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We’Ve Used Up All Our Options, So What Next?

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http://www.telegraph.co.uk/finance/comment/jeremy-warner/8567277/Weve-used-up-all-our-options-so-what-next.html

Western policymakers are at a loss. In textbook Keynesian fashion, they’ve chucked everything up to and including the kitchen sink at the economic crisis, but, beyond a little pain relief, it’s failed to work as prescribed. With their actions fast running up against the limits of political and economic acceptability, is there anything more they can do?

It’s not just in Britain that the recovery seems to have run out of steam. In the past few weeks, much of the economic data has turned worryingly negative almost everywhere. Even in Germany, which has been experiencing near boom conditions, the air has turned decidedly chilly, with both industrial production and exports unexpectedly falling last month. The US, too, has entered a notable “soft patch”, prompting calls for the Federal Reserve to repeat what it did in the same circumstances a year ago and flood the system afresh with newly printed money – “quantitative easing”. So convinced are the markets that it’s coming that they’ve driven the yield on 10-year Treasury bonds to the almost inconceivably low level of less than 3 per cent, despite the very real political risk of federal default and a virtual denial that there will be more quantitative easing from Ben Bernanke, the Fed chairman.

For how much longer can the policy elite keep on delivering more of the same? Every time the engine of economic growth looks like spluttering back to life, it conks out again, and another turn of the public policy crank is demanded. Left-wing critics insist that it’s not the policy that’s wrong, but that there simply hasn’t been enough of it. In this regard, they are much like the bankers. Give us more liquidity, they shout, in blissful disregard of the underlying solvency problem, which is as largely unaddressed today as it was when the crisis began back in 2007.

However they haven't followed what Keynes said, everyone has been deficit spending during the boom, Keynes advised you saved the surplus to even out the bust not perpetually spend money you haven't got and then spend even more money you haven't got in the bust.

http://lynncoins.com/fiat-money-france5.htm

I have now presented this history in its chronological order—the order of events: let me, in conclusion, sum it up, briefly, in its logical order,--the order of cause and effect.

And, first, in the economic department. From the early reluctant and careful issues of paper we saw, as an immediate result, improvement and activity in business. Then arose the clamor for more paper money. At first, new issues were made with great difficulty; but, the dyke once broken, the current of irredeemable currency poured through; and, the breach thus enlarging, this currency was soon swollen beyond control. It was urged on by speculators for a rise in values; by demagogues who persuaded the mob that a nation, by its simple fiat, could stamp real value to any amount upon valueless objects. As a natural consequence a great debtor class grew rapidly, and this class gave its influence to depreciate more and more the currency in which its debts were to be paid.[85]

The government now began, and continued by spasms to grind out still more paper; commerce was at first stimulated by the difference in exchange; but this cause soon ceased to operate, and commerce, having been stimulated unhealthfully, wasted away.

Manufactures at first received a great impulse; but, ere long, this overproduction and overstimulus proved as fatal to them as to commerce. From time to time there was a revival of hope caused by an apparent revival of business; but this revival of business was at last seen to be caused more and more by the desire of far-seeing and cunning men of affairs to exchange paper money for objects of permanent value. As to the people at large, the classes living on fixed incomes and small salaries felt the pressure first, as soon as the purchasing power of their fixed incomes was reduced. Soon the great class living on wages felt it even more sadly.

Prices of the necessities of life increased: merchants were obliged to increase them, not only to cover depreciation of their merchandise, but also to cover their risk of loss from fluctuation; and, while the prices of products thus rose, wages, which had at first gone up, under the general stimulus, lagged behind. Under the universal doubt and discouragement, commerce and manufactures were checked or destroyed. As a consequence the demand for labor was diminished; laboring men were thrown out of employment, and, under the operation of the simplest law of supply and demand, the price of labor—the daily wages of the laboring class—went down until, at a time when prices of food, clothing and various articles of consumption were enormous, wages were nearly as low as at the time preceding the first issue of irredeemable currency.

The mercantile classes at first thought themselves exempt from the general misfortune. They were delighted at the apparent advance in the value of the goods upon their shelves. But they soon found that, as they increased prices to cover the inflation of currency and the risk from fluctuation and uncertainty, purchases became less in amount and payments less sure; a feeling of insecurity spread throughout the country; enterprise was deadened and stagnation followed.

New issues of paper were then clamored for as more drams are demanded by a drunkard. New issues only increased the evil; capitalists were all the more reluctant to embark their money on such a sea of doubt. Workmen of all sorts were more and more thrown out of employment. Issue after issue of currency came; but no relief resulted save a momentary stimulus, which aggravated the disease. The most ingenious evasions of natural laws in finance which the most subtle theorists could contrive were tried—all in vain; the most brilliant substitutes for those laws were tried; “self-regulating” schemes, “interconverting” schemes—all equally vain.[86] All thoughtful men had lost confidence. All men were waiting; stagnation became worse and worse. At last came the collapse and then a return, by a fearful shock, to a state of things which presented something like certainty of remuneration to capital and labor. Then, and not till then, came the beginning of a new era of prosperity.

Just as dependent on the law of cause and effect was the moral development. Out of the inflation of prices grew a speculating class; and, in the complete uncertainty as to the future, all business became a game of chance, and all business men, gamblers. In city centers came a quick growth of stock-jobbers and speculators; and these set a debasing fashion in business which spread to the remotest parts of the country. Instead of satisfaction with legitimate profits, came a passion for inordinate gains. Then, too, as values became more and more uncertain, there was no longer any motive for care or economy, but every motive for immediate expenditure and present enjoyment. So came upon the nation the obliteration of thrift. In this mania for yielding to present enjoyment rather than providing for future comfort were the seeds of new growths of wretchedness: luxury, senseless and extravagant, set in: this, too, spread as a fashion. To feed it, there came cheatery in the nation at large and corruption among officials and persons holding trusts. While men set such fashions in private and official business, women set fashions of extravagance in dress and living that added to the incentives to corruption. Faith in moral considerations, or even in good impulses, yielded to general distrust. National honor was thought a fiction cherished only by hypocrites. Patriotism was eaten out by cynicism.

Thus was the history of France logically developed in obedience to natural laws; such has, to a greater or less degree, always been the result of irredeemable paper, created according to the whim or interest of legislative assemblies rather than based upon standards of value permanent in their nature and agreed upon throughout the entire world. Such, we may fairly expect, will always be the result of them until the fiat of the Almighty shall evolve laws in the universe radically different from those which at present obtain.[87]

And, finally, as to the general development of the theory and practice which all this history records: my subject has been Fiat Money in France; How it came; What it brought; and How it ended.

It came by seeking a remedy for a comparatively small evil in an evil infinitely more dangerous. To cure a disease temporary in its character, a corrosive poison was administered, which ate out the vitals of French prosperity.

It progressed according to a law in social physics which we may call the “_law of accelerating issue and depreciation._” It was comparatively easy to refrain from the first issue; it was exceedingly difficult to refrain from the second; to refrain from the third and those following was practically impossible.

It brought, as we have seen, commerce and manufactures, the mercantile interest, the agricultural interest, to ruin. It brought on these the same destruction which would come to a Hollander opening the dykes of the sea to irrigate his garden in a dry summer.

Still I'm sure history won't repeat, this time it's different......

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However they haven't followed what Keynes said, everyone has been deficit spending during the boom, Keynes advised you saved the surplus to even out the bust not perpetually spend money you haven't got and then spend even more money you haven't got in the bust.

How do you save during the boom times?

The farms must produce each year, you cannot keep the produce for years. Likewise the factories produce only for demand. If you were to take all that extra tax revenue and dump it onto the stock market you would make the boom even boomier only to find no buyers for those assets when the bust came.

The best solution would be use boom revenues to pay down debt. Politicians of all colours have causes that is likely to need money. The left want higher taxes to increase on social spending. The right argue that if the government has too much revenue, it should lower taxes. Thus Keynesian is a flawed theory because it can never happen in the real world, much like communism. What we need to do is select from pragmatic solutions to give us the optimal outcome and not be distracted by idealists.

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How do you save during the boom times?

The farms must produce each year, you cannot keep the produce for years. Likewise the factories produce only for demand. If you were to take all that extra tax revenue and dump it onto the stock market you would make the boom even boomier only to find no buyers for those assets when the bust came.

The best solution would be use boom revenues to pay down debt. Politicians of all colours have causes that is likely to need money. The left want higher taxes to increase on social spending. The right argue that if the government has too much revenue, it should lower taxes. Thus Keynesian is a flawed theory because it can never happen in the real world, much like communism. What we need to do is select from pragmatic solutions to give us the optimal outcome and not be distracted by idealists.

You pay off debt, update machinery with saved income or repair it so that it will last another 10 years without breaking down in the middle of the next downturn, invest in maintaining (and enhancing the business), god forbid even put some money aside for a rainy day.

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How do you save during the boom times?

The farms must produce each year, you cannot keep the produce for years. Likewise the factories produce only for demand. If you were to take all that extra tax revenue and dump it onto the stock market you would make the boom even boomier only to find no buyers for those assets when the bust came.

The best solution would be use boom revenues to pay down debt. Politicians of all colours have causes that is likely to need money. The left want higher taxes to increase on social spending. The right argue that if the government has too much revenue, it should lower taxes. Thus Keynesian is a flawed theory because it can never happen in the real world, much like communism. What we need to do is select from pragmatic solutions to give us the optimal outcome and not be distracted by idealists.

Keynes was talking about money.So were ordinary people...Memes like these are around us and have been for years, maybe centuries:

You make hay while the sun shines.

You issue Umbrellas when its sunny.

A stitch in time saves nine.

So, if there is a surplus....keep it.. As Keynes suggested......no, they spent it, indeed, they LEVERAGED the spend with PFI giving the peasants record numbers of new schools, hospitals and Diversity.

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What next?

Five years of stagnant growth, high inflation (and reducing net private debt, increasing tax take), followed by booming Asiatic / African led global growth, Our only hope!

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What next?

Five years of stagnant growth, high inflation (and reducing net private debt, increasing tax take), followed by booming Asiatic / African led global growth, Our only hope!

where is the growth?...bearing in mind £160Bn of it is new borrowing in the public sector at this time.

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How do you save during the boom times?

The farms must produce each year, you cannot keep the produce for years. Likewise the factories produce only for demand. If you were to take all that extra tax revenue and dump it onto the stock market you would make the boom even boomier only to find no buyers for those assets when the bust came.

The best solution would be use boom revenues to pay down debt. Politicians of all colours have causes that is likely to need money. The left want higher taxes to increase on social spending. The right argue that if the government has too much revenue, it should lower taxes. Thus Keynesian is a flawed theory because it can never happen in the real world, much like communism. What we need to do is select from pragmatic solutions to give us the optimal outcome and not be distracted by idealists.

Some produce you can keep for years. Frozen food, tinned food.....

You mean distracted by the vested interests?

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What next?

Five years of stagnant growth, high inflation (and reducing net private debt, increasing tax take), followed by booming Asiatic / African led global growth, Our only hope!

3 years of spanking asset prices, falling inflation and debt deleverage followed by a 4 year daddy bear crack up boom (similar but more potent to what weve just experienced) followed by a final debt deleveraging uncontrollable interest rate induced into the end of the decade taking 90% of asset and commodity prices

Or maybe not

Edited by georgia o'keeffe

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How do you save during the boom times?

The farms must produce each year, you cannot keep the produce for years. Likewise the factories produce only for demand. If you were to take all that extra tax revenue and dump it onto the stock market you would make the boom even boomier only to find no buyers for those assets when the bust came.

The best solution would be use boom revenues to pay down debt. Politicians of all colours have causes that is likely to need money. The left want higher taxes to increase on social spending. The right argue that if the government has too much revenue, it should lower taxes. Thus Keynesian is a flawed theory because it can never happen in the real world, much like communism. What we need to do is select from pragmatic solutions to give us the optimal outcome and not be distracted by idealists.

Yes but TPTB have long argued that the system that's landed us in the sh1t was the pragmatic solution.

The fundamental cause was the fractional reserve banking system which they argued was pragmatic rather then dishonest.

??

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I believe there has been a phase change in the economy. TPTB keep trying to go back to the economy the way it was working before. With the consumer leading demand, and the consumer getting their money at their work. Then TPTB are surprised that when they withdraw stimulus the economy heads back into recession, then towards crisis.

The path I believe in is to accept that the game has changed. That stimulus will never be able to be withdrawn. Only modulated in the amount needed.

The reality is at least for the last decade the old model wasn't really working either. It was just hidden by a huge debt bubble, extending buying power to consumers above and beyond their income.

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I believe there has been a phase change in the economy. TPTB keep trying to go back to the economy the way it was working before. With the consumer leading demand, and the consumer getting their money at their work. Then TPTB are surprised that when they withdraw stimulus the economy heads back into recession, then towards crisis.

The path I believe in is to accept that the game has changed. That stimulus will never be able to be withdrawn. Only modulated in the amount needed.

The reality is at least for the last decade the old model wasn't really working either. It was just hidden by a huge debt bubble, extending buying power to consumers above and beyond their income.

so, the stimulus fixed nothing, so keep adding to it?

you know what Einstein sayd about that scenario.

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so, the stimulus fixed nothing, so keep adding to it?

you know what Einstein sayd about that scenario.

Actually before the stimulus the economy was literally headed to the abyss. Then with stimulus the economy went back into growth.. then the stimulus is withdrawn and the economy slips back into recession.

It is working, just most nations don't want to keep doing stimulus. In some nations it is actually a moral issue deeply routed in the culture of the nation. The idea of giving people money, without the person earning it working is considered immoral. (except for rich people which this is considered morally right).

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Actually before the stimulus the economy was literally headed to the abyss. Then with stimulus the economy went back into growth.. then the stimulus is withdrawn and the economy slips back into recession.

It is working, just most nations don't want to keep doing stimulus. In some nations it is actually a moral issue deeply routed in the culture of the nation. The idea of giving people money, without the person earning it working is considered immoral. (except for rich people which this is considered morally right).

You seem to be under the illusion that a healthy economy is one that keeps growing by whatever means possible, a healthy econmy is one that rewards sound investment and destroys malinvestment. Thus an economy heading to the abyss as you put it will only do so if it is acting healthily, the more you try to avoid the healthy aspects the larger the abyss.

As for paragraph 2, you are completely muddled and ignoring the reality, you are clearly doing the opposite to what you advocate and taking money away from them through devaluation and giving it to the rich via asset protection, this is what the stimulus has done just look at the wealth gap / GIni over the last 3 years

Edited by georgia o'keeffe

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I'm confused as to why people (beyond their own localised bubbles) actually claim that we had a boom on one hand, and yet 13 years of massive ponzi brown public overspending on the other.

If things were so great for everyone, why are so many areas in the UK so reliant on Public Sector Growth?

Answer? It was illusionary.

There was no actual boom, nada, zilch. Just a massive deficit and some silly naked emperor exposing his b0ll0cks.

Soon it will be our turn to lose our shirts, whilst the illusionists piss themselves on their way to the next set of suckers.

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You seem to be under the illusion that a healthy economy is one that keeps growing by whatever means possible, a healthy econmy is one that rewards sound investment and destroys malinvestment. Thus an economy heading to the abyss as you put it will only do so if it is acting healthily, the more you try to avoid the healthy aspects the larger the abyss.

As for paragraph 2, you are completely muddled and ignoring the reality, you are clearly doing the opposite to what you advocate and taking money away from them through devaluation and giving it to the rich via asset protection, this is what the stimulus has done just look at the wealth gap / GIni over the last 3 years

Agreed, inflation is the only way to go, inflate that debt away. Long term, Asia will assume the wests current position, the west will assume the current asia position (cheap labour servicing Asia), and Africa will become a tiger economy with huge supplies of raw materials.

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I'm confused as to why people (beyond their own localised bubbles) actually claim that we had a boom on one hand, and yet 13 years of massive ponzi brown public overspending on the other.

If things were so great for everyone, why are so many areas in the UK so reliant on Public Sector Growth?

Answer? It was illusionary.

There was no actual boom, nada, zilch. Just a massive deficit and some silly naked emperor exposing his b0ll0cks.

Soon it will be our turn to lose our shirts, whilst the illusionists piss themselves on their way to the next set of suckers.

yes, the economy has been in recession/depression since the Nasdaq popped in 2000 and threatened to take out all the comedy malinvested private business debt, this was stopped by the banks who in turn were taken out, this was stopped by the govt who in turn....

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How do you save during the boom times?

The farms must produce each year, you cannot keep the produce for years. Likewise the factories produce only for demand. If you were to take all that extra tax revenue and dump it onto the stock market you would make the boom even boomier only to find no buyers for those assets when the bust came.

The best solution would be use boom revenues to pay down debt. Politicians of all colours have causes that is likely to need money. The left want higher taxes to increase on social spending. The right argue that if the government has too much revenue, it should lower taxes. Thus Keynesian is a flawed theory because it can never happen in the real world, much like communism. What we need to do is select from pragmatic solutions to give us the optimal outcome and not be distracted by idealists.

Even once the debt is cleared you can buy assets - gold was super cheap during the boom times for example. Or suitable safe sovereign debt. Or set up your own sovereign wealth fund and make long term investments.

It's not bloody rocket science for a government to save money when they are running surpluses.

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Actually before the stimulus the economy was literally headed to the abyss. Then with stimulus the economy went back into growth.. then the stimulus is withdrawn and the economy slips back into recession.

It is working, just most nations don't want to keep doing stimulus. In some nations it is actually a moral issue deeply routed in the culture of the nation. The idea of giving people money, without the person earning it working is considered immoral. (except for rich people which this is considered morally right).

The only part of the economy that grew thanks to stimulus was the public sector. In the absence of stimulus, the prices of raw inputs (especially land) might have fallen to a point where the private sector could use them profitably again. Instead the government is sending even more resources into the already-bloated welfare/warfare state.

It matters what you do with capital. A £50m factory producing goods which are in demand is not equivalent to a £50m PFI school just because they cost the same to build.

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yes, the economy has been in recession/depression since the Nasdaq popped in 2000 and threatened to take out all the comedy malinvested private business debt, this was stopped by the banks who in turn were taken out, this was stopped by the govt who in turn....

Instead of accepting a smaller bust they just kept on doubling up and now face total system collapse. Recessions are actually healthy for the economy, nature destroys but always comes back.

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You seem to be under the illusion that a healthy economy is one that keeps growing by whatever means possible, a healthy econmy is one that rewards sound investment and destroys malinvestment. Thus an economy heading to the abyss as you put it will only do so if it is acting healthily, the more you try to avoid the healthy aspects the larger the abyss.

If the game is the same as before then you go into a recession, the weak models die, the strong survive, and then the economy starts growing again on its own power.

As for paragraph 2, you are completely muddled and ignoring the reality, you are clearly doing the opposite to what you advocate and taking money away from them through devaluation and giving it to the rich via asset protection, this is what the stimulus has done just look at the wealth gap / GIni over the last 3 years

The rich are getting hit too. Stocks are down over the last few years, commercial real estate is way down, savings are yielding less than the rate of inflation, personal real estate is down moderately from the peak.

But the nature of the information technology is one very talented individual can be bizarrely productive. I've talked with people in tech and they would rather have one super genius than 100 smart but not revolutionary tech workers. And they are willing to pay 100 times as much for the super genius.

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I'm confused as to why people (beyond their own localised bubbles) actually claim that we had a boom on one hand, and yet 13 years of massive ponzi brown public overspending on the other.

If things were so great for everyone, why are so many areas in the UK so reliant on Public Sector Growth?

Answer? It was illusionary.

There was no actual boom, nada, zilch. Just a massive deficit and some silly naked emperor exposing his b0ll0cks.

Soon it will be our turn to lose our shirts, whilst the illusionists piss themselves on their way to the next set of suckers.

I believe private sector led growth is basically dead in the water.. died in the 90's.

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If the game is the same as before then you go into a recession, the weak models die, the strong survive, and then the economy starts growing again on its own power.

The rich are getting hit too. Stocks are down over the last few years, commercial real estate is way down, savings are yielding less than the rate of inflation, personal real estate is down moderately from the peak.

But the nature of the information technology is one very talented individual can be bizarrely productive. I've talked with people in tech and they would rather have one super genius than 100 smart but not revolutionary tech workers. And they are willing to pay 100 times as much for the super genius.

the game is the same, but they arent playing it, the weak model is currently in the process of being extended by inflation, it wasnt allowed to die in 2000, or 2008 both times the weak model has been prolonged by inflation, the first one credit and the second monetary.

The wealth gap continues to grow, what is your obsession wîth continuously ignoring whats happening

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http://www.telegraph.co.uk/finance/comment/jeremy-warner/8567277/Weve-used-up-all-our-options-so-what-next.html

However they haven't followed what Keynes said, everyone has been deficit spending during the boom, Keynes advised you saved the surplus to even out the bust not perpetually spend money you haven't got and then spend even more money you haven't got in the bust.

+1

You've nailed it, neither the UK (despite automatic stabilisers) nor the US (despite QE 1&2), have taken a Keynesian approach.

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yes, the economy has been in recession/depression since the Nasdaq popped in 2000 and threatened to take out all the comedy malinvested private business debt, this was stopped by the banks who in turn were taken out, this was stopped by the govt who in turn....

Thinking about this a bit more I'd take it back a few years to 97/98 when they covered up the problems of LTCM and the asian financial collapse. That never bottomed out and the losses where minimal.

Plus even further back you have the Japanese collapse which never bottomed and the losses never admitted too in the late 80's.

We've papered over the cracks once too many times.

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  • 312 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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