Time To Reflect?

[bpw]

The Steve Keen analysis rings a lot of bells, but it occurs to me that we're loosing sight of the root cause of the crisis (and, no it's not London as suggested by Tim Geithner).

Am I alone in thinking that the majority of todays woes fall squarely on the shoulders of the Federal Reserve, and in particular Greenspan's policy of holding base interest rates at low levels (they are negative in real terms).

It seemed obvious to me in 2002 that this was going to lead to a global financial disaster so you can be assured they knew too!

(EDITs - what is it about iPads that make you post with more errors)

Edited June 13, 2011 by bpw

[CrashConnoisseur]

I largely blame the worldwide fashion, starting in New Zealand in the late 1980s, for so-called 'inflation targetting' - the setting of monetary policy in response to changes in the price of a basket of groceries, EasyJet flights, and Chinese made pants, while deprecating excessive money supply growth. It's a barking mad policy that's predictably led to an unsustainable explosion in debt.

[_w_]

The Steve Keen analysis rings a lot of bells but it occurs to me that we're loosing sight of the root cause of the crisis (no not London according to Tim Geithner).

Am I alone in thinking that the majority of todays woes fall squarely on the shoulders of the Federal Reserve and in particular Greenspan's policy of holding base interest rates at low (negative in real terms).

It seemed obvious to me in 2002 that this was going to lead to a global financial disaster so you can be assured they knew too!

My twopence:

The root cause of the crisis lies with 1. the decoupling of gold and the dollar (and most other western currencies under Bretton Woods) 2. The irresistible desire by vested interests in a position to do so to inflate to further their own interests.

[scepticus]

All these narratives just totally ignore the evidence. To Whit:

There is a graph of US domestic debt as a % of GDP. Google for any other graph of domestic debt or total debt as a percent of GDP, or in absolute terms, whatever you like. You'll find plenty of examples which tell the same story, a smooth exponential of X squared kind of curve, beginning right after the war.

By all means blame greenspan, brown, Merv, the FED if you like for continuing the trend, but don't lose sight of where it started. Given the neat mathematical curve that can be fitted to the debt graph, it is clearly driven by one or two fundamental variables that have little to do with these populist ghost stories.

IMO the story starts with the establishment in 1935 of deposit insurance in the US. As soon as bank creditors are guaranteed, the rest follows from there.

[Georgia O'Keeffe]

All these narratives just totally ignore the evidence. To Whit:

There is a graph of US domestic debt as a % of GDP. Google for any other graph of domestic debt or total debt as a percent of GDP, or in absolute terms, whatever you like. You'll find plenty of examples which tell the same story, a smooth exponential of X squared kind of curve, beginning right after the war.

By all means blame greenspan, brown, Merv, the FED if you like for continuing the trend, but don't lose sight of where it started. Given the neat mathematical curve that can be fitted to the debt graph, it is clearly driven by one or two fundamental variables that have little to do with these populist ghost stories.

IMO the story starts with the establishment in 1935 of deposit insurance in the US. As soon as bank creditors are guaranteed, the rest follows from there.

yes the fractal bull market that is correcting from the end of the last depression and thats why the Dow will fal back to the pre 80s level of 1,000 by the time this bear market that started in 2000 is over in my most humble opinion, peeps can make their own calculations on what that will do for house prices which are neither the cause or the worry, they were merely an extension strategy, could have been beetroot, alternatively....

http://www.youtube.com/watch?v=WIuoJlzrTv0

Edited June 12, 2011 by georgia o'keeffe

[tallguy]

The Steve Keen analysis rings a lot of bells but it occurs to me that we're loosing sight of the root cause of the crisis (no not London according to Tim Geithner).

Am I alone in thinking that the majority of todays woes fall squarely on the shoulders of the Federal Reserve and in particular Greenspan's policy of holding base interest rates at low (negative in real terms).

It seemed obvious to me in 2002 that this was going to lead to a global financial disaster so you can be assured they knew too!

resource depletion. In particular, the most critical resource of all; energy.

[erranta]

<br />The Steve Keen analysis rings a lot of bells but it occurs to me that we're loosing sight of the root cause of the crisis (no not London according to Tim Geithner). <br /><br />Am I alone in thinking that the majority of todays woes fall squarely on the shoulders of the Federal Reserve and in particular Greenspan's policy of holding base interest rates at low (negative in real terms). <br /><br />It seemed obvious to me in 2002 that this was going to lead to a global financial disaster so you can be assured they knew too!<br />

I'm embellishing on a newspaper post by an enlightened writer I read about knocking the Cameron Green Govt & his "pox on society" UK green taxes on the head

AND

he looked up the meanings of 'GREEN' (old english Grene) in his dictionary

IMMature

"Deficient in training or knowledge"

"Deficient in Savoir faire or sophistication"

"Not qualified or experienced in fully performing a function"

"Un-ripe (Green Apples)"

"Marked by pale, sickly, nauseated appearance"

"Not fully 'processed' or treated" (for madness etc)

Need I say more?

Edited June 12, 2011 by erranta

[cashinmattress]

You and your greed are to blame. Simple answer.

[winkie]

.....part of it.

[silver surfer]

The root cause of the crisis lies with ....The irresistible desire by vested interests in a position to do so to inflate to further their own interests.

There's a fundamental problem with this, inflation most hurts the vested interests you speak of.

http://www.nytimes.com/2011/06/10/opinion/10krugman.html?_r=1&ref=paulkrugman

[silver surfer]

You and your greed are to blame. Simple answer.

So if we're all to blame why are you delighting in the redundancies at Lloyds?

[interestrateripoff]

I don't think there is one particular time point where you can say it definitely started, mistakes have been made for decades and each one has rippled out.

However Scepticus raises and interesting point which I have been thinking about. Part of the reason why we face such a catastrophic failure is because of perpetual distortions to the markets instigated by govt interference leading to misallocation of capital. Once the process has been started it becomes impossible to stop.

From the UK perspective, child tax credits, child benefit, MIRAS etc.... I would argue has fed into the housing boom. I was quite shocked when we last moved how eager the banks where to add in these benefits to calculate how much they could lend us. This clearly has sent the wrong price signals to the market and allowed the bankers to over inflate their bonuses/profits. Pull these benefits and you will deflate and cause a lot of pain. The benefits have allowed individuals to borrow far more money than they should do because the govt is contributing too it.

I'm sure this could be expanded further.

[athom]

Usury becoming legal.

[billybong]

TPTB dream of globalisation has played a part as that's encouraged the developed/undeveloped world economic linkage as typified by the carefully developed US/China economic relationship. It's also meant that once the bust started they've got to try to maintain the excesses almost at all costs otherwise everything fragments and delays their grand scheme. If they'd left nations alone they'd have reset more quickly and easily but the huge overweight bureaucracy they've put in place is trying to prevent that and can't face upto that - yet.

The derivates of mass destruction have played their part in it all as without them and their associated £trillions upon £trillions of debt the undeveloped world wouldn't have progressed and developed as quickly as they have but in creating it all they've likely miscalculated the full extent of the consequences and can't face upto the resets needed. In the process it seems like they're going to end up wrecking whole nations and countries.

[cashinmattress]

So if we're all to blame why are you delighting in the redundancies at Lloyds?

Because private banks add zero value to society, and maybe the deposed can go pick turnips or learn to do something useful.

Like somebody else mentioned on here, if they can still run at 100% with 15,000 less employees, what the hell were they doing in the first place.

[scepticus]

yes the fractal bull market that is correcting from the end of the last depression and thats why the Dow will fal back to the pre 80s level of 1,000 by the time this bear market that started in 2000 is over in my most humble opinion, peeps can make their own calculations on what that will do for house prices which are neither the cause or the worry, they were merely an extension strategy, could have been beetroot, alternatively....

Its not a bubble its a transition.

[Georgia O'Keeffe]

Its not a bubble its a transition.

all bear markets at any degree are transitions,consolidations, pauses, corrections, call them what you like they are fundamentally the market,evolution whatever getting ahead of itself

Edited June 12, 2011 by georgia o'keeffe

[scepticus]

all bear markets at any degree are transitions,consolidations, pauses, corrections, call them what you like they are fundamentally the market,evolution whatever getting ahead of itself

secular bear markets have nothing to do with the market being ahead of itself and everything to do with a few fundamental variables. Likewise secular bull markets.

For sure short/medium term action can be explained as a momentum thing, but not a 3/4 century trend.

[_w_]

There's a fundamental problem with this, inflation most hurts the vested interests you speak of.

http://www.nytimes.c...ref=paulkrugman

What else would you expect from Krugman but VI driven lies and misleading garbage. He's the US's very own Blanchflower.

[Georgia O'Keeffe]

secular bear markets have nothing to do with the market being ahead of itself and everything to do with a few fundamental variables. Likewise secular bull markets.

For sure short/medium term action can be explained as a momentum thing, but not a 3/4 century trend.

piffle, development,evolution like nature is fractal at all degrees, no matter how short or long a time frame you wish to consider, nature is nature, you might like to think youre not part of it but you are,you always will be, as will your ancestors and generations forward

Edited June 12, 2011 by georgia o'keeffe

[scepticus]

piffle, development,evolution like nature is fractal at all degrees, no matter how short or long a time frame you wish to consider, nature is nature, you might like to think youre not part of it but you are,you always will be, as will your ancestors and generations forward

the form of natural constructs - life - is indeed fractal (which is why biological variables scale with a quarter-power law rather than a third power law one might naively expect given that life lives in 3 dimensions). However the progression and change of forms is not IMO governed by the same mathematics.

If you look at the progression of say, real wages, or perhaps GDP or maybe total energy usage over let us say 20,000 years, there is no obvious fractal pattern to be seen. No doubt you can if you zoom right in, but that's not to say everything is fractal, fractal perturbations can quite happily ride on top of underlying trends.

I also cannot observe a fractal aspect to the currently existing forms of life versus what used to exist, or cultural progression for example. I see a tall tree, of which most of the branches are dead.

Evolution, all life, seeks monoculture.

[silver surfer]

What else would you expect from Krugman but VI driven lies and misleading garbage. He's the US's very own Blanchflower.

Except he got the Nobel prize for economics and Blanchflower didn't.

[scepticus]

I don't understand why the money supply cannot keep expanding exponentially.

I don't think it will grow exponentially, but it will grow. The long term exponential growth was driven by population, and the short term exponential since the war due to a change in the internal constraints of the ever evolving cultural base (deposit insurance).

I think there is probably some incredibly simple formula waiting to be discovered that includes the proportion of money devoted to investment and the proportion devoted to consumption, velocity, the gap between rich and poor and the balance of trade versus balancing capital flows.

The simple formula is I think the ratio of public to private debt. Currently this sits at an historical low just like it did in 1929. The long aftermath of 1929 saw public debt grow to 200% plus of GDP, and this will happen again, but over a far shorter timeframe. My premise is that hyperinflations happen when public debt vastly exceeds private debt. Weimar, the french paper experiment, and argentina and zimbabwe (and possibly greece) all fit this model I think. Ultimately social stability (and hence long term money stability) is determined by the right balance between collective and individual social structures.

We know that there are great similarities between now and the Great Depression about the relationships between those things.

There are similarities, but there are also differences. I think in this case the social and technological base is condusive to a different response to the perennial problem of private sector over extension, which equates with inequality due to capital accumulation. ofc an inflationary solution doesn't mean that it won't be painful, just different.

The next boondoggle to keep the engine running is unfunded tax cuts to lower income segments overlaid with fiscal spending cuts. The IMF is already pushing this line as 'Plan B' for the UK, and FWIW I think they are right. It makes sense to cut structural spending deficits while simultaneously making discretionary decisions to boost the purchasing power of the base of the pyramid, but leaving it up to private individuals what they spend on. This mechanism is not only much more controllable and flexible than government directed spending, but is also crucially compatible with right wing ideology.

[_w_]

Except he got the Nobel prize for economics and Blanchflower didn't.

Possibly a perfect confirmation of my point :-)

[iamdamosuzuki]

You and your greed are to blame. Simple answer.

+ 1 for greed and it's celebration. Only a spiritual change can grag us out of this.