the market trying, not very well, to keep its balance.

    You're half right according to Austrian economics (the kind pushed by Mises.org). The booms are caused by intervention in the market and the busts are the market's reaction to keep its balance. To overextend the drunk analogy, the forces that cause the loss of equilibrium would be whoever keeps giving the drunk more liquor. The Federal Reserve plays that role when it manipulates interest rates--the easy credit it offers is exactly like alcohol to a drunk. There's no way he will turn it down, and it will cause him to make poor decisions--in the most recent high-profile case, investing in building thousands of new houses that appear to be profitable due to artificially low credit interest rates rather than consumer interest. This is the boom portion of the cycle.

    The bust comes when the drunk realizes that he has built way too many new homes and tries to salvage as much money as possible, causing the market to take a tumble. The same thing happened in the dot-com bubble, where microniche-market startups were inflated to ridiculous values because of loose credit policies. The same thing happened in the oil speculation bubble for the same reasons. So the boom part of the cycle is the abberation while the bust is a market correction. Each bubble has its individual facets, and in each case something different tipped the markets into bust mode, but the root cause of each is the monkeying-about of interest rates.

    The problem with government bailouts is that we end up throwing more money at a problem caused by excessive amounts of money in the first place. Failure, while not good for the individuals involved, is necessary for a free market economy to work. If governments continue to bail out failing industries, the process will only be prolonged and, since many governments don't HAVE the money for these bailouts, new money is created which devalues all of the currency in circulation. There is a big advantage to being first in line for new money as the markets will not have adjusted to the inflated money supply yet, which gives ordinarily responsible bankers incentive to take as much credit as they can get. Early birds get more bang for their buck while we Joe Schmoes see only costs rising faster than our pay rates.

    I'm getting off-track because it's a big, interrelated tangle that can only be solved by cutting the worm out of the root: getting rid of, or at least heavily restricting, the Federal Reserve and other central banks. I'm also pretty new to this stuff, so hopefully a more seasoned scholar of Austrian economics can correct the mistakes I may have made here. For an in-depth analysis of the boom/bust cycle, check out Economic Depressions: Their Cause and Cure [mises.org] on the Mises.org site. It's lengthy, so if you want to get right to the meat, start at this sentence:

    Fortunately, a correct theory of depression and of the business cycle does exist, even though it is universally neglected in present-day economics.

  • by theaveng (1243528) on Tuesday December 16, 2008 @07:06AM (#26130899)

    On the other hand "sharing" of wealth discourages warfare, because if one nation (say China) declares war on another nation (say USA) then they are only hurting themselves by blocking access to their main customers.

     

Take care of the luxuries and the necessities will take care of themselves. -- Lazarus Long

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