Perhaps the most disturbing of all of the news, at first glance, does not relate to economics. This is the incident between the US Navy and the Chinese Navy. For those that are unaware of the incident, Chinese ships harassed a US Navy (probably) spy ship in international waters (you might wish to read here for the incident), leading the US to send armed escorts to support the ship. The reason I mention this is that one of the curiosities is that the mainstream press has completely failed (at least in the articles that I have read) to link the incident to the news of the Chinese Premier expressing concern over the value of their holdings of US debt. The two incidents are very likely linked.
Essentially, China is firing an economic warning shot, and is indicating exactly who is holding the stick over whom. I wrote of a similar incident quite a long while ago in a post on China's mercantilism, in which China indirectly threatened to flatten the $US over a trade dispute. This looks like a re-run of the threat, but with an added military dimension. Such use of power (assuming this is the case) will likely not be going down well in the US, and will reinforce the recognition that, one way or another, the US must face down the Chinese threat over the $US. At this point, we have to ask about what kind of man Obama really is, as this will be crucial to how this will play out. I have no clear idea of this, so will leave you to speculate on this question. The one thing I am certain of, is that within policy discussions in both Washington and China, this massive shift in power, and how to manage it, will later have profound effects on the world economy.
Meanwhile, in the US, it appears that the US government is ever more determined to dig the economic hole it is in ever deeper. The ink on the first 'stimulus' is barely dry and already there is emergent pressure for a further stimulus:
David Obey, the chairman of the appropriations committee, said he has instructed his staff to start drafting another stimulus proposal, though he emphasised no deadlines or timelines had been set.This is the argument that the stimulus is never enough. It is the same argument that suggests that the Great Depression 'New Deal' was just not large enough or it would have worked. The trouble here is that, whatever the amount borrowed and spent, there is always the possibility of someone saying (when it fails) that it just was not enough.
However, the deeper concern is that, even if you were to accept the Keynesian theory, it is being misapplied. In particular, the US economy (and the UK for that matter) have just come out of the equivalent of a Keynesian stimulus which was provided by the Chinese government, oil states and Japan. Whilst the theory suggests that the government provides the stimulus, I can see no difference in the effect of the stimulus being provided by overseas money. In both cases money washes into the economy in order to stimulate high levels of 'activity'. If the government provides a stimulus it will, in any case, fund the stimulus through overseas borrowing (at least in part). What you therefore have is a stimulus on top of a stimulus. It also raises the question about the argument that more stimulus is needed. The total stimulus over the last few years amounts to $US trillions.....
Yesterday, I went to a talk provided by a senior official in the New Zealand reserve bank, and he mentioned that Keynes was not actually a Keynesian. At this point, I have to confess that I have not read the General Theory of Keynes, and am regretting that I have not had time to do so. As such, I will admit that I am not sure whether much of what is being discussed in current policy is neo-Keynesianism or the 'real thing'. However, my understanding is that the theory does not work on the basis of stimulus during the 'good times' and in the 'bad times'. Despite such details, it seems that the US government is determined to press on regardless of there being absolutely no rational economic explanation or theory for what they are doing.
As a note, the New Zealand reserve bank appears to be taking a relatively sane approach to monetary policy when compared with other central banks. Also of note is that the speaker from the reserve bank was quite taken with Niall Ferguson's 'Ascent of Money', which I would also recommend to all the readers of this blog. It is a good, though incomplete, explanation of many of the factors that have led to the current crisis.
I have also found a number of interesting articles regarding the UK being posted in the comments section. It appears that I am not alone in considering the UK to be bankrupt. The article in question was found under a headline about house prices, which is why I missed it (I am still confident in my predictions made in my first ever post on this blog so only occasionally look at articles on house price predictions):
The Numis report says: “The bankruptcy of the UK is a very real probability as the UK Government is trying to stimulate a greater debt burden in a grossly indebted economy. We believe the scale of the macro imbalances in the UK means there is no prospect of a recovery in 2009 and we expect the UK to be mired in a deep recession through all of 2010.”The key difference here is that I believe that the UK is already bankrupt. This returns me to the subject of so many recent posts, the printing of money, and how the UK government is funding debt. I have found a fascinating article in the Spectator magazine:
In the old days, when banks lent money to people and not vice versa, UK banks would scour the globe looking for the best investments. Now, having been net sellers from 1998-2007, the British holdings of UK gilts and t-bills has surged by £30bn in the last three months – the highest since data began in 1997. No surprise, you might argue: flight to safety. But it’s funny how foreign and non-bank UK buyers seen to be able to find several better forms of safety than buying the debt of a desperate government that has just started to print money. As he so rightly says, it’s a whole new world.Perhaps, more interesting is the chart that is provided with the article. You will see that the rest of the world are net sellers of gilts, but that the UK banks have suddenly developed a strong appetite for the gilts. It it just a coincidence that the government now has control over several UK banks, and that the same banks are now bankrolling the government? Meanwhile, the printing of money to buy gilts guarantees liquidity of the gilts..... This UK bank purchasing of gilts is very much in line with what I said would happen.....but still offers no firm proof of conspiracy.
On a similar subject, the same article that discusses the bankruptcy of the UK also has this to say about the banks and government:
“The Prime Minister and Chancellor have publicly stated that they want banks this year to lend at 2007 levels,” it said. “We think this is a crazy policy, given that too much debt was one of the prime reasons why the economy has its current problems.”Another poster provided a link to an article from the BBC, which says the following:
What we are seeing is exactly what you would expect to happen when a government in deep trouble gets its hands on the banking system. It appears it is using the banking system to meet government objectives, and that means massive interventions in the broader economy. An interesting point in the article above is that John Swinney really believes that 're-invigoration' of the property market is a 'good thing'. Exactly in line with my discussions at the time that the bailouts were being enacted, the government is now pushing the banks into irresponsible lending that will see even greater ongoing losses.....The Royal Bank of Scotland is promising to pump £1.7bn worth of mortgages into the Scottish housing market over the course of the coming year.
Finance Secretary John Swinney has welcomed the move.
He claims the bank's action will help re-invigorate the property market north of the border.
Scottish Secretary Jim Murphy said the move highlighted the "positive effects" of the government's action so far to bring stability to the banking sector.
The final link from a commentator that I would like to highlight is an article on the G20 summit. The article had this to say:
Lord Malloch-Brown, a Foreign Office minister involved in the preparations for next month's London summit of the G20 countries, said that meeting must produce a substantive plan to rescue the world economy or there will be "disastrous" financial consequences.I am not sure that this may not be an overblown reaction/point of view from Mr. Malloch-Brown. However, it does illustrate the sense/perception of fragility in the current situation in government circles. Regular readers will know that I predicted a meltdown of either the £GB or $US to happen within two to three months, and we are now coming to the end of that period of time. As yet, my predicted meltdown has not happened, but it is possible to get the sense that we really are on the edge of the precipice. I have never been sure what the final trigger might be for the collapse, as it will likely be something that is as much emotional as rational. Perhaps a bad G20 might be such a trigger, but perhaps not...
In an ideal world, the meltdown would never happen. However, the world is not ideal and I can see no other final outcome. As such, I find myself on the one hand hoping that it will not happen and, on the other hand wishing it to happen before governments can make the final consequences any worse.
On a separate subject, I have noted that there has been some interesting posting on conspiracy theory, and in particular the New World Order. As such I thought that I would add my comments on the subject. Some time ago there were many links being provided in comments to various conspiracies. As such, I took a look at some of these. The first example I looked at was a video showing an Amero coin, and it turned out that it was a white supremacist behind the video. I also saw several videos, including one that ran to 3.5 hours approximately (2). I noted during the video that they were proposing that international bankers were supposed to be running the federal reserve in the US. A one minute search on Google dug up a paper on the ownership of the Fed, and it had nothing to do with international bankers.
The interesting thing about this example was that the video was full of insinuations, but lacking in any firm evidence, and that they never actually pinpointed who the owners of the Fed might actually be. I also noticed an undertone of anti-semitism throughout the video. I have since read the 'Ascent of Money' by Niall Ferguson, and interestingly this reveals that one of the discussions in the video was originally put out by the Nazi party in Germany. This is the matter of how the Rothschild family made their money in the bond market after the Battle of Waterloo. In the ascent of money, written by a very good historian, there is no 'evil' market manipulation, but in the video this is the implication.
As I have said in several posts, conspiracies do happen in the real world. Politicians, given enough space and opportunity, and down on their luck, seeking wealth, or in a difficult position, may well conspire against the public interest. The problem with these conspiracy theories that we see is that they undermine the credibility of those who seek to find the real conspiracies. As I found in my early post on the subject of the New World Order conspiracy, just having the words in the title saw an uplift in visitor numbers. In other words, duping people with these invented conspiracies is a sure way to boost reader numbers, to sell books, or more disturbingly, can be a subtle way of promoting agendas such as anti-semitism.
As such, I urge readers to be open minded to conspiracy (in particular in these difficult times) but also to be cynical and suspicious of such theories, in particular those that are based upon half fact and insinuations. You may note that, wherever possible, I have sought clarification, and have reported the clarifications in full (e.g. the BoE money printing case).
In today's post I have asked questions about UK bank purchases of gilts, but have provided a chart of activity from a reputable source. This does not mean proof, as it is also possible that the banks would have, in any case, moved into UK gilts. However, there is no obvious reason why they should do so, and therefore we might have grounds to suspect that the purchases are the result of government influence. We do not need images of shady characters in smoke filled rooms plotting world domination for such a scenario, just incompetence and desperation. A philosopher of Critical Scientific Realism (1) suggests that we should look for plausibility in theory, and incompetence and desperation are very plausible motivations. On the other hand, the genius Dr. Evils stroking their cats whilst plotting world dominion in smoke filled rooms might be seen as less plausible (I am exagerating here, but hope the point is still clear).
On that note, I will end this rather rambling post. Many thanks for the comments and the links, which are always appreciated.
(1) Doppelt, G 2005, 'Empirical Success or Explanatory Success: What Does Current Scientific Realism Need to Explain?' Philosophy of Science, vol. 72, no. 5, pp. 1076-87.
(2) I think the video was titled 'Money as Debt' but they have now blurred into one in my memory. I have linked to the videos in previous posts on the subject, and there are plenty of links to various videos in the comments against posts. If you know the title and can link to it (I think/hope that there can only be one example that is so long) please feel free to add the link.
Note 1: I have just found this article, saying that at the G20:
The Americans are thought to have arranged private meetings with Chinese officials this weekend after the Chinese premier Wen Jiabao cast doubt over the country's willingness to provide financial support for President Obama's $787bn (£560bn) stimulus plan.Events appear to be moving, and we will see what comes of such discussions......
Note 2: A while ago I discussed a system of fixed supply of currency. I was thinking in terms of the conspiracy theory about how useful it would be to have a world currency with a fixed supply. This really would be a real New World Order....but one with only positive benefits. I could think of no good argument against it, but can not imagine that the politicians would ever cede their power for tinkering....I may post more on this in the future, but hesitate to do so on the basis that it is so unlikely to ever happen.
Note 3: The New Zealand Reserve bank official mentioned that nobody predicted this crisis, so I offered a correction for this statement. I did not mention that I predicted the crisis, but pointed to the Austrian school as an example. It seems that this story that nobody predicted the crisis simply will not go away. I also threw in my view on banking regulation, pointing out the contributions of Basel I & II in the crisis, and this point was conceded by the official. I had many other points and questions that I wanted to raise, but there were many present, so the opportunity was very limited. One of the key points I would love to have raised is the ongoing use of GDP as a measure in the economy, but felt that it could not be abbreviated into a brief question.
I should also add that there was an refreshing openness in the whole talk. Overall I was quite impressed with this aspect of the talk, and felt that I was hearing a person who genuinely sought to make sense of the situation. I have since sent an email linking to a page in the blog, but have no idea whether it will be read.
A brief note as I found this opinion piece in the NY Times:
ReplyDeletehttp://www.nytimes.com/2009/03/13/opinion/13fri1.html?_r=1
It is an article that suggests that there is increasing resistance to bailouts, which is very encouraging.
You may notice that the article is arguing for more stimulus, but that the argument amounts to 'something must be done'.
The nearest thing to an argument is this:
"In a recent speech, Christina Romer, another of President Obama’s economic advisers, pointed out some lessons from the Great Depression: fiscal stimulus works."
The fact that the Great Depression did not end until 1946 seems to have passed them by....but that is explained by some by economists by arguing that the stimulus was not big enough/over a long enough period...the formula is to just keep on applying the medicine...
With respect to a fixed currency supply surely this is only preferable in a system with a (near) fixed population? I agree that seigniorage can be a problem but the rigidities of fixed currency system while protecting the people against debasement of their currency turn population growth into an deflationary force as a fixed amount of money becomes spread thinner and thinner over more and more goods and services.
ReplyDeleteOn Stimulus Spending and the Great Depression
ReplyDeleteIt is the same argument that suggests that the Great Depression 'New Deal' was just not large enough or it would have worked. The trouble here is that, whatever the amount borrowed and spent, there is always the possibility of someone saying (when it fails) that it just was not enough.
Actually the New Deal worked very well until 1937.
In 1933, the unemployment rate was 24.9%. By 1937, it had been brought down to 14.3%, and a recovery was on the way.
This was a remarkable achievement.
Then there was another recession from late 1937-1938.
Unemployment jumped from 14.3% in 1937 to 19.0% in 1938.
What was the reason?
The reason is that Roosevelt took an economically conservative turn in June 1937: his fiscal conservatism caused another economic downturn, because he tried to balance the budget and severely reduced expansionary government spending.
In June 1937, Roosevelt severely curtailed federal spending.
So no defender of Keynesian needs to claim that US spending was just “not enough” to end the depression.
In reality, in 1936/1937, the budget was contracted.
Paul Krugman explains the fiscally conservative turn that Roosevelt’s administration took after the 1936 election victory:
“… F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving ….
F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.
(Paul Krugman, Franklin Delano Obama? New York Times, November 10, 2008
http://www.nytimes.com/2008/11/10/opinion/10krugman.html)
Let us be clear about this: in this year the US government took a massive move to the right, and abandoned deficit spending as a policy aim.
The aim was to balance the budget.
The results were the massive contraction in the economy that followed.
So in reality you couldn’t have clearer proof of the effectiveness of deficit spending.
When deficit spending was abandoned, the slump returned.
Another reason for the contraction was the highly regressive US Social Security tax:
“In June 1937, Roosevelt severely curtailed federal spending. Simultaneously, the new Social Security taxes began to bite into paychecks. By late summer these deflationary developments had precipitated an economic downturn at least as bad as that of 1929. Within months, more than 2 million workers lost their jobs.”
http://www.presidentprofiles.com/Grant-Eisenhower/Franklin-D-Roosevelt-Roosevelt-at-bay.html
Unlike other countries, the US funds its social security through highly regressive payroll taxes, which cut people’s wages, and hence their consumption.
These highly regressive payroll taxes were introduced in 1937. This was a policy disaster: and, furthermore, it has nothing to with Keynesianism (which would have prescribed tax cuts at this time, if anything).
At any rate, the best study of US government fiscal policy in the 1930s is by E. Cary Brown, “Fiscal Policy in the Thirties: A Reappraisal,” American Economic Review 46.5 (1956): 857-879.
He shows also that contractionary state budgets also had an impact on the stimulative effects of federal deficit spending.
A Challenge for the Keynesian Skeptics: Why did Sweden get out of the Great Depression so quickly?
With all this talk about the Keynesianism and the Great Depression these days, I notice that everyone is fixated on the US.
But, of course, there were plenty of other countries trying to get out of the depression in those years.
Take Sweden’s experience of the depression:
Sweden's quick recovery was astonishing. By 1934, real output had recovered to 1929 levels. By 1935, it was 7 percent above it. Growth would continue well into World War II.
Sweden's success owed everything to its liberal government. In 1932, Labor returned to power. The Swedish Finance Minister was heavily influenced by a group of economists led by Gunnar Myrdal, who had been advocating Keynesian-like solutions for years. The Labor government promptly ran large deficits, and within two years had spent itself out of the Depression.
http://www.huppi.com/kangaroo/Sweden.htm
Not only did it recover, but it never entered World War II and remained neutral. So here the Keynesianism critics are doubly refuted: Sweden tried Keynesianism, got out of the depression early, and never experienced any stimulus through war spending, because its earlier civilian Keynesian deficits had already worked.
BIBLIOGRAPHY
Paul Krugman, Franklin Delano Obama? New York Times, November 10, 2008
http://www.nytimes.com/2008/11/10/opinion/10krugman.html
E. Cary Brown, “Fiscal Policy in the Thirties: A Reappraisal,” American Economic Review 46.5 (1956): 857-879.
Conservatives cherry-pick 1930s unemployment figures in continued assault on New Deal
http://mediamatters.org/items/200812030014
On Roosevelt and Keynesianism
There is an absurd myth that Roosevelt was a Keynesian or modern social democrat elected to fix the depression by deficit spending and socialism.
The reverse is the case: he was elected on a platform of fiscal conservatism and gradually abandoned it under the influence of advisors.
Roosevelt himself was hardly an advocate of Keynesianism or even that interested in large-scale government spending as a solution to the Great Depression. His only meeting with Keynes occurred on May 28, 1934, before the publishing of Keynes’ book The General Theory of Employment, Interest, and Money in 1936. Keynes himself was unimpressed with Roosevelt’s knowledge of economics. He spoke to other people about his meeting with Roosevelt:
“[sc Keynes] told Frances Perkins later that he had ‘supposed … [sc. that Roosevelt] was more literate, economically speaking’; to Alvin Johnson, ‘I don’t think your president Roosevelt knows anything about economics’”
(Arthur Meier Schlesinger, The Politics of Upheaval, 1935-1936, The Age of Roosevelt, p. 406).
Roosevelt, then, could hardly have been an enthusiastic supporter of Keynes’ theories.
Moreover, even in his first term, Roosevelt attempted to cut government spending:
“Roosevelt tried to keep his campaign promise by cutting the regular federal budget, including 40% cuts to veterans' benefits and cuts in overall military spending. He removed 500,000 veterans and widows from the pension rolls and slashed benefits for the remainder. Protests erupted, led by the Veterans of Foreign Wars. Roosevelt held his ground, but when the angry veterans formed a coalition with Senator Huey Long and passed a huge bonus bill over his veto, he was defeated. He succeeded in cutting federal salaries and the military and naval budgets. He reduced spending on research and education.”
http://en.wikipedia.org/wiki/Franklin_D._Roosevelt#First_term.2C_1933.E2.80.931937
In particular, the US economy (and the UK for that matter) have just come out of the equivalent of a Keynesian stimulus which was provided by the Chinese government, oil states and Japan. Whilst the theory suggests that the government provides the stimulus, I can see no difference in the effect of the stimulus being provided by overseas money. In both cases money washes into the economy in order to stimulate high levels of 'activity'. If the government provides a stimulus it will, in any case, fund the stimulus through overseas borrowing (at least in part). What you therefore have is a stimulus on top of a stimulus.
ReplyDeleteThe money pumped into the economy in these years went into speculation and asset price bubbles, utterly non-productive investment.
In the old days (pre-1980s), financial and banking regulation forced the money of a stimulus into productive areas.
With the dismantling of financial and banking regulation in the 1980s and 1990s, the result was useless asset price bubbles and non-productive investment.
So if anything the lesson is to return to the 1945-1980s period of financial and banking regulation.
There is also another astonishing insight from all this:
If banking regulation had been maintained, when the central bank of Japan created money from nothing in its quantitative easing and invested it in the US in the late 1990s and 2000s, it would have gone into productive lines of investment.
Clearly, central bank created money can do something productive provided it’s channeled into the right areas.
Note to Post 1: Marxists on Keynesianism
ReplyDeleteI note that both libertarians and Marxists are united in hatred of Keynesianism, and both believe that budget deficits and Keynesianism could never fix a depression.
In a bizarre marriage of the far left and right, they both ignore the points I made above.
For a Marxist criticism of Keynesian fiscal stimulus, see this:
http://massline.org/PolitEcon/ScottH/False_Lessons.htm
It claims that
The Great Depression was only truly ended by the destruction of capital which occurred on such a massive scale in World War II. This is why the Depression did not resume after the War was over.
But there is a glaring hole here:
The US was never invaded and never suffered any capital destruction.
Nor did Sweden, Canada, New Zealand etc.
For the record, lest people think I am Marxist, I couldn't disagree more with this Marxist line.
US Recovery under the New Deal
ReplyDeleteIt is too easily forgotten that US production did recover to the 1929 level by 1936:
By 1936, all the main economic indicators had regained the levels of the late 1920s, except for unemployment, which remained high. In 1937, the American economy unexpectedly fell, lasting through most of 1938. Production declined sharply, as did profits and employment.
http://en.wikipedia.org/wiki/Great_Depression_in_the_United_States#Recession_of_1937
By one economic indicator, then, the New deal was quite successful by 1936, before the turn to fiscal conservatism.
Jeremy - Just to briefly continue my March 13, 2009 4:01 PM
ReplyDeleteNWO
It took me the best part of two years to find satisfactory answers to the questions I was asking.
In summary.
The NWO is compellingly evident (to me) in the following.
Mass third world immigration into Western civilisation.
Since 9/11 a totalitarian regime rules in all Western countries. (under the guise of anti terrorism)
There is a political consensus throughout the West. (no meaningful political choice)
Democracy is by-passed.
Political correctness rules.
We are in the middle of a culture war! South v North.
Who are the major players?
Bankers, Media, politicians. (Through UN, NGO's, EU, Think Tanks)
The World economic narrative is a fusion of Communism and Capitalism.
It is being played out centre stage.
G20 in April will shed further light.
That's me done.
Beginning of the end for tax havens?
ReplyDeletehttp://www.guardian.co.uk/business/2009/mar/13/switzerland-tax-evasion-fight
Hi Cynicus,
ReplyDeleteIt looked like your last post's comments section was hijacked by conspiracy theorists 8))
You wrote:
A one minute search on Google dug up a paper on the ownership of the Fed, and it had nothing to do with international bankers.
You need to investigate the owners of "The Federal Reserve of New York", not just the "Federal Reserve". The difference is very important. The FRNY has a very different mandate to the other reserve banks.
To get a good understanding of how the Federal Reserve (of NY) works, and who actually owns it I seriously suggest that you listen to Andy Gause being interviewed weekly by Patrick Timpone on www.oneradionetwork.com. Start listening to the podcasts from about Sept/Oct last year and work your way forward.
Note: Unfortunately Andy Gause has been interviewed by a few sensationalists (specifically Alex Jones) so google may make it appear that his thinking is closely aligned with "collapsitarians" and conspiracy theorists. He is not. He is actually a very level headed guy.
The Grauniad picked up on the spat between the US & China too, linking it to some saber rattling about how the US is managing its economy.
ReplyDeletehttp://www.guardian.co.uk/world/2009/mar/14/china-us-economy
More News on UK's Quantitative Easing
ReplyDeleteAccording to an article in the Independent:
The Bank [of England] is in the process of purchasing about £75bn of government securities, or gilts, over a three-month period, the first instalment of a massive £150bn programme ...
But City experts analysing the scheme for The Independent say large quantities of money will simply end up abroad because so many of the gilts are held by foreign investors. They fear that they will hoard the cash, which will be of no benefit to the British economy, or dump it in favour of safer currencies, which could cause a run on sterling. More than a third of gilts are owned by foreign entities, official statistics reveal, and there are doubts about how effective the policy will be if that sort of proportion of the new money is diverted abroad.
http://www.independent.co.uk/news/uk/home-news/bailout-money-is-flowing-abroad-1644887.html
US Social Security as a Highly Repressive Tax
ReplyDeleteI note as an addendum that the introduction of highly regressive payroll taxes in the US in 1937 contributed to the economic contraction, as well as Roosevelt's attempt to balance the budget.
The nature of highly regressive payroll taxes is discussed here:
In the social insurance schemes pioneered in Europe and existing in most industrialized countries, retirement benefits (and benefits associated with early death and disability) are paid to a considerable extent out of the general revenues of the government on a pay-as-you-go basis. But in the United States, the political climate during the New Deal forced the Roosevelt administration to concede to conservative demands that the costs of the system be borne entirely by workers and their employers through a regressive payroll tax specifically created for that purpose, and that a trust fund be set up to cover the resulting Old Age and Survivor's Insurance
http://www.monthlyreview.org/1000edit.htm
Bailout money is flowing abroad
ReplyDeleteStudy casts doubt on the effectiveness of Bank of England’s ‘quantitative easing’ policy
http://www.independent.co.uk/news/uk/home-news/bailout-money-is-flowing-abroad-1644887.html
Anon,
ReplyDeleteIn your view are the symptoms that you stated the product of a few powerful individuals controlling the system or are they (and also those individuals themselves) just a product of the system?
I guess what I'm trying to say is that ill-effects can be produced within a system without centralised co-ordination and in many cases without any malicious intent.
Lord Keynes,
ReplyDeleteDoesn't this all come down to the the slowing of the velocity of money in a depression due to lack of confidence? In other words, there's lots of money out there but people are keeping hold of it expecting tough times ahead and so the same note of currency isn't being exchanged in as many deals in a year and therefore isn't facilitating the generation of as much wealth.
The only way to kick start growth in this environment seems to be to increase the velocity of money by either increasing confidence (lower interest rates and make people feel richer so they go and spend) or if that fails (like it has), to increase the money supply (preferably temporarily) to compensate for the loss of velocity.
Fiscal stimulus and quantitive easing are both designed to pump up the supply of money and increase the confidence of people to do business. The former is withdrawn via taxation and the latter is withdrawn by exchanging the new money for assets and then selling them back on to the market later. And of course monetary stimulus is withdrawn by raising rates again.
Is this how you see stimulus generating real wealth and not inflation?
Please keep the info coming - I find both sides of this argument fascinating!
Hi there, been a fan for a while and thought I'd make a foray in the public realms of blog questions and comments.
ReplyDeleteFirstly in response to Lord Keynes, and bear in mind this comes from my very cursory knowledge of the government policies during the depression, but it would seem that your comment about Roosevelt reducing deficit spending and raising tax's being a move to the 'right' is somewhat erroneous. Reduced spending, certainly, but higher taxation would seem to me to be a much more 'left' move, taxation resulting in a larger government. Also, seeing as the New Deal would be funded by government to create jobs, would it not stand to reason that the since Jobs are funded by government and any move to balance a budget that results in reduced spending by the government would spell an end to these jobs? i.e what Roosevelt giveth he taketh away?
My question to Cynicus is this, with all the destruction of wealth in in numerical terms meaning massive amounts of foreclosures etc... what is happening to the actual physical wealth? Such as shares in Companies, Land, Houses etc...? From what I understand, wealth is not in reality destroyed, it just moves around, it's just the abstract wealth that is being destroyed.
Thank you very much for all the interesting posts, it makes me feel like I can hold my own a little more in economic nattering with others when I paraphrase your posts.
Matty
A long-ish piece of why there is no meaningful political choice.
ReplyDelete"It's almost as if a tacit deal was done."
"You can have political correctness, multiculturalism, gay rights and the abolition of corporal punishment in schools if we can have deregulation, tax loopholes, offshoring and outsourcing."
Read article...
http://www.prospect-magazine.co.uk/article_details.php?id=10608
Reply to Jeremy March 15, 2009 3:40 AM
ReplyDeleteHello Jeremy.
IMO, they are the pebble in the water from which the concentric rings ripple to all corners of the system. (ie Western Civilisation)
What amazes me, to achieve this level of influence and control, literally hundreds of thousands of assorted fellow travellers and useful idiots are co opted (like Obama, Blair, Cameron and Brown to manage and implement their agenda. (thru UN EU.and a whole web of think tanks and NGO's. down to national governments in fact)
IMO, Humanity is trying to get to grips with its dreadful plight, population, resources, climate, eternal growth, competing ideologies and much more.
These people are convinced they are the best suited to steer (control) the world's and Man's future - it's almost a new religion. (NB Christianity under constant attack-on its last legs)
This state of control has not been achieved overnight, In fact it has been decades in the making, certainly since the end of World War II.
Conditions were such at the end of WW II as to accelerate the process of world domination. Globalism, NWO. (call it what you will.)
To people who (like me) just want to live their lives doing ordinary things, marriage, job, home, children etc. to be confronted with such knowledge is truly awesome and disorientating.
To some, it is too much as it runs counter to their experience in life. I suppose we can all choose our own ways of dealing with it from simple denial and move on, or come to terms that all isn't as it seems.
I can only speak for myself, but I am convinced there is 'something' going on, and our media is keeping us looking the other way.
The Internet in many ways is a two edged sword, but the answers to these questions and many more are now well documented by extremely competent people and available for all to see.
About 6 years ago I became concerned at the way my world was being turned upside down, some things I could see with my own eyes, but I couldn't explain them away. Why and who? was a constant drum beat.
I decided to find out. I had no idea what I had set in train.
So just get Googling.
PS I try to be brief, alas with no success.
Well oh dear...I just vomited a little.
ReplyDeleteI read that G20 are going to try to get rid of tax havens.
ReplyDeleteThis is so there will be no escape from crippleing taxs to pay for this mess.
In the 1970s i remember the top rate of tax at 98%.People with serious money left the country.
I fear that this time their wont be any point in trying to earn any more than the min to live.
Interesting to see the views of someone outside of the US about the economic situation. Feel free to visit our blog to see the many varied views of US citizens.
ReplyDeleteReply to Matt on the New Deal
ReplyDeleteRoosevelt reducing deficit spending and raising tax's being a move to the 'right' is somewhat erroneous. Reduced spending, certainly, but higher taxation would seem to me to be a much more 'left' move, taxation resulting in a larger government.
Raising taxes in a recession or depression is not a traditional Keynesian or left-wing policy. The traditional policy is tax cuts to stimulate demand.
The attempt to balance the budget in 1936 was fiscal conservatism, since unemployment was still much too high.
Also, seeing as the New Deal would be funded by government to create jobs, would it not stand to reason that the since Jobs are funded by government and any move to balance a budget that results in reduced spending by the government would spell an end to these jobs?
Many private sector jobs were created by the New deal policies, so it was a loss of both public and private jobs.
Reply to Jeremy Orme on Money
ReplyDeleteDoesn't this all come down to the the slowing of the velocity of money in a depression due to lack of confidence? In other words, there's lots of money out there but people are keeping hold of it expecting tough times ahead and so the same note of currency isn't being exchanged in as many deals in a year and therefore isn't facilitating the generation of as much wealth.
No doubt the slowdown in the velocity of money was one factor.
But a greater factor was surely the destruction of vast amounts of money in hundreds of bank failures from 1929-1933.
Also, it is well know that the Fed radically decreased the money supply after 1929 with horrific results.
As for how you direct new money into productive investment, there is ample historical evidence that governments can exercise a important role through financial regulation. Just think of post-war Japan or South korea.
AIG,OPEC,IMF
ReplyDeleteInteresting developments are taking place in political circles regarding the financial crisis.
The CEO of American International Group Inc is expected to testify on Wednesday at a U.S. congressional hearing on the bailout of the troubled insurer, two congressional aides said on Saturday.
AIG plans to disclose counterparties to the credit default swaps it wrote on complex debt securities.The timing of an announcement was not clear.
Russian Deputy Prime Minister Igor Sechin, in the opening session of the 152nd OPEC conference on Sunday, proposed a list of measures to support world oil prices, calling for lower output from producers as part of the plan. He also stated Russias desire that Russia's energy ministry and OPEC should also sign a memorandum of understanding, adding that Russia might send a permanent representative to OPEC's Secretariat in Vienna.
Sechin, according to a text of his speech to the OPEC ministers, said that his country's oil production in January and February 2009 fell 1.9 percent, or 1.5 million tonnes, from the same period a year earlier. Although Sechin said Russia had already played a part in helping OPEC to cut supply this year, analysts have said Russian production was falling because of a lack of investment in infrastructure and not because of a deliberate policy.
Concern on the effects of high oil prices on the global enonomy led the U.S. Energy Secretary Steven Chu to warn OPEC of the "importance of protecting the world economy from significant price increases" before the meeting.
OPEC has decided to keep oil output at its current levels of production,keen to avoid another decline in the price of oil.
Sechin also called for a new trading system including a change of trading rules and a common settlement system, with the "preferential use of long term oil spike contracts"
Also proposed was changing the current use of the United States Dollar for purchase of oil to "a multi basket of currencies"
(The video of the speech is on OPEC's site, starting at 8.40)
The G-20 has pledged to double the funding of the IMF to at least $500 billion.
U.S. Treasury Secretary Tim Geithner said the G-20 supported a U.S. proposal for a substantial increase in emergency IMF resources through a major enlargement of the new arrangements to borrow and expansion of its membership.
Serbia is the latest country to seek IMF funding,asking for a 2 billion euro loan.
Lefty Feep
HI,
ReplyDeleteperhaps this article will be of interest?
http://www.atimes.com/atimes/Global_Economy/KC14Dj04.html
More on AIG
ReplyDeleteAIG massive payments to banks stoke bailout rage
http://www.reuters.com/article/topNews/idUSN1548789520090316
Obama outraged over AIG bonuses
http://www.reuters.com/article/newsOne/idUSTRE52F60220090316
Lefty Feep
In today's U.S. treasury sales the expectation was for sales of plus $44.3billion - actual was minus 43 billion making the US budget difficult to finance!!
ReplyDelete"The mainstream economists seem to believe that everything will ramp right back up to 2005 as soon as those pesky banks start lending again. Oops, except that all the policy tweaks which these same economists are suggesting will restrict the very sort of insanely risky, unmoored lending which enabled a decade of wild consumer spending.
ReplyDeleteThe entire edifice of consumerism is a "false god" which has now been toppled from its gold-leafed perch. Buying more and owning more did not create a sustainable, healthy happiness or a sense of self-identity; the insecurity and anxiety which were masked by shopping and prescription drugs have now been laid bare."
Charles Hugh Smith 16/3/2009
http://www.oftwominds.com/blog.html
http://www.telegraph.co.uk/comment/columnists/janetdaley/4995968/The-Republicans-can-take-heart-as-Barack-Obama-staggers-to-the-Left.html
ReplyDeleteSentiments such as this are gaining traction, It didn't take long did it?
"I'm beginning to see Barak Obama as something of a political irrelevance, no matter how charming he is. I wonder if he was a means to power for a group of leading Democrats. Who are they? and What is their agenda?"
From a poster @ Daily Telegraph 16th March 2009.
There is little doubt in my mind that the driver of expansion which fueled consumerism in Britain in recent years has been mass immigration.
ReplyDeleteMass immigration drives an exponential rocketing population growth, which in turn places a massive strain on the nation's social infrastructure. Top of the list being housing.
Huge increase in housing demand is not met, house prices go through the roof causing a credit bubble which by owner equity extraction funds consumerism. Everybody is happy.
Question. Why couldn't this situation (property fueled consumerism) have been continued indefinitely, after all it had been going non stop for years, why did it all stop when it did?
Credit dried up, Why? Nothing had basically changed. Had it?
I say again, even now, this situation has not altered.
Immigration is continuing at the same rate, the population is exponentially increasing and the pent up demand for expansion still remains. The big difference of course is, there's no money available (from the banks) to set the gravy train in motion again.
It is clear that the all party policy for mass immigration is set in stone, and will continue well into the future. The figures being bandied around for population growth shoot off the chart. (70, 80, 90 100 million)
Those in high places do not discuss these matters openly, to do so would be to cost them their jobs.
So as I see it, the only area of future growth and expansion is mass immigration, I suspect those in high places are well aware of this fact and will carry on carrying on hoping it will all come good in the end.
It suits the prevailing zeitgeist, cultural Marxism in bed with capitalism.
CynicusEconomicus,
ReplyDeleteHave you seen the article on MoneyWeek.
http://www.moneyweek.com/investments/why-the-dollar-will-get-even-stronger-from-here-14673.aspx
Now my brain itches. I respect MoneyWeek because they have been proved right on many calls including the house price crash.
But now they come up with this...
What on earth is likely to happen to the dollar?
anon82,
ReplyDeleteGreat link... and spot on I reckon.
Here's a piece by Nobel prize winning economist Paul Krugman, saying that Europe just isn't stimulating its economies enough:
ReplyDeletehttp://www.nytimes.com/2009/03/16/opinion/16krugman.html?_r=3
He's the chap who wrote an article a few months ago "Has Gordon Brown, the British prime minister, saved the world financial system?"
As a long time reader of this blog, I know he is talking rubbish... but he is a Nobel prize winner... What do you know about him, Mark?
LEMMING
ReplyDeleteKrugman didn't get a real nobel prize
its "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel".
no real connection
Like having The Peter Stringfellow Prize for Lapdancing in Memory of Alfred Nobel.
It seems a bit of a poisoned chalice, Nassim Taleb has some pretty good side-notes on the disastrous stupidity of many folk who won it.
From Wiki-Leaks
ReplyDeletehttp://www.wikileaks.org/wiki/Whistleblower_exposes_insider_trading_program_at_JP_Morgan
I enjoy this Blog and the comments provided by the readers. However, I have one word of warning.
ReplyDeleteThis blog uses logic, common sense and looks at current trends to make qualified judgements and comments on the current economic decline.
However, in economics this is the completely wrong approach. The only way to make an accurate prediction is to make a guess, or work on a hunch that is based on little reason.
Here's my predictions for 2009.
1) The dollar will strengthen throughout the year.
2) Gordon Brown will be elected Prime Minister again in 2010.
3) Jobless fiqures will rise in America and UK but there will be a new movement of love and helpfulness. It will even have a name. (No army on the streets/FEMA camps etc.. as others are predicting) The economies will perform badly throughout 2010 but everybody will be accepting of this.
4) China will become very quiet and will have little comment on international affairs. It's economy will be cemented as 3rd world for the time being and thoughts that it would become a superpower soon will sound daft.
5) The PIIGS (Portugal, Italy, Ireland, Greece and Spain) will get themselves sorted and will continue to be countries that are exceptional places to live with modern attitudes despite not being economic powerhouses.
It's time to stop wanting the end to happen. The only reason people crave economic collapse is because they want excitement, rapid change, revange on government/corporation or to prove their prediction correct. But it's not going to happen, because it's been predicted too much.
Asia Times Online -- China inoculates itself against dollar collapse
ReplyDeletehttp://www.atimes.com/atimes/China_Business/KC18Cb01.html
'Is Fang Shangpu hinting that China has intentionally, as a deliberate strategy, divided its reserves into two general holdings, official and secret... the secret reserves [holding] predominantly dollar-denominated assets? If this is the case, then China could employ a number of schemes to clandestinely further reduce its total exposure to the dollar ... how might it propose to use those secret reserves to further decrease its exposure to the dollar? Enter China's resource buys ... at a time when the prices of hard assets are extremely attractive and many more such buys are in the offing. If the details of such measures should become sufficiently public and should attract undue global attention before China accomplishes its goals, a dollar panic might be triggered. ... it is likely that China will enjoy cover and gain breathing space to enact its prudent measures while much of the rest of the world continues to rush into the [treasuries] bubble.'
Interesting to see that politics is playing a part in the Chinalco/Rio Tinto deal
ReplyDelete...and that Coke's takeover of Chinese juice company is vetoed
Inhibiting China's ability to purchase real assets as part of its 'Go Global' campaign (and the reverse in the case of Coke) looks on the face of it, just to be protectionism, but it does possibly serve to illustrate the mutual benefit and power of Western political collabaration in ensuring China's wealth remain in $US.
Josiah Stamp's Ghost
ReplyDeleteWas This the link you were trying to post?
anon82's link showed an optimistic viewpoint on how the dollar could rise. It doesn't figure in how other effects and news could cause it to go the other way, like today's reports on a downturn against several other currencies, due to the Fed ramping up QE by buying treasuries.
Could be a short term blip of course, but is first serious sign of a growing lack of confidence, so while the money week article could be right, I don't think it factors in just how uncertain the markets really are as towards the dollar.
Lefty Feep
Following on from other links that show how Russia and China have been talking about replacing the US dollar as the reserve currency, is this news story showing how China and other emerging countries are heeding Russia's call and starting to discuss this more openly.
ReplyDeleteThe decision by the US to do Q.Easing is going to anger their creditors and could lead to diplomatic repercussions.
AIG now using bailout money to sue US government for the return of $306m in tax payments
ReplyDeletehttp://www.nytimes.com/2009/03/20/business/20aig.html?_r=2&hp