Financial Crisis

[flying]

.......

good youtube clip!

Nah.....I was trying to remember exactly a quote I heard

I believe it went like this......

you cannot cure the problem of excessive private-sector leverage by increasing public-sector debt

Edited November 3, 2009 by flying

[midas]

I can only judge him on his track record. When has he ever been right ?

Keynesian policies have never worked in history, look at Japan.

an economist named Ben Bernanke are probably best recognized for identifying Japanese policy failures.

you mean Ben Bernanke aka...................

[Naam]

i was looking for a special occasion to place my posting #10,000 so here it is:

bla-bla bla-bla bla-bla-bla-bla

[flying]

i was looking for a special occasion to place my posting #10,000 so here it is:

bla-bla bla-bla bla-bla-bla-bla

Congrats on the 10k but you could have said something different than the other 9999

[Naam]

i was looking for a special occasion to place my posting #10,000 so here it is: bla-bla bla-bla bla-bla-bla-bla

Congrats on the 10k but you could have said something different than the other 9999

can't help it. my middle name is Bla

[flying]

i was looking for a special occasion to place my posting #10,000 so here it is: bla-bla bla-bla bla-bla-bla-bla

Congrats on the 10k but you could have said something different than the other 9999

can't help it. my middle name is Bla

[sokal]

I can only judge him on his track record. When has he ever been right ?

Keynesian policies have never worked in history, look at Japan.

First of all Sokal, not everyone shares your view of the world. I think you for instance believe that economic depressions (as opposed to mere recessions) are a 'good thing'. Now viewed from that perspective I agree Keynesian policies have not worked as for instance the US has totally failed so far to have a depression since they were introduced. While in the 130 years before it experienced no less than 8 depressions. The problem is, to some extent, the essence of Keynesian economics is to avoid depressions so if you look it from that perspective it has been enormously successful.

And as far as I remember Japan has used virtually every economic policy under the sun over the past 20 years monetary easing, quantative easing, ZIRP and fiscal stimulus all of which basically failed largely I suspect due to the fact they had a dysfunctional, bankrupt and broken banking system which they failed to address. Still I dont know much but the writings of an economist named Ben Bernanke are probably best recognized for identifying Japanese policy failures.

I do see good reason why fiscal stimulus is or will be relatively ineffective in the USA over the longer run. The idea behind fiscal stimulus is to make up for shortfalls in the natural level of aggregate demand. A fall of in aggregate demand which leads to unemployment, further fall offs in aggregate demand and money 'hoarding' by the employed. Under these circumstances a recession moves from being a 'correction' to a self reinforcing vicious cycle of depression. The problem with the US recession is that it was a necessary 'correction' of excessive demand not represented by any short fall in the natural rate of aggregate demand. Fiscal stimulus under this circumstances is effectively 'socialism' where excessive government spending simply replaces excessive consumer spending

Demand and consumption is the result of savings and production. I am not sure if you are a believer but the hoarding argument is the worst. The idea that it is a bad thing that people are putting money in the bank when the banking system is starved for capital is insanity.

[sokal]

.......

Speaking of youtube clips, listen to Paul Volker in this interview. I swear he knows something that we don't and its not good.

Volker on CNBS

[Abrak]

Demand and consumption is the result of savings and production. I am not sure if you are a believer but the hoarding argument is the worst. The idea that it is a bad thing that people are putting money in the bank when the banking system is starved for capital is insanity.

Correct Sokal.Perhaps you didnt read my post properly. I said that the current recession is a correction from 'excessive demand' in other words overconsumption and lack of saving and therefore Government dissaving as a response would not be effective. 'Hoarding' is saving 'too much' when consumption is below natural levels due to say fear that you might lose your job. So if savings rates in the US rose from the current rate of say 5% to above 25% with the resulting collapse in consumption and 15% real GDP fall that would result, at that point, mere 'saving' and 'less consumption' turns into 'hoarding' and sub-natural levels of aggregate demand at which point fiscal stimulus would be fully justified and effective.

However, I have to disagree with the argument that The idea that it is a bad thing that people are putting money in the bank when the banking system is starved for capital is insanity. Putting money into a bank with no capital would, imho, be totally insanity. More to the point if a banking system is starved of capital (and survives) they take the opportunity to screw the depositor by low deposit rates and screw the lender with high lending rates so as to restore their capital position. Personally, and obviously totally the opposite to your theory, I only believe it is sane to put money in banks that are well capitalized. Do you work for the Government?

To put it in Austrian Economics - saving = a good thing, hoarding = oversaving at a bad time = a bad thing

Edited November 5, 2009 by Abrak

[sokal]

Demand and consumption is the result of savings and production. I am not sure if you are a believer but the hoarding argument is the worst. The idea that it is a bad thing that people are putting money in the bank when the banking system is starved for capital is insanity.

Correct Sokal.Perhaps you didnt read my post properly. I said that the current recession is a correction from 'excessive demand' in other words overconsumption and lack of saving and therefore Government dissaving as a response would not be effective. 'Hoarding' is saving 'too much' when consumption is below natural levels due to say fear that you might lose your job. So if savings rates in the US rose from the current rate of say 5% to above 25% with the resulting collapse in consumption and 15% real GDP fall that would result, at that point, mere 'saving' and 'less consumption' turns into 'hoarding' and sub-natural levels of aggregate demand at which point fiscal stimulus would be fully justified and effective.

However, I have to disagree with the argument that The idea that it is a bad thing that people are putting money in the bank when the banking system is starved for capital is insanity. Putting money into a bank with no capital would, imho, be totally insanity. More to the point if a banking system is starved of capital (and survives) they take the opportunity to screw the depositor by low deposit rates and screw the lender with high lending rates so as to restore their capital position. Personally, and obviously totally the opposite to your theory, I only believe it is sane to put money in banks that are well capitalized. Do you work for the Government?

To put it in Austrian Economics - saving = a good thing, hoarding = oversaving at a bad time = a bad thing

I cant even begin to have this discussion without floating interest rates. If interest rates where aloud to float then lending rates and deposit rates would find equilibrium and take care of themselves.

[Abrak]

I cant even begin to have this discussion without floating interest rates. If interest rates where aloud to float then lending rates and deposit rates would find equilibrium and take care of themselves.

The whole concept of anything 'finding' equilibrium I consider antiquated.

Many of you will be pleased to know that I have backed up my faith in Bernanke to create inflation by effectively shorting treasuries so if my faith is misjudged I will pay for it.

[Abrak]

Nah.....I was trying to remember exactly a quote I heard

I believe it went like this......

you cannot cure the problem of excessive private-sector leverage by increasing public-sector debt

I am not sure that is a quote worth remembering as it is simply a statement of the bleeding obvious. All you achieve is a replacement of future debt repayments to the bank by future tax payments to the Government. I just consider it socialism of the worst possible sort. Not only is the Government working against the desire of the consumer (namely to reduce excessive leverage) but it is making his consumption choices for him (say by buying a new nuclear sub while he would have preferred a 42 inch plasma - I realize that you cant buy a nuclear sub for the same price as a 42" plasma, so more accurately is that he has paid for a toilet seat on a nuclear sub)

[midas]

I cant even begin to have this discussion without floating interest rates. If interest rates where aloud to float then lending rates and deposit rates would find equilibrium and take care of themselves.

The whole concept of anything 'finding' equilibrium I consider antiquated.

Many of you will be pleased to know that I have backed up my faith in Bernanke to create inflation by effectively shorting treasuries so if my faith is misjudged I will pay for it.

Abrak I fear you will lose

I have read so many sources now about deflation v inflation that even though I would not gamble

on the stock market right now – I am prepared to bet money that the CB’s will not succeed in their attempts to re- inflate.

Britain is now in depression according to “ the respected think-tank the National Institute for Economic and Social Research (NIESR) ”

http://www.independent.co.uk/news/business...my-1815840.html

And if things were really improving in USA, why do they need to keep lying so blatantly about jobless

claims numbers because Deninger has explained very well last night on his blogg why in actual fact the picture this month

actually got worse by another 22,239 despite the sensational headlines in the MSM which helped

another spurt on the DJIA ?

My bet is that in the end truth has to prevail and something will bring down this house of cards

on both sides of the Atlantic.

[flying]

And if things were really improving in USA, why do they need to keep lying so blatantly about jobless

Even if in fact & I think it is probably true that Initial jobless claims dropped by 20,000 to 512,000 in the week ended Oct. 31

It means squat recovery wise. The fact that numbers lessened by 20k last week could mean that they laid off that many less but that is no sign of recover. If you take into account that soon the masses that have been on their last extension of UE benefit will soon be wards of the govt.....ie: on welfare as their UE benefits are due to end in great numbers soon.

The fact that more & more small business have gone under along with small banks did not slow last week just didn't get into last weeks tally....but why would anyone think that is a sign of recovery?

They instead should focus not on a few less applying for benefits but the thousands that cannot find a job nor can they even apply for UE Benefits.

To qualify you have to work for a company for I think it was 14 consecutive weeks in the last 52. Also anyone who is self employed contractors, plumbers electricians, small business owners etc etc etc cannot even qualify at all.

You know a good small example of folks out of a job? Look at last weeks 9 banks closed. Sounds small....9 banks. But they had 153 branches between them. Those were not reported in the week ending Oct 31st figures either. Although at least those will probably qualify for UE benefits. That is the down side of playing up these small differences....shouldn't even call them differences as they make no difference. But the down side is next report will be a increase because all those were left out.

Bottom line> You want good news?

The worst is in fact behind us

The bad news?

It is very well endowed

Edited November 6, 2009 by flying

[Abrak]

Abrak I fear you will lose

I have read so many sources now about deflation v inflation that even though I would not gamble

on the stock market right now – I am prepared to bet money that the CB’s will not succeed in their attempts to re- inflate.

Britain is now in depression according to “ the respected think-tank the National Institute for Economic and Social Research (NIESR) ”

http://www.independent.co.uk/news/business...my-1815840.html

And if things were really improving in USA, why do they need to keep lying so blatantly about jobless

claims numbers because Deninger has explained very well last night on his blogg why in actual fact the picture this month

actually got worse by another 22,239 despite the sensational headlines in the MSM which helped

another spurt on the DJIA ?

My bet is that in the end truth has to prevail and something will bring down this house of cards

on both sides of the Atlantic.

Midas do you know when long term interest rates were at their highest last century - through the 1970s and peaking in 1980 at 15%. This was not a decade recognized for strong growth.

In other words I believe Bernanke can cause inflation whether he can generate growth I am very skeptical. And I see it as a win win - if he creates growth he will raise interest rates and (but my real bet is this) if he cant create growth he will create inflation which will boost long term rates. (He boosts inflation to increase negative short term rates and thus spending).

(I also like the concept that USTs have outperformed equities over the last 40 years while equities are supposed to have a 5% risk premium. As I dont see much upside in equities there must be downside in bonds.) I dont think say 10 year rates have been lower for more than 2 years in the last 100. And finally it is a matter of principle - given Bernanke, Fed policy, the US budget deficit, US fundamentals - I believe anyone buying 10 year USTs for a 3.5% yield is a complete lunatic.)

Bernanke is effectively dismantling the work of Volker. Growth is in no way a prerequisite for inflation.

And 'when truth prevails' and the 'house of cards falls' you really believe that long term rates will fall?

You everyone might hate Bernanke as Fed Chairman but he is probably amongst the top ten respected economists in the world. He is worth less than US$2m and what is probably worth most to him is his intellectual credibility. He could not live with himself and deflation. He will create inflation, or to the extent that the policies he chooses to do so are politically unacceptable, he will resign.

Edited November 6, 2009 by Abrak

[12DrinkMore]

http://www.telegraph.co.uk/finance/persona...-a-century.html

A record 35,000 people were declared insolvent during the three months to the end of September, the largest number in at least half a century.

Some more write-offs for the credit issuers, and more bailouts from the tax payer.

But sadly to say, not only are both country and population financially challenged. They are also accumulating a large deficit in moral behaviour.

No respect, no morals, no trust - welcome to modern Britain

We are close to the point where ethical behaviour is regarded as an affliction to be pitied, a loser's burden.

Freedom means pursuing that with which it is possible to get away.

http://www.telegraph.co.uk/finance/comment...rn-Britain.html

[midas]

But sadly to say, not only are both country and population financially challenged. They are also accumulating a large deficit in moral behaviour.

No respect, no morals, no trust - welcome to modern Britain

We are close to the point where ethical behaviour is regarded as an affliction to be pitied, a loser's burden.

Freedom means pursuing that with which it is possible to get away.

http://www.telegraph.co.uk/finance/comment...rn-Britain.html

A very sobering piece 12

" ethical behaviour is regarded as an affliction to be pitied " particularly poignant

[AlexLah]

Dear Abrak, as you seem highly convinced Benny boy will do everything he can to fight deflation and create moderate inflation, has the guy ever explained how he will do that? Generally it is assumed that inflation means an increase in money supply and velocity, am I right? how about a further devaluing Dollar making the purchase of imported goods requiring more Dollars to be payed for it. It has been done before with the signing of the Plaza accord and undone with the Louvre accord. As I said before, a way out for the US could be to make the Dollar so cheap that it would be attractive again to manufacture stuff in the US but that would take years to accomplish. So my question is: What options does Benny boy has to create inflation? Could it be rising food prices perhaps? Must another bubble be created in order to get the extra money flowing in. Wages need to be increased, but for what reason when there are so many people unemployed and are offering their labor for next to nothing just to have a job.

Your or anyone's ideas on this please as I just cannot see where inflation will come from other then a further devaluing Dollar.

[Abrak]

Dear Abrak, as you seem highly convinced Benny boy will do everything he can to fight deflation and create moderate inflation, has the guy ever explained how he will do that? Generally it is assumed that inflation means an increase in money supply and velocity, am I right? how about a further devaluing Dollar making the purchase of imported goods requiring more Dollars to be payed for it. It has been done before with the signing of the Plaza accord and undone with the Louvre accord. As I said before, a way out for the US could be to make the Dollar so cheap that it would be attractive again to manufacture stuff in the US but that would take years to accomplish. So my question is: What options does Benny boy has to create inflation? Could it be rising food prices perhaps? Must another bubble be created in order to get the extra money flowing in. Wages need to be increased, but for what reason when there are so many people unemployed and are offering their labor for next to nothing just to have a job.

Your or anyone's ideas on this please as I just cannot see where inflation will come from other then a further devaluing Dollar.

Welcome to The Bernanke Doctrine

http://en.wikipedia.org/wiki/Bernanke_Doctrine

Oh and I really love this quote he made as advice to the Japanese.

In short, to strengthen the effects of fiscal policy, it would be helpful to break the link between expansionary fiscal actions today and increases in the taxes that people expect to pay tomorrow.

Essentially it says that if you have negative interest rates (higher inflation than nominal rates) then you are inflating away government debt and reducing the real amount of taxes to pay for it in the future.

So yes he has clearly explained how to do it and if you need any more ideas on how to create inflation, I suspect googling Ben Bernanke is the best place to start, he seems to have given it an awful lot of thought. Oh and by the way if you read his actual speech you will note that while he is committed to generate inflation he is not so confident that it will be moderate - he calls it 'difficult to calibrate.'

Edited November 6, 2009 by Abrak

[flying]

Welcome to The Bernanke Doctrine

Oh and I really love this quote he made as advice to the Japanese.

And here is a quote by him in his early days in a brief moment of honesty/treachery

Before the National Economists Club, Washington, D.C.

November 21, 2002

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation

Edited November 6, 2009 by flying

[flying]

[12DrinkMore]

I suspect googling Ben Bernanke is the best place to start, he seems to have given it an awful lot of thought. Oh and by the way if you read his actual speech you will note that while he is committed to generate inflation he is not so confident that it will be moderate - he calls it 'difficult to calibrate.'

Ben "The Inflator" Bernanke has spent his whole life just waiting to try out his theories. I have already put forward the idea that Bernanke/Greenspan allowed or maybe even engineered the debt bubble to expand, as they felt that the resulting fallout from the implosion could be dealt with using various "buttons" that Bernanke has, at least since 2002, been itching to push.

Now six from the seven buttons have been pushed, as far as I know Bernanke has not been buying up huge quantities of foreign currency. Maybe he considers the current ongoing USD devaluation is already ample. But maybe Bernanke and the UK trio of Brown/Darling/King should consider riding another horse. Irving Fisher/Minsky seem to have a few valid things to say about debt deflation, and their theories seem to hold some water.

http://www.independent.co.uk/news/business...nk-1815841.html

The credit crunch, in other words, is far from over, and is just one of the big factors – along with our vast debts and over-reliance on the City and housing for prosperity – that will squeeze living standards for years. Even the Bank's moves are unlikely to change that. Indeed there are clues that the British have, against form, acquired an aversion to debt. Fear of unemployment has left many of us unwilling to borrow, no matter how easy or cheap it might be (actually it often isn't, at the retail end of things). So we don't spend, and deflation edges closer.

The UK and US have persistently accused the banks of not "lending normally", with various veiled threats to force them to push out more debt. But surely they are now lending normally/responsibly and the origin of the vast private debt mountain lies in the irresponsible lending previously?

But for Bernanke I have the perfect and relatively cheap solution to his deflation woes. He should put John Williams of the Shadowstats website in charge of the government statistics department. This solution is so obvious, I wonder why he hasn't thought of it himself?

I note that the FDIC has closed another four banks this week, and back in the UK Fred the Shred's disaster has posted another massive 1,530,000,000 Quid loss and is receiving another 33,500,000,000 Quid from the taxpayer so that the bonuses and Fred's pension can be paid.

http://www.independent.co.uk/news/business...es-1816050.html

Interesting how the times have changed. Just two years ago these sort of figures would make huge headlines, now they are simply mentioned in passing. But in fact this represents another 500 Quid for every single person in the UK. Or, if we just take the "workers", then around 1,000 Quid for every working person. Are we becoming inured to these crazy figures, so that if hyperinflation kicks in, we will be ready to handle the numbers?

:D

[flying]

I note that the FDIC has closed another four banks this week,

5 but I agree with everything else you said

[sokal]

I cant even begin to have this discussion without floating interest rates. If interest rates where aloud to float then lending rates and deposit rates would find equilibrium and take care of themselves.

The whole concept of anything 'finding' equilibrium I consider antiquated.

Many of you will be pleased to know that I have backed up my faith in Bernanke to create inflation by effectively shorting treasuries so if my faith is misjudged I will pay for it.

Abrak I fear you will lose

I have read so many sources now about deflation v inflation that even though I would not gamble

on the stock market right now – I am prepared to bet money that the CB’s will not succeed in their attempts to re- inflate.

Britain is now in depression according to “ the respected think-tank the National Institute for Economic and Social Research (NIESR) ”

http://www.independent.co.uk/news/business...my-1815840.html

And if things were really improving in USA, why do they need to keep lying so blatantly about jobless

claims numbers because Deninger has explained very well last night on his blogg why in actual fact the picture this month

actually got worse by another 22,239 despite the sensational headlines in the MSM which helped

another spurt on the DJIA ?

My bet is that in the end truth has to prevail and something will bring down this house of cards

on both sides of the Atlantic.

You don't need money velocity to create inflation. Look at some of the basket case economies like Iceland, their GDP has fallen off a cliff and they have double digit inflation. Russia same same.

[flying]

"you cannot cure the problem of excessive private-sector leverage by increasing public-sector debt"

I am not sure that is a quote worth remembering as it is simply a statement of the bleeding obvious.

Obviously not obvious enough

As it is missed by BS Bernanke & generally the whole GNOE Govt.

Edited November 7, 2009 by flying

[Abrak]

You don't need money velocity to create inflation. Look at some of the basket case economies like Iceland, their GDP has fallen off a cliff and they have double digit inflation. Russia same same.

Absolutely Sokal, this idea that inflation must reflect excessive demand in an economy is so 1990s. Go back only as far as 1970s and you see a different story. Even taking the old MV=PQ equation you can hold velocity constant increase your money supply 10%, depress the real economy by 10% and end up with 20% price inflation.

There is a certain irony in this. In that people have got set in a mindset that inflation is only caused by excessive demand, then short term expectations for inflation are zero to negative. As such people are not spending because there is no disincentive to save. As Bernanke has stated before I dont actually need to create inflation simply the expectation of it. He also points out that when interest rates are zero, raising inflation rates is your alternative. As a big fan of the Taylor rule (which I believe he has stated should be stated publicly as a key driver of Fed thinking) interest rates should be -2% at present. If we were to assume the Fed tries to anchor inflation expectations at 2% then the revised inflation target should be 4%. But perhaps as deflation expectations are high he needs an even higher rate of inflation - say 6% - to remove peoples inherent linkage between inflation and growth.

Edited November 7, 2009 by Abrak

[Naam]

I note that the FDIC has closed another four banks this week,

5 but I agree with everything else you said

i didn't have money in these banks. did i miss something?

[Abrak]

i didn't have money in these banks. did i miss something?

Well not much either way. I mean FDIC used to stand for something - cant remember what - but I think the D was for deposit and the I for insurance. When I last looked which was admittedly 6 months ago it had paid out something like US$70m protecting deposits and had lost some US$15bn on bailing out banks, which I assume means that it went to bond holders.

[flying]

I note that the FDIC has closed another four banks this week,

5 but I agree with everything else you said

i didn't have money in these banks. did i miss something?

Not to worry you need not be a customer.

At first the prize will be claimed by just the GNOE inhabitants

Later it will be taken from the rest

[Abrak]

"you cannot cure the problem of excessive private-sector leverage by increasing public-sector debt"

I am not sure that is a quote worth remembering as it is simply a statement of the bleeding obvious.

Obviously not obvious enough

As it is missed by BS Bernanke & generally the whole GNOE Govt.

Well first my usual plug for Bernanke - he has been advocating fiscal responsibility.

And I do believe that they and the Government would 'possibly' regard it as a statement of the obvious. However at NO POINT do I believe that the Fed or say the CBO EVER HAVE STATED that the private sector was OVERLEVERAGED. In point of fact forecasts from the Fed and the CBO explicitly state they are expecting a resumption of increased consumer leverage, which forms much of their underpinning of their strong growth forecasts.

So they are not, in their minds, applying the wrong cure to the problem - they explicitly assume that the problem isnt there. AS they see it (and I am not making it up) the consumer is not borrowing because of the 'financial crisis' and a lack of access to funds. As THIS problem is gradually resolved they will resume borrowing. In the meantime they are borrowing and spending on their behalf because they have access to funding. They are in effect dampening the temporary shortfall in aggregate demand caused by the 'inability' of the consumer to borrow. So as the consumer is unable to increase its leverage at present they are doing it for them. If this all sounds incredibly stupid to you simply go and read the CBO forecasts or merely try and think of another assumption you could make which would result in average 4% real growth in the US over the next 5 years.

And Flying let me make it clear, this is not my view of the world. I am merely stating the position and rationale of the US Government (and yes you can include Bernanke in there.) I mean half this thread is about how you cure a high debt/GDP problem. So far they have chosen by far the easiest solution - which is to assume it doesnt exist.

Edited November 7, 2009 by Abrak