Financial Crisis

[flying]

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.

Yes but lets be frank.........They the banks are not lending irresponsibly as they did before which in turn created the bubble that burst.

The consumers in turn are not borrowing irresponsibly because they are tapped out. Their ATM machine, aka: dwelling, shelter,humble abode is tapped out from the last round of BS valuations that allowed then to irresponsibly borrow from those who irresponsibly lent to them based on the irresponsibly fraudulent appraisals.

Now tell me is it responsible behavior for the Govt & the god you call Bernanke to encourage a return to such behavior even if it was somehow possible?...

Besides now that the banks & the too big too fail have access to unlimited bail $$$ at 0% why bother with the middle men? They can now go straight to the casino once called a stock market

Edited November 7, 2009 by flying

[12DrinkMore]

Back to RBS.

http://www.guardian.co.uk/business/2009/no...-lending-target

It looks like Hester, Fred the Shred's replacement, is heading for a run-in with the "nothing left up the kilts" couple.

Darling wants more debt in order for Brown to claim a recovery.

The Treasury is demanding that Royal Bank of Scotland provides evidence of its efforts to lend £25bn to businesses and households after the Edinburgh-based bank admitted that it would not meet the targets set by the government.

but Hester has the opposite opinion.

RBS refuses to embark on lending that is not to creditworthy customers and Hester stressed that "increasingly borrowing is not the route to sustainable recovery". He said there was not enough demand for loans and the bank had £27bn of undrawn credit lines for overdrafts and other loans. "We should all be happy about that. The way out of recession is not another borrowing binge," he said.

Quite incredible really, for a man whose bonus depends on pumping out 25,000,0000,000 more debt

Have to repeat it,

"The way out of recession is not another borrowing binge"

Hats off to Hester, finally somebody is demonstrating a bit of moral fibre and prepared to act responsibly rather than for personal gain.

:D

I bet Cyclops Brown is fuming over this.

:D

And our friends over on Wall Street are ensuring that they will be around and healthy to spend the bonuses.

Goldman Sachs, Citigroup and Morgan Stanley were among the first employers in New York to receive shipments of the widely sought after H1N1 antidote from public health authorities this week, prompting furious attacks from political critics who claim bankers are getting privileged treatment.

http://www.guardian.co.uk/business/2009/no...kers-swine-flue

Edited November 7, 2009 by 12DrinkMore

[Abrak]

Yes but lets be frank.........They the banks are not lending irresponsibly as they did before which in turn created the bubble that burst.

The consumers in turn are not borrowing irresponsibly because they are tapped out. Their ATM machine, aka: dwelling, shelter,humble abode is tapped out from the last round of BS valuations that allowed then to irresponsibly borrow from those who irresponsibly lent to them based on the irresponsibly fraudulent appraisals.

Now tell me is it responsible behavior for the Govt & the god you call Bernanke to encourage a return to such behavior even if it was somehow possible?...

Besides now that the banks & the too big too fail have access to unlimited bail $$$ at 0% why bother with the middle men? They can now go straight to the casino once called a stock market

Yes Flying,

Of course I know all this. Just dont blame the messenger.

I think there is a snowball chance in hel_l of the economy growing at 4.0% p.a. through 2015. I think it was totally idiotic of Obama to make his first forecasts so ludicrous. I think the consumer wants to deleverage while they think he wants to spend more while they are charging him more taxes. I think they say that lack of access to financing by consumers has reduced GDP by 2.0% this year. And if you have a debt/GDP problem increasing it is not very productive. Admitting to it might be a good start. But you will struggle to find that from the Fed or CBO. And as you say banks should be less stupid in their lending because it seems inconceivable they could be more stupid.

And somehow implying that I might actually agree with this is intensely irritating. The main reason I didnt buy the market in March is because the CBO put out 4.0% 5 year growth forecast and claimed they were inline or below consensus (which incidentally was just a lie). In the face of such ludicrous optimism I felt I couldnt buy.

[flying]

Of course I know all this. Just dont blame the messenger.

I think the consumer wants to deleverage while they think he wants to spend more while they are charging him more taxes.

And as you say banks should be less stupid in their lending because it seems inconceivable they could be more stupid.

And somehow implying that I might actually agree with this is intensely irritating.

Nah I'm not blaming the messenger & in my previous post I called many irresponsible.

I think folks who are not here do not realize how bad it is getting.

It is not that consumers just want to deleverage...They have no choice as millions are now out of work & have no unemployment. Also if your one of the credit card types that *need* to carry a balance well the bailed pout banks have been very nice & raised the interest rates to insane numbers here.

Taxes? No jobs/no income/ no taxes

Can banks be more stupid? He!! yes....If allowed & they are allowed everyday.

They are allowed to mark to fantasy...they are allowed to charge 20% while getting theirs for 0.25%..allowed to gamble with tax payers bail money ...& on & on

I do not think you agree with all this..... Sorry for the joke about Bernanke. I only made it because of recent posts you made. It was in jest... like posts you make about idolizing him

Edited November 7, 2009 by flying

[flying]

Have to repeat it,

"The way out of recession is not another borrowing binge"

Hats off to Hester, finally somebody is demonstrating a bit of moral fibre and prepared to act responsibly rather than for personal gain.

I bet Cyclops Brown is fuming over this.

And our friends over on Wall Street are ensuring that they will be around and healthy to spend the bonuses.

Goldman Sachs, Citigroup and Morgan Stanley were among the first employers in New York to receive shipments of the widely sought after H1N1 antidote from public health authorities this week, prompting furious attacks from political critics who claim bankers are getting privileged treatment.

http://www.guardian.co.uk/business/2009/no...kers-swine-flue

Exactly my feeling too.

While the govt on both sides of the pond seem to feel a re-inflation of toxic bubbles is the way to repair the economy....Thank Gawd at least the people seem to know it is not. Also they do not have the means anyway.

Unless the govt want to allow the people to mark to fantasy their own assets? Maybe even bail all the people instead? Say here you go billions for the down trodden now go appraise your homes for what ever you like & have a good time in the casinos aka: markets.

As for GS getting their vaccines before the pregnant women & children....While on the surface it is typical elitism ...perhaps this time it could work out & they get a hot batch & all die from it. While it would not cure the financial meltdown it would be a heck of a good start.

Edited November 7, 2009 by flying

[Abrak]

Those employment numbers were horrific. The increase in unemployed was 190,000 but there was a 450,000 seasonal adjustment. (The household number was 550,000). Now if you dont look for a job for a month you are not considered unemployed. What people have noticed is a startling jump in the number of people not in the labor force. It has increased 3.4m in the first 10 months and has never got close to a figure of 2.0m annual figure before. So a lot of people argue that the number of unemployed created in a month should include the people that were in the labor force and are now not. If you do that the number of unemployed increased 817,000 (the 4th highest figure ever) following September's 1,021,000, (the 2nd largest ever). So the unemployment numbers are basically getting worse not better. It doesnt surprise me that analysts didnt forecast that.

The other thing that is worrying people is the difference between the Household and Establishment series. Basically the Household series rings up lot of households and establishment rings up lots of large businesses. Now during a recession large businesses often cut back working hours etc but are somewhat reluctant to kick people out of jobs. They are most likely to do so in the early days with no recovery in sight. But when recovery comes they have plenty of spare labor resources so dont hire quickly. For the household they see recovery first, new businesses spring up, small businesses start hiring. So you look to the household survey to be a lead indicator. They may both still have increases in unemployment but household increase should be less. So the fact that household is still increasing more than establishment would indicate there is still deterioration in the unemployment position rather than improvement. It has certainly been a lead indicator in the last 3 recessions.

http://www.bls.gov/news.release/empsit.nr0.htm

These unemployment numbers are not consistent with GDP. Incidentally neither are the S&P sales figures.

BTW I am going to make 2 forecasts on the Thai economy. The first I will probably look pretty stupid with at the end of the day but it just seems to be what the numbers come out at. On the 22nd the BOT will announce 3Q GDP and I think they will announce GDP down 1% yoy which on a QOQ SAAR basis i.e. compared to the US 3.5% 3Q is 18.9% growth. And Thai numbers are really understated in some respects - 2q the government ran a budget surplus. You dont get much of a feeling of growth because it is coming mostly through the current a/c 9% of GDP verses nothing so there has been a huge contraction in the domestic economy (probably unnecessary with a decent fiscal deficit.) Its all coming back now, cars up 20% YOY, Cement sales up 6%, electricity up 3% (all September figures.). Second and I am a little more confident here (or conservative should I say, so more likely to be right) for 4Q they should announce growth year on year of 4% or more. This is compared to the US that will not show any YOY growth until about April.

[12DrinkMore]

"Sorry" seems to be the hardest word.

http://www.bloomberg.com/apps/news?pid=206...D578&pos=10

“I’m sorry,” Reed (Citigroup)

And he went on to say

Lawmakers were wrong to repeal the Depression-era Glass- Steagall Act in 1999, Reed said. At the time, he supported overturn of the law, which required the separation of institutions that engaged in traditional customer banking services from those involved in capital markets.

Lesson learned?

“We learn from our mistakes,” said Reed, who wrote an Oct. 21 letter to the editor of the New York Times endorsing a division of banking activities.

Well, they obviously hadn't, otherwise the Glass-Steagall Act would not have been repealed releasing the "What goes around comes around" effect.

So I wonder if the US taxpayer is accepting the enlightened Reed back into the fold with open arms?

In the last year, the bank received $45 billion from the U.S. government to bolster its capital and another $300 billion in loss guarantees.

[flying]

"Sorry" seems to be the hardest word.

So I wonder if the US taxpayer is accepting the enlightened Reed back into the fold with open arms?

I have a hunch ...There will be a slew of folks saying sorry after they snap in times to come.

http://www.nytimes.com/2009/11/08/us/08orlando.html

It is too bad once they get to that point their anger is misplaced on the result & not the cause.

Taxpayers should wake up & vote soon. They dont really need to go ballistic.

They just need to say the buck stops here.

That is not just the unemployed...foreclosed on divorced types either.

When the military starts snapping from the mixed messages they are getting it will probably be a lot worse than a few days ago,,,,

http://www.cleveland.com/nation/index.ssf/...ictims_cam.html

Edited November 8, 2009 by flying

[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.

Firstly what is wrong with 'finding' equilibrium ‘ even if it is “antiquated ” ?

With your in –depth knowledge of economics, you already know Abrak that your

opinion seems directly opposite to Ludwig von Mises,( who some call the greatest economist who ever lived –

not Bernanke sorry )

I find it interesting Mises was snubbed by economists world-wide even as he warned of a credit crisis in the 1920s.

what he says makes so much more sense to me in terms of it being in the best interests of the

average citizen than what Bernanke spouts…………which only seems to benefit the banksters

Some of this sounds very familiar to today

“ Mises explained how the banking system was endowed with the singular ability to expand credit and with it the money supply, and how this was magnified by government intervention. Left alone, interest rates would adjust such that only the amount of credit would be used as is voluntarily supplied and demanded. But when credit is force-fed beyond that (call it a credit gavage), grotesque things start to happen.

Government-imposed expansion of bank credit distorts our "time preferences," or our desire for saving versus consumption. Government-imposed interest rates artificially below rates demanded by savers leads to increased borrowing and capital investment beyond what savers will provide. This causes temporarily higher employment, wages and consumption.

Ordinarily, any random spikes in credit would be quickly absorbed by the system—the pricing errors corrected, the half-baked investments liquidated, like a supple tree yielding to the wind and then returning. But when the government holds rates artificially low in order to feed ever higher capital investment in otherwise unsound, unsustainable businesses, it creates the conditions for a crash. Everyone looks smart for a while, but eventually the whole monstrosity collapses under its own weight through a credit contraction or, worse, a banking collapse ”

[/b]

Edited November 8, 2009 by midas

[AlexLah]

A videogame and a movie in the make?

[Abrak]

Firstly what is wrong with 'finding' equilibrium ‘ even if it is “antiquated ” ?

With your in –depth knowledge of economics, you already know Abrak that your

opinion seems directly opposite to Ludwig von Mises,( who some call the greatest economist who ever lived –

not Bernanke sorry )

I find it interesting Mises was snubbed by economists world-wide even as he warned of a credit crisis in the 1920s.

what he says makes so much more sense to me in terms of it being in the best interests of the

average citizen than what Bernanke spouts…………which only seems to benefit the banksters

Some of this sounds very familiar to today

“ Mises explained how the banking system was endowed with the singular ability to expand credit and with it the money supply, and how this was magnified by government intervention. Left alone, interest rates would adjust such that only the amount of credit would be used as is voluntarily supplied and demanded. But when credit is force-fed beyond that (call it a credit gavage), grotesque things start to happen.

Government-imposed expansion of bank credit distorts our "time preferences," or our desire for saving versus consumption. Government-imposed interest rates artificially below rates demanded by savers leads to increased borrowing and capital investment beyond what savers will provide. This causes temporarily higher employment, wages and consumption.

Ordinarily, any random spikes in credit would be quickly absorbed by the system—the pricing errors corrected, the half-baked investments liquidated, like a supple tree yielding to the wind and then returning. But when the government holds rates artificially low in order to feed ever higher capital investment in otherwise unsound, unsustainable businesses, it creates the conditions for a crash. Everyone looks smart for a while, but eventually the whole monstrosity collapses under its own weight through a credit contraction or, worse, a banking collapse ”

[/b]

First of all Midas, lets not get to carried away with Mises. In a recent poll of the greatest economists he came 30th with about 2% of the votes of Keynes. So to disagree with 'finding equilibrium' which is key I think to Austrian economics is much more standard economic thought than a disagreement by me with 'one of the greatest economists.)

Lets not also believe that everything was rosy when money supply was set in some vaguely fixed way like under the gold standard. There was a financial crisis on average every 14 years between 1800 and 1970. Between 1800 and 1940 there were 8 depressions (none since yet). And look at the way inflation acted in the 1800s 'talk about distorting preferences'.

Anyway as to my criticism. There is a book by Murray Rothbard called Man, Economy and State which sort of sets out an Austrian theory. Now on page 8 or so of 1500 he sets out what I believe is a very key assumption - it seems to fit Ron Paul's political philosophy, Sokal's everyone else is an idiot, another Austrian posters 'that it is the only theory'. That is the Monty Python assumption 'we are all individuals' throw that in with 'logical' and of course economics becomes mind bogglingly simple (in fact its sheer simplicity and that underlying philosophy are why it has some popularity). Just to make his point he then spends the next 100 pages talking about Crusoe economics (how Robinson Crusoe makes all these decisions (like whether to pick berries) based on all the usual sort of marginal utility stuff. But there is something rather unique about Crusoe that we do not have in the real world - he lives alone on a desert island by himself (by the way the fact that he is alone makes my assumption that he is 'by himself' an extraordinary good one by economic standards). (Actually he does eventually run into a guy called Jackson and his first thought is to kill him according to Rothbard.)

So lets get back to the real world - we will call it Zorro (obviously not the TV poster) economics. You see if you look at say Zorro's investment 'actions' they are driven on the buy side by (1) 'lots of other people are buying and (2) I expect other people to buy more. So he is nothing like Robinson Crusoe whose actions are driven by his own personal individual preferences, Zorro's action are totally driven by the actions and his 'expectations' of 'other' people actions and reactions. Now once you start introducing co-dependency into your equations everything gets massively complicated (which is why economists never agree.) You can certainly throw 'finding equilibrium' out of the window. For instance if you believed that there was an equilibrium value for the Dow Jones then Zorros actions are just as likely to make it move away as towards it, more to the point as 'other' peoples actions are partly driven by 'actions' and 'expectations of actions' by Zorro it might accelerate away from equilibrium. Self perpetuating disequilibrium which are assumed not to exist obviously end up in wild fluctuations, financial crises, asset bubbles and various other disasters. Of course laissez faire goes out the window as does all the lets create 30% unemployment and get it all over in a week because a) you may get stuck there and you may end up with 50% unemployment. And it isnt Zorro's fault, your GF only bought that dress because she thought other people would think she looks good in it.

Amd lets not get too carried away by this Bernanke idolisation - I think he partly caused the mess and I have also been accused of being on Krugman's pay roll and they dont agree on anything.

Edited November 8, 2009 by Abrak

[midas]

First of all Midas, lets not get to carried away with Mises. In a recent poll of the greatest economists he came 30th with about 2% of the votes of Keynes. So to disagree with 'finding equilibrium' which is key I think to Austrian economics is much more standard economic thought than a disagreement by me with 'one of the greatest economists.)

But who says Keynesian policy is right except for a very few ?

[flying]

In a recent poll of the greatest economists he came 30th with about 2% of the votes of Keynes.

Anyway as to my criticism. There is a book by Murray Rothbard called Man, Economy and State which sort of sets out an Austrian theory. Now on page 8 or so of 1500 he sets out what I believe is a very key assumption -

Apples & oranges............

To compare Mises to Kenes makes no sense at all.

One is for sound money & one is for government intervention to help control the ravages of unsound money

As for Rothbard a great writer but perhaps his book " What Has The Government Done To Our Money" may be a better & shorter read

[Abrak]

Fpr what it is worth these are my views on Bernanke

I dislike him on the basis

1) He certainly contributed to this mess

2) To begin with he was way behind the curve with monetary policy

3) He has made no attempt to reregulate the banks. And is not well qualified to make a good job of it anyway. We may be approaching the stage whereby reregulation of the banks is a greater priority than aggressive monetary policy in which case he is the wrong man to do the job.

4) His philosophy is so inflationary that there must be a risk that the results lead to inflation getting out of hand and a new 'Volker' coming in and cleaning up the mess

5) He essentially believes that monetary policy has no significant effect on the stockmarket, which I believe is just wrong. And he doesnt believe in 'pricking' bubbles which I also think is wrong.

I like him because.

1) I agree with him that deflation is a destructive force. Most people do but Keynesians simply see it as unavoidable. (Austrians however I would guess would regard it both as beneficial and part of some solution.)

2) He has presented a solution that is more constructive than bowing to the inevitable

3) For all his early monetary mistakes he made some very brave and unconventional policy choices that possibly prevented total financial collapse. He well knew he would be heavily criticised, called irresponsible etc. But so far the economy has responded relatively well.

4) He has documented in extreme detail the policy actions that he believes are in the best interest of a country facing problems of the US especially a year ago. Whether they are right or wrong is debatable and actually irrelevent. You cannot fault someone for having the integrity to follow through with the policies he believes in. You can fairly argue he shouldnt have been appointed. In fact you can even fairly argue that by definition no person with his views is qualified to even be a central banker but that is a different story

5) Finally while his policies contain substantial risk, I just dont see anyone else coming up with much better ones. It is something of a poison chalice.

[midas]

Fpr what it is worth these are my views on Bernanke

I dislike him on the basis

1) He certainly contributed to this mess

He and Greenspan’s policies CAUSED this mess . Blind freddie would have known

what would happen to the housing market

2) To begin with he was way behind the curve with monetary policy

Agreed

3) He has made no attempt to reregulate the banks. And is not well qualified to make a good job of it anyway. We may be approaching the stage whereby reregulation of the banks is a greater priority than aggressive monetary policy in which case he is the wrong man to do the job.

But the Fed is owed by private interests who surely don’t want regulation ?

4) His philosophy is so inflationary that there must be a risk that the results lead to inflation getting out of hand and a new 'Volker' coming in and cleaning up the mess

Which would only benefit the Wall street banksters

5) He essentially believes that monetary policy has no significant effect on the stockmarket, which I believe is just wrong. And he doesnt believe in 'pricking' bubbles which I also think is wrong.

I like him because.

1) I agree with him that deflation is a destructive force. Most people do but Keynesians simply see it as unavoidable. (Austrians however I would guess would regard it both as beneficial and part of some solution.)

Destructive for who ? If I can buy something cheaper in six months time it is not destructive for me ?

2) He has presented a solution that is more constructive than bowing to the inevitable

The inevitable doesn’t seem so bad as some people want us to think

3) For all his early monetary mistakes he made some very brave and unconventional policy choices that possibly prevented total financial collapse. He well knew he would be heavily criticised, called irresponsible etc. But so far the economy has responded relatively well.

But what about the cost for the next generation and the one after that ?

4) He has documented in extreme detail the policy actions that he believes are in the best interest of a country facing problems of the US especially a year ago. Whether they are right or wrong is debatable and actually irrelevent. You cannot fault someone for having the integrity to follow through with the policies he believes in. You can fairly argue he shouldnt have been appointed. In fact you can even fairly argue that by definition no person with his views is qualified to even be a central banker but that is a different story

I argue it is not so much if he has “the integrity to follow through with the policies he believes in “ – it is far more relevant to know answers to the exact ownership of the organization that employs him and to have their books audited.

5) Finally while his policies contain substantial risk, I just dont see anyone else coming up with much better ones. It is something of a poison chalice.

I think there are many economists who should be given the opportunity to try ……….but you know and I know they wont because they are not politically correct

[Abrak]

I like him because.

1) I agree with him that deflation is a destructive force. Most people do but Keynesians simply see it as unavoidable. (Austrians however I would guess would regard it both as beneficial and part of some solution.)

Destructive for who ? If I can buy something cheaper in six months time it is not destructive for me ?

3) For all his early monetary mistakes he made some very brave and unconventional policy choices that possibly prevented total financial collapse. He well knew he would be heavily criticised, called irresponsible etc. But so far the economy has responded relatively well.

But what about the cost for the next generation and the one after that ?

I dont disagree with much you to a large degree although he is supposed to be appointed by the President.

If I can buy something cheaper in six months time it is not destructive to me.

(1) That is highly debatable. First the very essence of that statement implies you create value for yourself by not spending. If people cease to spend than demand falls manufacturing production collapses resulting in large rises in unemployment, and if it does not fall enough the perception that prices will fall further increases your incentive not to spend. If one was to take this to its logical conclusion it will be destructive to YOU. Either you will have lost your job or the burden on the Government through lost tax revenues and increased costs to provide welfare for the unemployed will result in taxes so high on your income (which may already have been reduced) that you will be able to afford less. Bear in mind at this point that the banking system will have collapsed and you are going to have to pay for that too.

Creating a debt/GDP problem by increasing GDP by increasing debt faster I believe is value destructive. Making the problem worse by reducing G and P is infinitely worse.

(2) Debateably. Monetary policy is mostly about a transfer of wealth while fiscal policy (not Bernanke's responsibiliy) is more about spending the next generations money.

[Abrak]

In a recent poll of the greatest economists he came 30th with about 2% of the votes of Keynes.

Anyway as to my criticism. There is a book by Murray Rothbard called Man, Economy and State which sort of sets out an Austrian theory. Now on page 8 or so of 1500 he sets out what I believe is a very key assumption -

Apples & oranges............

To compare Mises to Kenes makes no sense at all.

Only pointed out that he got 50x the votes as the greatest economist than Mises and to point that my nom-belief in 'finding equilibrium' was not a whacky theory that contradicted general economics.

One is for sound money & one is for government intervention to help control the ravages of unsound money

Once you can accept that the private sector does not 'find equilibrium' and self-perpetuating disequilibrium exist you have to accept that there is room for productive government economic policy. Keynes is best known for his work on fiscal policy but he was against the gold standard though. This did not mean he advocated unsound monetary policy - he just didnt consider gold as particularly sound. The reason being that it is too fixed. So what happens, as in the Great Depression, is that as interest rates cannot fall below zero, if P falls below zero, then V collapses and you have a self reinforcing collapses of P and Q. As he believed in self reinforcing disequilibrium he also felt that monetary policy could supplement fiscal. Those countries that left the gold standard during the depression recovered fastest and to the extent we have not had a depression since his policies have been helpful. Unfortunately there is no 'wonder' pill so his concepts are being increasingly abused including by people I believe know much better like Krugman.

As for Rothbard a great writer but perhaps his book " What Has The Government Done To Our Money" may be a better & shorter read

I will own up to the fact that I only got half way through, it is very long and repetitive. And because Austrian economics was not considered worthy of study where I was educated so I just wondered why it gets a seriously bad rap. (and I do realize Hayek got half a nobel prize.)

[teletiger]

First of all Midas, lets not get to carried away with Mises. In a recent poll of the greatest economists he came 30th with about 2% of the votes of Keynes. So to disagree with 'finding equilibrium' which is key I think to Austrian economics is much more standard economic thought than a disagreement by me with 'one of the greatest economists.)

Hmmmm....maybe somewhat disingenuous there Abrak. Was it an international poll? US heavy?

Is Mises taught in the US?....anywhere in the US? I'm surprised he got any votes at all. Most Americans think Mises is a blogspot. (it is, of course)

I wonder if Keynes would have endorsed bailing out insolvent banks, to the extent that they have been.

Regards.

[12DrinkMore]

If I can buy something cheaper in six months time it is not destructive to me.

(1) That is highly debatable. First the very essence of that statement implies you create value for yourself by not spending. If people cease to spend than demand falls manufacturing production collapses resulting in large rises in unemployment, and if it does not fall enough the perception that prices will fall further increases your incentive not to spend. If one was to take this to its logical conclusion it will be destructive to YOU. Either you will have lost your job or the burden on the Government through lost tax revenues and increased costs to provide welfare for the unemployed will result in taxes so high on your income (which may already have been reduced) that you will be able to afford less. Bear in mind at this point that the banking system will have collapsed and you are going to have to pay for that too.

Creating a debt/GDP problem by increasing GDP by increasing debt faster I believe is value destructive. Making the problem worse by reducing G and P is infinitely worse.

I am not convinced on this deflation issue. I realise that you are putting forward the standard argument against allowing deflation to take hold. But let's take a few broad clumps of consumer purchases we have,

1. Day to day living requirements, nobody puts off buying bread, rice, meat, milk, newspapers, electricity, gas, telephone charges, fuel, etc etc. So even if somebody thinks that internet will be cheaper and faster next month, they will still buy it to use today.

2. Electronic "non essential" goods, cameras, computers, mobile phones, lcd tvs, etc. Everybody knows and assumes that these will become more powerful and cheaper next year. But nobody I know will delay a purchase because of this. It is simply accepted that in a year or two they will buy a replacement.

3. Vehicles, again, these have, over the years remained relatively steady in price, but newer models offer more features or more "attractive designs". But again, nobody I know wanting to buy a new car will wait for a year, although a number will wait a month or two for the next model or expect a discount off the old model.

4. Entertainment, restaurants, films, theaters, holidays, again, with the possible exception of "last minute" price seekers, nobody waits hoping the price will go down. In they want a holiday, then it will be booked.

Now we come to housing, where yes, here I would agree, that in the current environment people are not convinced that the bubble has been deflated and has reached the bottom, so they will wait.

My opinion is that the consumer of the last decade has not thought about postponing purchases because they may become cheaper, but in fact the opposite applies, and the last twenty years have been the age of instant gratification. "I see it, I want it and I shall dam_n well buy it now, in fact, it is my dam_n right to be able to buy it now", even if the money wasn't available and everything was purchased on the "never, never" treadmill of credit payments. Naturally the banks and credit companies played along with all this, leaving us where we are today; everybody in debt and struggling to pay the bills.

We are in debt deflation, where on the one hand the banks are reluctant to extend credit and on the other hand the consumer is reluctant to take out more credit, and, in fact, is finally trying to pay off debt and save some cash for the future.

Bernanke is certainly not stupid, but maybe when he talks about the devil of deflation, maybe he is not talking about general price deflation, but more specifically about debt deflation and house price deflation? Debt deflation is going to reduce the amount of stuff purchased and house price deflation will give the banks even more of a headache. I can't see where any other deflation is going to come from. The weakening of the USD (also the GBP) will mean that increased import prices will be feeding through to the shops. I also have difficulty in seeing where massive inflation in goods is about to come from, unless the currency collapses. Demand induced inflation comes from too much money chasing too few goods. Apart from the GS lot we have too much debt, too little money and far too much capacity to produce goods.

The current monetary policies of ZIRP and QE are surely aimed squarely at propping up and even increasing the debt mountain, just to keep the illusion of prosperity and wealth going for a couple more years? The UK and US debtor have been living today on the wages of tomorrow, in the firm conviction that "it will be OK in the end".

Maybe the end is nearer than they thought and it won't be so OK after all?

Edited November 8, 2009 by 12DrinkMore

[12DrinkMore]

And just a small snippet for thought.

Taken from the Elliot Wave people.

http://www.elliottwave.com/freeupdates/arc...f-England-.aspx

"The financial system is not bound by laws of supply and demand in the same way as industrial economies. In finance, fear and confidence rule decisions."

And is that not at the centre of the problems we have?

The financial lot can instantaneously with no effort create "products" out of thin air, based on thin air, and simultaneously create the "money" out of thin air to buy them. If these guys remained somewhere else, for example "my second life", then the real world would have no issues. Unfortunately all the currency units created, moved around and destroyed have, in some fantastic way, exactly the same "value" as the wages of a factory worker or factory producing something that can be touched.

In fact, on reflection, the "created out of thin air" money has substantially more value than the wages of a factory worker, because he is expected to pay taxes to support and, indeed, repay the value of the "thin air" money which has been destroyed.

Jeeze, what a world we live in.

[Abrak]

Hmmmm....maybe somewhat disingenuous there Abrak. Was it an international poll? US heavy?

Is Mises taught in the US?....anywhere in the US? I'm surprised he got any votes at all. Most Americans think Mises is a blogspot. (it is, of course)

I wonder if Keynes would have endorsed bailing out insolvent banks, to the extent that they have been.

Regards.

Well who the hel_l knows? Amazon has 233 Keynes publications on sale and I have a 48 page booklet of his bibliography. Surprised he had time for sex (but we wont go into that issue). It was a fairly silly poll and my favorite economist Piero Sraffa only came 10th and got beaten by Hayek (8th). My other favourite economist is Karl Marx who came 25th which distressed me a little at first but then I realized it was voting for the greatest 20th century economist, so it was a pretty good showing for someone who wasnt alive (died about 1880). Anyway more votes than Mises even without being what Rothbard calls a 'sentient being.'

Actually I hate the whole moral hazard issue and believe that the sustainability of capitalism is based on ever increasing moral hazard. Financial liberalisation has proved a recipe for financial crisis in virtually 100% of cases. And China is a prime example (in that its avoidance of both the 1997 and 2008 disasters is due to it. In fact the lack of financial crises since the last depression is I believe largely due to the financial regulation that resulted. You know Canadian banks have done well because they have a law that you cant lend more than 70% of the value of a property. Now to me thats just good business sense.

I do believe that depositors deposits should be guaranteed by Governments in return for a sensible degree of regulation. I am not actually convinced that the FDIC has spent as much as US$100m paying back depositors of insolvent banks. And I am not really sure it is an economists role to regulate banks. The very fact that Bernanke has a net worth below US$2m shows he knows nothing about it.

[Abrak]

Bernanke is certainly not stupid, but maybe when he talks about the devil of deflation, maybe he is not talking about general price deflation, but more specifically about debt deflation and house price deflation? Debt deflation is going to reduce the amount of stuff purchased and house price deflation will give the banks even more of a headache. I can't see where any other deflation is going to come from. The weakening of the USD (also the GBP) will mean that increased import prices will be feeding through to the shops. I also have difficulty in seeing where massive inflation in goods is about to come from, unless the currency collapses. Demand induced inflation comes from too much money chasing too few goods. Apart from the GS lot we have too much debt, too little money and far too much capacity to produce goods.

The current monetary policies of ZIRP and QE are surely aimed squarely at propping up and even increasing the debt mountain, just to keep the illusion of prosperity and wealth going for a couple more years? The UK and US debtor have been living today on the wages of tomorrow, in the firm conviction that "it will be OK in the end".

Maybe the end is nearer than they thought and it won't be so OK after all?

Look Midas you cant have your cake and eat it - first you say that deflation is not destructive because if you wait 6 months you will be able to buy more of it, then you say people will buy anyway. Even if you dont take a personal view you will take a general view that deflation indicates bad times and spend less and save. Now an Austrian would say that is all part of the process we need more saving we have to suffer a fall in real GDP to restore equilibrium.

That in theory works so long as you dont have debt. Debt deflation is not taking place because as fast as the private sector is reducing lending, the public sector is increasing lending, or replacing their debt repayments with future tax payments. Take that away and the real GDP and P start falling as fast as the debt.

So you cannot deflate your way out of a debt crisis. You cannot increase real GDP without increasing debt (incidentally at a faster rate). If you reduce P then (1) the problem gets worse see US 1929 to 1933 and (2) the effect of reducing P is to reduce GDP, bankrupt the banking system through increase debt/GDP and increased debt/assets which as well as unemployment simply increases taxes. It has been tried before and it was a disaster in the 1930s and a catastrophe in 1819 (where I believe in much of the US unemployment reached 75%). Therefore the standard policy response to a debt/GDP problem (as well applied by the UK) is to inflate P, obviously the is will not happen from demand driven real growth so you have no choice but to destroy the value of cash, then everything goes up in price relative to its declined worth. Obviously I can think of better people than Bernanke to achieve this (as Krugman etc think he cannot), it would be totally irresponsible of me to not mention the finance minister of Zimbabwe but I just dont know his name. I wouldnt give him a 4 year term though.

And do wish people would stop saying inflation is in the interests of the banks because if the past 2 years should have shown people while inflation is in the interest of the banks, acting against their interests simply create losses which are borne by the taxpayer. Heads I win, tails you lose.

Edited November 8, 2009 by Abrak

[AlexLah]

Bernanke can do anything he wants, it will not bring back jobs in the US. Obama promised the stimulus would save or create 3.5 million jobs.

He has just saved or created about 700.000. Including people who got a raise in pay, what a joke.

Good luck creating another 200.000 a month.

36 Million people in the US on food stamps, does that mean households?

Now they want to change mortgages to lending contract just to hide foreclosures, another joke.

The Fed buying up this toxic debt that the banks do not want on their balance sheets.

Bloomberg reporting 19 Million houses empty in the US in February and the same number last month, what a joke.

The real question is: What can be done to get those unemployed people to be employed again?

[flying]

China Urges US to Control Deficit to Stabilize Dollar

China hopes that the United States will keep its deficit to an appropriate size to ensure basic stability in the U.S. dollar exchange rate, Chinese Premier Wen Jiabao said on Sunday.

"We have seen some signs of recovery in the U.S. economy ... I hope that as the largest economy in the world and an issuing country of a major reserve currency, the United States will effectively discharge its responsibilities," Wen told a news conference in Egypt.

"Most importantly, we hope the United States will keep an appropriate size to its deficit so that there will be basic stability in the exchange rate, and that is conducive to stability and the recovery of the global economy," he added.

The premier had expressed concern in March that massive U.S. deficit spending and near-zero interest rates would erode the value of China's huge U.S. bond holdings.

China is the biggest holder of U.S. government debt and has invested an estimated 70 percent of its more than $2 trillion stockpile of foreign exchange reserves, the world's largest, in dollar assets.

"I follow very closely Chinese holdings of U.S. assets because that constitutes a very important part of our national wealth. Our consistent principle when it comes to foreign exchange reserves is to ensure the safety, liquidity and good value of the reserves," Wen said.in helping developing nations cope with the fallout.

Edited November 9, 2009 by flying

[sokal]

China Urges US to Control Deficit to Stabilize Dollar

China hopes that the United States will keep its deficit to an appropriate size to ensure basic stability in the U.S. dollar exchange rate, Chinese Premier Wen Jiabao said on Sunday.

"We have seen some signs of recovery in the U.S. economy ... I hope that as the largest economy in the world and an issuing country of a major reserve currency, the United States will effectively discharge its responsibilities," Wen told a news conference in Egypt.

"Most importantly, we hope the United States will keep an appropriate size to its deficit so that there will be basic stability in the exchange rate, and that is conducive to stability and the recovery of the global economy," he added.

The premier had expressed concern in March that massive U.S. deficit spending and near-zero interest rates would erode the value of China's huge U.S. bond holdings.

China is the biggest holder of U.S. government debt and has invested an estimated 70 percent of its more than $2 trillion stockpile of foreign exchange reserves, the world's largest, in dollar assets.

"I follow very closely Chinese holdings of U.S. assets because that constitutes a very important part of our national wealth. Our consistent principle when it comes to foreign exchange reserves is to ensure the safety, liquidity and good value of the reserves," Wen said.in helping developing nations cope with the fallout.

Good article, we are on the cutting edge here on TV.

Wen Jiabow says this on the same f*cking day that the Obama healthcare bill passes the house ! I see a problem here.....

[12DrinkMore]

Bernanke is certainly not stupid, but maybe when he talks about the devil of deflation, maybe he is not talking about general price deflation, but more specifically about debt deflation and house price deflation? Debt deflation is going to reduce the amount of stuff purchased and house price deflation will give the banks even more of a headache. I can't see where any other deflation is going to come from. The weakening of the USD (also the GBP) will mean that increased import prices will be feeding through to the shops. I also have difficulty in seeing where massive inflation in goods is about to come from, unless the currency collapses. Demand induced inflation comes from too much money chasing too few goods. Apart from the GS lot we have too much debt, too little money and far too much capacity to produce goods.

The current monetary policies of ZIRP and QE are surely aimed squarely at propping up and even increasing the debt mountain, just to keep the illusion of prosperity and wealth going for a couple more years? The UK and US debtor have been living today on the wages of tomorrow, in the firm conviction that "it will be OK in the end".

Maybe the end is nearer than they thought and it won't be so OK after all?

Look Midas you cant have your cake and eat it

Hi Abrak, it twas I that wrote that! But you are welcome, as indeed Midas is, to a piece of my cake. I certainly don't need to eat all of it.

- first you say that deflation is not destructive because if you wait 6 months you will be able to buy more of it, then you say people will buy anyway. Even if you dont take a personal view you will take a general view that deflation indicates bad times and spend less and save. Now an Austrian would say that is all part of the process we need more saving we have to suffer a fall in real GDP to restore equilibrium.

That in theory works so long as you dont have debt. Debt deflation is not taking place because as fast as the private sector is reducing lending, the public sector is increasing lending, or replacing their debt repayments with future tax payments. Take that away and the real GDP and P start falling as fast as the debt.

So far, apart from property, I am not sure where any substantial price deflation is taking place, other than the price deflation I mentioned in my post, mostly in the electronics stuff, which was happening anyway in the "good times". And the market/statistic distorting "cash for clunkers" program, which resulted in tax payers' money being used to buy imported vehicles.

But now the peeps are worried about jobs, interest payments, affordability, debt, pensions and an increasing awareness that personal savings are important. This means the humongous amount of private debt is slowly coming down. In this debt deflationary environment purchases of non-essentials are being delayed not because of any expected price reduction, but because more due to affordability and a change in attitude from "must have it now" to "we'll hang on a bit longer until we can afford it".

So you cannot deflate your way out of a debt crisis. You cannot increase real GDP without increasing debt (incidentally at a faster rate). If you reduce P then (1) the problem gets worse see US 1929 to 1933 and (2) the effect of reducing P is to reduce GDP, bankrupt the banking system through increase debt/GDP and increased debt/assets which as well as unemployment simply increases taxes. It has been tried before and it was a disaster in the 1930s and a catastrophe in 1819 (where I believe in much of the US unemployment reached 75%). Therefore the standard policy response to a debt/GDP problem (as well applied by the UK) is to inflate P, obviously the is will not happen from demand driven real growth so you have no choice but to destroy the value of cash, then everything goes up in price relative to its declined worth. Obviously I can think of better people than Bernanke to achieve this (as Krugman etc think he cannot), it would be totally irresponsible of me to not mention the finance minister of Zimbabwe but I just dont know his name. I wouldnt give him a 4 year term though.

And do wish people would stop saying inflation is in the interests of the banks because if the past 2 years should have shown people while inflation is in the interest of the banks, acting against their interests simply create losses which are borne by the taxpayer. Heads I win, tails you lose.

Here I am struggling to follow your argument, "P" presumably means prices, (I wish you would be a little less economical with the alphabet at times).

I agree that in the current situation the GDP cannot be increased without more debt being taken out, but this is a result of too much debt being taken out of the last decade, providing an artificial boost in GDP, as the amount of money generated through production was not adequate to cover the cost of all the stuff being purchased. A topic you touched on some while ago. It also resulted in a higher level of taxes being collected. If the current trend of debt deflation continues, and whether any of Bernanke's levers can, indeed, stop it, then the result has to be a lowering of GDP and decreased sales tax revenues.

Unfortunately Bernanke is missing a couple of levers, for example

"increase public optimism"

"increase private debt fueled consumerism"

Although Bernanke with his policies has reduced the exchange rate of the USD, the price of stuff in the US (and the UK) is not rising due to increased import prices. To be honest, I was expecting a much bigger effect on prices in the UK as Brown slashed 30% off the exchange rate of the GBP. I am also struggling to see from where Bernanke is going to fire up a level of inflation to inflate away the debts. First of all you have to get it moving up ten percent or so to have a useful effect, and then this has to feed through into wages. With 20% plus unemployment there is a lot of downward pressure on wages at the moment. And then the ageing demographics mean that any inflation of this level will quickly impoverish the large and rapidly increasing number of pensioners, as they cannot threaten strikes and demand pension increases.

As you say, there can be no demand led inflation, as there is currently a huge slack in world production capacity. So the question arises whether Bernanke can push the lever "reduce confidence in the US government to support the USD to zero", causing anybody and everybody holding USDs to get rid of them as fast as possible, either by buying stuff or by exchanging them for another currency. This would then produce the hyperinflation, but would require the USD to be removed entirely as the world's reserve currency. There is going to be a certain resistance to this.

Whilst we are not on the subject of the UK, I am now fed up with the Euro versus non-Euro argument. This should be stopped dead and the UK should join, including the Euro. Then all the wasted energy and self-interests could be directed at something positive and improving the Eurocommunity, rather than trying to tear it apart. At the moment the UK policiticians/bankers want to have a say in Europe but don't want the commitment. The Europarliament should put an ultimatum, either you're in or you're out. And if the answer is "we want out", then all the UK Europoliticians should be kicked back to the UK.

Oh, and Biti is the man

http://news.bbc.co.uk/2/hi/africa/7881582.stm

although he has solved the problem by getting rid of the local currency.

http://news.yahoo.com/s/afp/20091012/wl_af...zimbabweeconomy

But luckily his sacked predecessor Herbert Murerwa is looking for a job, maybe Washington meeds an advisor?

http://news.bbc.co.uk/2/hi/6338147.stm

[flying]

Wen Jiabow says this on the same f*cking day that the Obama healthcare bill passes the house ! I see a problem here.....

Sad but true.....Notice how numb nuts scurried to pass this bill at all hours on a weekend no less. They see it coming & the states will run red soon enough as they change parties. But as most know that will change nothing long term.

But the good news hopefully is.....

House health care bill has nowhere to go in Senate

Edited November 9, 2009 by flying

[Naam]

Wen Jiabow says this on the same f*cking day that the Obama healthcare bill passes the house ! I see a problem here.....

Sad but true.....Notice how numb nuts scurried to pass this bill at all hours on a weekend no less. They see it coming & the states will run red soon enough as they change parties. But as most know that will change nothing long term.

But the good news hopefully is.....

House health care bill has nowhere to go in Senate

the "good news" is that the Greatest Nation on Earth™ will remain a third world country with 45 million uninsured citizens

[churchill]

I do not understand why the Central Banks through QE are creating bubbles in stock markets and commodities . They have partially succeeded in boosting house prices in the UK but not in the US , through low interest rates -

Whilst people believe that markets and currencies are a one way bet , as in the Dot Com boom , everyone makes money - but it can all come crashing down , and will sometime soon , and most will loose their perceived gains .

So what benefit is QE creating apart from a tempory feeling of wellbeing and that markets etc are moving in the right direction .

[midas]

First they told us to bend over ....................and after the sheeple did nothing

Now they have the front to come out with this

LONDON (MarketWatch) -- Goldman Sachs Group Inc.'s chief executive defended the U.S. bank's bonus policies in an interview with U.K.'s Sunday Times, saying banks serve a "social purpose," and the return of high pay should be seen a sign of economic recovery.

"Everybody should be happy. Companies are looking to grow again and raise money. That's where we come in. The financial system may have led us into the crisis but it will lead us out," Lloyd Blankfein was quoted as saying by the newspaper.

According to the Times, Blankfein's pay package is likely to total GBP12 million this year, adding to the GBP300 million in Goldman shares he holds.

The average 2009 pay for the bank's 30,000 staff is expected at GBP420,000, the newspaper added.

http://www.marketwatch.com/story/goldman-c...port-2009-11-08