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ska_mna

How Far Away Are We From Fixing Things?

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Great blog post from Umair Haque today doing a quick stock take on where we are with the crisis and how far we are away from fixing things.

His conclusion? Nowhere near.

Some choice phrases highlighted in bold below. His blog and book in general are well worth reading by the way.

http://www.umairhaque.com/2011/10/what-have-we-fixed-so-far.html

The Zombieconomy and the Zombies

Umair Haque, 7th October 2011

Half a decade in--how are we doing in terms of this never-ending crisis? Are we around the corner? Are we in "the middle"?

Here's the simple fact: we haven't fixed much at all.

Banks are slightly less profitable, but finance is still the most lucrative industry in the economy.

Rewards are not flowing into other, more socially useful activities.

Corporations still chase shareholder value.

Today's CEOs are largely yesterday's CEOs (or carbon copies thereof).

"Deleveraging" hasn't kicked in. Debt hasn't been rebalanced with equity; our economy's still structurally sick.

"Interest rates" no longer reflect what you might call a real cost of capital--cheap money flows into banks, but expensive money flows out (when flows trickle out, that is).

Corporations and banks have stockpiled cash to hedge against future meltdowns--telling us the disease hasn't left the system.

Financial%20Sector%20Profits.jpg?__SQUARESPACE_CACHEVERSION=1293552498343

In both relative and absolute terms, the materially poor are (still) getting poorer, and the rich are getting richer--and should that sound naive to you, take a second to remember what "marginal productivity" means.

Hence, the real economy does not have the incentives to invest in 21st century opportunities, ideas, or people.

Hence, there's little to zero real discipline when it comes to checking excess and hubris (like Chelsea Clinton joining a major corporate board).

Hence, the opportunities finance is allocating capital to are all largely marginally socially worthless (faster, more opaque, or more convoluted "trading").

bp195_figure_a.jpg

These are Very Big Problems. Advanced economies have had half a decade to begin patching them up, and they've done pretty much nothing. The structure of the institutional system remains not merely intact and preserved--but shored up and fortified.

The financial determinists--the people who think money will fix this crisis, because this crisis is just about a lack of money--are beginning to suggest the crisis will go away all by itself. And here's the most dangerous part--in a sense, they're right.

Perversely enough, because of all GDP's shortcomings, at some point, all the above might just jolt GDP back into action. Much the same way that Dr Frankenstein brought a monster to life. But it will be a Frankenstein GDP--one that "grows" as real human prosperity recedes and declines.

That's the bad (or, depending on your perspective, good) case. The just-about-average one is this: until the problems above are resolved, this is the no-future future. The US and the UK chug along like this--until they're simply out of steam, and end up, decades hence, either like Russia or Iran (take your pick).

There's no Iron Law that says economies must "recover" from historic maladies--in fact, some never do.

It's just more of the same. Until we reinvent our economy, based on some new industries that create real, durable wealth, there is no future but one of gradual decline.

EDIT: for clarity

Edited by ska_mna

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We just haven't done anything. When things went wrong we went into protection mode and we have been hoping that the bad man will go away and we can carry on where we left off. We still have not accepted that there is no such thing as a free house or a free car or whatever... the average individual needs to accept that there is a slog and get on with it... otherwise we just end up in long term limbo.

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We just haven't done anything. When things went wrong we went into protection mode and we have been hoping that the bad man will go away and we can carry on where we left off. We still have not accepted that there is no such thing as a free house or a free car or whatever... the average individual needs to accept that there is a slog and get on with it... otherwise we just end up in long term limbo.

And while we hide from the fear, we watch re-runs of property porn on TV...

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We just haven't done anything. When things went wrong we went into protection mode and we have been hoping that the bad man will go away and we can carry on where we left off. We still have not accepted that there is no such thing as a free house or a free car or whatever... the average individual needs to accept that there is a slog and get on with it... otherwise we just end up in long term limbo.

I agree. The current policies just will not return the economy to normal growth atall. Savers are being raped, business is starved of cash, home prices are beyond ridiculous, wages are falling and busineses failing anyway. Yet all the policies are designed to hold up an imbalance so profound that it cannot return to health as it is. The cost of the borrowing is so absurd it absorbs too much of our wealth creation. We need interest rates back to 5%, house prices to crash (they hold back the productive economy and are still doing), get on with the recession that is being put off with economic paracetamol. Then rebuild our feeble manufacturing base, have much cheaper housing costs and get over it...yes, very painful indeed, but it will all be dealt with in 2-3 years and then we go forward. Proper bank regs, proper mortgage rules, safe savings. Public sector at 38% of the economy as it was in 1997 and not 52% as in 2010.

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I agree. The current policies just will not return the economy to normal growth atall. Savers are being raped, business is starved of cash, home prices are beyond ridiculous, wages are falling and busineses failing anyway. Yet all the policies are designed to hold up an imbalance so profound that it cannot return to health as it is. The cost of the borrowing is so absurd it absorbs too much of our wealth creation. We need interest rates back to 5%, house prices to crash (they hold back the productive economy and are still doing), get on with the recession that is being put off with economic paracetamol. Then rebuild our feeble manufacturing base, have much cheaper housing costs and get over it...yes, very painful indeed, but it will all be dealt with in 2-3 years and then we go forward. Proper bank regs, proper mortgage rules, safe savings. Public sector at 38% of the economy as it was in 1997 and not 52% as in 2010.

Agreed. In order to get the recovery started, we have to allow the crash to happen first.

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Great blog post from Umair Haque today doing a quick stock take on where we are with the crisis and how far we are away from fixing things.

His conclusion? Not very far at all.

Some choice phrases highlighted in bold below. His blog and book in general are well worth reading by the way.

It's just more of the same. Until we reinvent our economy, based on some new industries that create real, durable wealth, there is no future but one of gradual decline.

How Far Away Are We From Fixing Things?

His conclusion? Not very far at all.

That sounds happy clappy compared to the article.

Do you mean his conclusion is "nowhere near" or "very far"?

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I agree. The current policies just will not return the economy to normal growth atall. Savers are being raped, business is starved of cash, home prices are beyond ridiculous, wages are falling and busineses failing anyway. Yet all the policies are designed to hold up an imbalance so profound that it cannot return to health as it is. The cost of the borrowing is so absurd it absorbs too much of our wealth creation. We need interest rates back to 5%, house prices to crash (they hold back the productive economy and are still doing), get on with the recession that is being put off with economic paracetamol. Then rebuild our feeble manufacturing base, have much cheaper housing costs and get over it...yes, very painful indeed, but it will all be dealt with in 2-3 years and then we go forward. Proper bank regs, proper mortgage rules, safe savings. Public sector at 38% of the economy as it was in 1997 and not 52% as in 2010.

People still regard the boom years as normal unfortunately, and think that there is some sort of magic bullet that is going to fix everything and return us to that 'normal'.

No politician is going to admit that we need to take a nasty hit and at best, at the end of it we go back to a standard of living or affluence of roughly late 80s/early 90s. Instead, they're playing along with the notion that this can be fixed by printing/borrowing money and boosting nominal GDP.

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Sometimes I do get fed up of all the doom mentality that exists and the adage that "there is no money for new business" etc. etc. I am in the environmental field. My company, in the US, is doing OK. We deal with lots of inovative stuff, especially in waste water treatment. Just this week one of our partners received second round financing of $50m. This is a small up and coming business with very little by way of revenues but plenty of potential and some smart people. Point is that there is still money available for good business's with proven technology. There is NO new money for the same old re-cycled crap and high street retailers. Nor for real estate in its many forms. Because there isn't is the reason that people think it's the end of the world. It aint.

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Being a follower of Austrian Theory of Economics, I would say we have got further away from fixing things since 2007.

Lehmans default was good, much debt gotten rid of, but it was a drop in the ocean.

Note...the world DIDNT end when Lehmans crashed.

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Sometimes I do get fed up of all the doom mentality that exists and the adage that "there is no money for new business" etc. etc. I am in the environmental field. My company, in the US, is doing OK. We deal with lots of inovative stuff, especially in waste water treatment. Just this week one of our partners received second round financing of $50m. This is a small up and coming business with very little by way of revenues but plenty of potential and some smart people. Point is that there is still money available for good business's with proven technology. There is NO new money for the same old re-cycled crap and high street retailers. Nor for real estate in its many forms. Because there isn't is the reason that people think it's the end of the world. It aint.

Solyndra also received 500,000,000 from US taxpayer. I beleive, in the same field you are in. Titsup. Directors paid in full.

http://www.businessinsider.com/obama-official-who-handled-solyndra-loans-resigns-2011-10

Edited by Bloo Loo

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I agree. The current policies just will not return the economy to normal growth atall. Savers are being raped, business is starved of cash, home prices are beyond ridiculous, wages are falling and busineses failing anyway. Yet all the policies are designed to hold up an imbalance so profound that it cannot return to health as it is. The cost of the borrowing is so absurd it absorbs too much of our wealth creation. We need interest rates back to 5%, house prices to crash (they hold back the productive economy and are still doing), get on with the recession that is being put off with economic paracetamol. Then rebuild our feeble manufacturing base, have much cheaper housing costs and get over it...yes, very painful indeed, but it will all be dealt with in 2-3 years and then we go forward. Proper bank regs, proper mortgage rules, safe savings. Public sector at 38% of the economy as it was in 1997 and not 52% as in 2010.

Pull the plaster off!!!

If you asked me if I wanted chronic back pain for the rest of my life or a broken finger now I would take the broken finger every time

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No politician is going to admit that we need to take a nasty hit and at best, at the end of it we go back to a standard of living or affluence of roughly late 80s/early 90s.

What do you mean "go back?". Things were pretty good back then. The illusion is that they are better now.

If you go back further my father was able to pay a mortgage, have a stay-at-home wife and raise 4 kids on a single factory workers wages. University was not only free, they paid you to go. Recall UB40 singing about the 1 in 10 it was considered so bad, it's far higher now.

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We just haven't done anything. When things went wrong we went into protection mode and we have been hoping that the bad man will go away and we can carry on where we left off. We still have not accepted that there is no such thing as a free house or a free car or whatever... the average individual needs to accept that there is a slog and get on with it... otherwise we just end up in long term limbo.

The average individual is being fleeced by the banksters and the elites they service- as this article points out there is no incentive to invest money in real productive business when simply mating money with money to spawn even more money is both easy and more lucrative.

This is not about the average individual accepting his lot as a 21st century surf- it's about dismantling the wealth extraction machine the banksters have constructed to steal most of societies wealth- or maybe now it's just about waiting for this machine to implode as it finally hits the limits of how far fantasy finance can defy the reality of zero wage growth and demand destruction in the real economy.

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How Far Away Are We From Fixing Things?

His conclusion? Not very far at all.

That sounds happy clappy compared to the article.

Do you mean his conclusion is "nowhere near" or "very far"?

I don't think I sounded happy clappy. I just think I sounded like a moron writing poor English. :P Yes, you are quite right, I should have said "nowhere near" - I've edited the OP for clarity. English lesson for the day gracefully accepted. That will be why Umair is a published author and I'm not.

I'm in the process of reading his book and in it (so far) he is exploring the idea of how pretty much all the major growth in the western economies over the last 30 years hasn't factored in the true costs of doing business on society as a whole. For example, a bank might trillions in profit, but eventually, in the long run, it will end up getting bailed out by the taxpayer. Or a fast food chain might market and successfully sell burgers by the bucketload, with the health care tab for all the obese people being picked up by society in the long run. And of course the obvious one for all on this forum - rising house prices might allow some people to become fantastically wealthy, but in the long run the tab will be picked up by the younger generation who have to pay those higher prices.

For these massive crisis to stop happening, capitalism as a whole needs to start focusing on the long view and creating sustainable industries that creating lasting value. Not flash in the pan companies that generate billions in shareholder value and then go puff. Think Google vs Groupon.

And I don't mean in "sustainable" in a hippy environmentalist kind of way (although cost on the natural environment is a factor). I mean it in a terms of an economic bottom with regards to net profit after long term expenses have been taken into account.

Edited by ska_mna

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For these massive crisis to stop happening, capitalism as a whole needs to start focusing on the long view and creating sustainable industries that creating lasting value. Not flash in the pan companies that generate billions in shareholder value and then go puff. Think Google vs Groupon.

And I don't mean in "sustainable" in a hippy environmentalist kind of way (although cost on the natural environment is a factor). I mean it in a terms of an economic bottom with regards to net profit after long term expenses have been taken into account.

And how does "capitalism" focus on this long view you talk about? Sounds like you mean a state is necessary to dictate what these long term values are.

Let's face it everything in life is a trade off and there are no panaceas. Either accept the gains offered by the free market which may (or may not - nothing is guaranteed) lead to a sub optimal result, or have a heavy handed static statist society which almost certainly results in no long term improvements. Or as most of the west has done for the last 200 hundred years shuffle between the two and hope for the best.

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And how does "capitalism" focus on this long view you talk about? Sounds like you mean a state is necessary to dictate what these long term values are.

No absolutely not statism. It's gotta be the free market. But how a free market regulates itself from stopping the flash-in-the-pan nature of so many companies these days is a tricky one. I don't have an answer, and I fear humans probably aren't sufficiently far advanced enough as a species to achieve such a thing!

If it happens, it will be because companies and business leaders do it off their own backs by looking to the super long term.

Umair might give us the answer later in his book... I haven't finished it yet! If he does, I'll let you know! :blink:

P.S. Sorry to dissapoint you I wasn't a communist. I could feel you getting coiled for a good ol'flame war there. :P

Edited by ska_mna

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  • 284 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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