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Proof: Economists Claim 2 + 2 = 8134 - Denniger

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Proof: Economists Claim 2 + 2 = 8134

John Maynard Keynes has to be rolling in this grave.....

Suddenly, creating jobs is out, inflicting pain is in. Condemning deficits and refusing to help a still-struggling economy has become the new fashion everywhere, including the United States, where 52 senators voted against extending aid to the unemployed despite the highest rate of long-term joblessness since the 1930s.

Ninety-nine weeks of unemployment - that is, being paid to not work - isn't enough? Where is the line Paul? Does it exist? More importantly: What if the jobs never come back?

Many economists, myself included, regard this turn to austerity as a huge mistake

If you're an "economist" then we need to make sure we eat all of you folks first as the situation continues to deteriorate - a situation that exists, in no small part, because of your idiotic and mathematically-bankrupt pack of lies that has been sold to two administrations in this country, not to mention everywhere else.

What’s the economic logic behind the government’s moves? The answer, as far as I can tell, is that there isn’t any. Press German officials to explain why they need to impose austerity on a depressed economy, and you get rationales that don’t add up.

Really? How about this one Paul? There isn't enough money - actual money, not credit - in the world to do what you want to do - that is, pay half or more of the population to sit on their ass.

The key point is that while the advocates of austerity pose as hardheaded realists, doing what has to be done, they can’t and won’t justify their stance with actual numbers — because the numbers do not, in fact, support their position. Nor can they claim that markets are demanding austerity. On the contrary, the German government remains able to borrow at rock-bottom interest rates.

Today they can borrow at very low interest rates. What is the plan to stop doing so?

You know full well that the plan is "we never will." The history of the United States is one of ever-increasing outstanding debt. Ditto for western nations. That's the problem with your premise and argument against austerity - it is not the interest payments now, it is that the debt will never be paid down and neither you or any of these other idiots ever put forward a plan to actually do so.

As such the issue isn't the interest rate today, it is whether you can reasonably assure the government that for all times in the reasonably-foreseeable future rates will not spike higher due to a loss of market confidence.

History - including recent history - says you can't do that.

Recent history also says that blowing over $4 trillion of borrowed money in the United States on "stimulus programs" does not create jobs - it certainly hasn't created anything other than Census jobs (which were going to exist with or without the "stimulative effects") thus far!

The ugly reality is that we've blown our "stimulus" wads.

All artificial "pump priming" relies on private actors in the economy being able to pick up the ball and run with it once the stimulative action has been taken.

But to do so, the private sector must have credit capacity remaining - that is, the ability and willingness to borrow.

Over the previous 20 years we have ratcheted down interest rates in an incessant attempt to goad people to take on more and more debt. Every twist of the "liquidity" knob has been toward the "wide open" point. Further, the removal of leverage limits lobbied for by Hank Paulson was intended to crank "V".

Remember the indelible "base" economic equation Paul?

MV = PQ

The fallacy is that "M" and "V" can be "directly controlled." They cannot. They only can be influenced. Adding system liquidity, thereby causing short-term interest rates to fall, is supposed to cause "M" to increase (the sum of both currency and credit, which of course isn't what most "economists" define it as - and is why they get the fundamentals wrong.)

Removing reserve requirements sequentially is an attempt to increase "V". This began with Alan Greenspan and his insane sweep account garbage, and was continued right up to Bernanke demanding (and getting in TARP) the right to set bank reserve requirements to zero.

The problem with this sort of "stimulus" is that when both of those knobs reach "wide open" no matter how much more you try to crank them they've hit their stops and do nothing. "Quantitative Easing" and similar garbage has failed to move "M" higher - a zero rate didn't do it, and neither did attempts to drive the effective rate negative. "V" has also fallen and you can't set reserve requirements under zero.

Put in base economic terms the economist's argument that one can get "Q" (that is, growth) to advance by ramping either "M" or "V" has limits. The larger "V" is the more dynamically-unstable the economy becomes due to the lack of reserves (ability to absorb loss) while the higher you crank "M" the more susceptible to rate shocks and rollover risks the economy becomes due to the increase in the debt-to-GDP ratio. At some point private actors in the economy recognize this risk (usually when they see their next door neighbor go bust and jump off a bridge) at which point they will refuse to absorb the attempt to crank "M" higher - that is, they are either unable or unwilling to take on more debt. At this point no matter the policy attempts both "M" and "V" have hit their maximums and further attempts to goad people into bad behavior produce contractions in "M" and "V" instead of expansion, forcing either or both of "P" and "Q" downward whether you like it or not.

This is the "liquidity trap" that people talk about, but in reality it's not a liquidity trap - it's a debt trap. The idiotic so-called "Economists" never factor into the credit and monetary picture that there is a limit to people's willingness and ability to borrow. As debt loads increase rollover risk goes up, and eventually, even if the interest rate is very low today, people begin to "get it" - that there is a significant and rising risk that such rates will not always persist and that when that debt has to be rolled, they won't be able to at any affordable rate of interest.

With a debt-based economic system you can't "print your way out", even if you wanted to. Doing so simply causes an immediate transition from theoretical and perceived rollover risk to actualized rollover risk. Oops.

That's when the jaws of reality snap shut around the tiny little brain of said economist, and as the lights dim you finally admit that Keynes, who had some nice ideas, didn't really advocate what you've been trying to push.

In short, you're forced to admit that you're a phony.

Keynes did indeed argue that during recession governments should act to stimulate final demand, primarily through public works projects (that is, items that have societal benefit to the whole, not handouts to the population.)

So Keynes would argue not for unemployment checks and other forms of handout but rather for demanding that the unemployed by put to work building bridges and roads. That is, instead of being paid to drink beer, one is paid to provide output - whether or not that output is necessary today. The argument has some merit, in that if you're going to pay someone you may as well get something of value. Even if the value you ultimately receive is not superior to the price paid it sure beats handing the money out and receiving zero value in return!

But the crux of Keynes' arguments was that the government must act counter-cyclically in the general sense; he advocated paying for WWII for higher taxation and compulsory saving, not debt issuance!

That is, he argued for building private and public reserves during the war, when domestic consumption had to be curtailed in order for the war effort to succeed, and to provide a reservoir of funds to be released after the war to mitigate an output and demand slump post-conflict.

That, of course, has never happened. The government has squandered every nickel it has taken in, plus more. As such it now simply doesn't have the money to spend counter-cyclically.

Keynes also argued for a radical international settlement system that would create strong incentives for nations to have neither large trade deficits or surpluses - again, a policy never followed, with what we got instead focused on the trade deficit nations - exactly backward and lacking balance.

Keynes appeared to understand, although he never laid it out as I have, that debt has limits and the fundamental economic equation has "hard stops" that prevent shifting the demand-supply curve indefinitely via artificial tampering with credit aggregates and velocity.

Krugman, and the rest of the idiot jackasses that got us into this mess with advocacy of unsustainable and mathematically-impossible economic policies simply fail to understand that for a stable economic environment "V" must be held reasonably tight and constant (to induce business and personal borrowing to take place at a moderate rate primarily for production, not speculation or consumption) and since it is desirable to have "P" remain constant (that is, purchasing power of a unit of currency to remain at a constant level) "M" must therefore be regulated in accordance with "Q" (output in the economy.)

We've build a monstrous imbalance in "M" over the previous 30 years, as I have repeatedly shown in this chart:

Many so-called "economists", including Krugman and Bernanke, wave their arms around in the air trying to find ways to trick you into ignoring the fact that their prescriptions violate the very fundamental axiom of the field they claim to study and practice in - that is, the fundamental economic equation. All come up with flowery and tortuous excuses for why "this time we can do that" rather than forming their prescriptions in a format that will fit these axioms.

Why?

Because their "social agenda" can't be fit into the axiom, thus, they simply discard it, declaring that 2 + 2 = 8134.

This is a knowing lie and for doing so they must held to account.

The entire economic system appears to have hit a brick wall, huge debts have created all sorts of catch 22's. The system has become over expanded and over leveraged.

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That is, instead of being paid to drink beer, one is paid to provide output - whether or not that output is necessary today. The argument has some merit, in that if you're going to pay someone you may as well get something of value

They are providing output - just not in the US. See Chindia for details...........

Also, people sitting around drinking beer and watching baseball (or whatever passes for sport in the US) are less likely to drop in at Goldman's offices waving baseball bats and blow torches which makes it far easier for them to continue their looting and hoarding.

Keynes also argued for a radical international settlement system that would create strong incentives for nations to have neither large trade deficits or surpluses - again, a policy never followed, with what we got instead focused on the trade deficit nations - exactly backward and lacking balance.

Aha! A glimmer of a lightbulb flickering in the dark recesses of a brain. Perhaps, fleetingly...........I wonder if it might soon occur to him that other people use dollars too? But let's not get ahead of ourselves............

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They are providing output - just not in the US. See Chindia for details...........

Also, people sitting around drinking beer and watching baseball (or whatever passes for sport in the US) are less likely to drop in at Goldman's offices waving baseball bats and blow torches which makes it far easier for them to continue their looting and hoarding.

Aha! A glimmer of a lightbulb flickering in the dark recesses of a brain. Perhaps, fleetingly...........I wonder if it might soon occur to him that other people use dollars too? But let's not get ahead of ourselves............

Sorry, I don't get obscurity. I guess that's the Red in your user name getting the better of you.

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Krugman, and the rest of the idiot jackasses that got us into this mess with advocacy of unsustainable and mathematically-impossible economic policies simply fail to understand that for a stable economic environment "V" must be held reasonably tight and constant (to induce business and personal borrowing to take place at a moderate rate primarily for production, not speculation or consumption) and since it is desirable to have "P" remain constant (that is, purchasing power of a unit of currency to remain at a constant level) "M" must therefore be regulated in accordance with "Q" (output in the economy.)

While I agree with the sentiment, what is 'reasonably tight'? Why is it bad for this number to be large, but ok for it to be small?

To cut to the chase, how can targeting any positive number be sustainable in the long run, if:

- 'Inflation is always and everywhere a monetary phenomenon'

- The only lever we have is the price of credit (the interest rate)

Whether it is 2% or 10%, sooner or later, borrowers will be tapped out. This isn't about whether inflation is above/below growth, going hyper/deflating or whatever - I am merely pointing out that borrowing more, indefinitely, to hit a positive inflation target is, in itself, flawed.

So, by my reckoning to make the system sustainable you either have to:

1. Print more as you go along, to hit the target, rather than rely on borrowing ever more.

2. Target 0% inflation, accepting that inflation will have periods of being both positive and negative in equal proportions.

I prefer the sound of 2, and if there wasn't a huge debt built up, I see little reason why there would be a deflation spiral - with little leverage, there is little to de-lever.

I find it hard to believe that the above wasn't considered, when they cooked up the idea of inflation targeting. Can anyone point out if/why I'm wrong, as the above seems pretty clear to me. :huh:

Edited by Traktion

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Sorry, I don't get obscurity. I guess that's the Red in your user name getting the better of you.

Americans draw parochial boundaries, when it suits them.

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.....

He's a great argument in favor of turning economists into shark-bait

I think this is an excellent idea, however the poor fish probably suffer already enough given the commercial pressures on sharks. Economics is trying to make your crackpot theories fit the observable phenomena. Astrology is a similar "science". Maybe Russell Grant should head up the Bank of England?

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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