Aep -Is The Whole Theory Of Secular Stagnation A Hoax?

[Si1]

http://www.telegraph.co.uk/finance/economics/12083682/Is-the-whole-theory-of-secular-stagnation-a-hoax.html

The BIS believes it has found the smoking gun in a study of recessions in 22 rich countries dating back to the late 1960s. The evidence suggests that the long malaise of the post-Lehman era - and the strange episode that preceded it - can be explained almost entirely by the destructive effects of boom and bust on productivity growth.

............

He accused central banks of an "asymmetric" bias for the last quarter century. They let asset booms run their course, but throw the kitchen sink at each downturn. The result is ever-rising debt ratios, making it ever harder to right the ship again. "This can contribute to a kind of 'debt trap'. Over time, policy runs out of ammunition," he said.

This is well understood. More contentious is the BIS claim that low rates themselves become "self-validating" and pull the monetary regime downwards over time - "easing begets easing".

[TheCountOfNowhere]

http://www.telegraph.co.uk/finance/economics/12083682/Is-the-whole-theory-of-secular-stagnation-a-hoax.html

The BIS believes it has found the smoking gun in a study of recessions in 22 rich countries dating back to the late 1960s. The evidence suggests that the long malaise of the post-Lehman era - and the strange episode that preceded it - can be explained almost entirely by the destructive effects of boom and bust on productivity growth.

............

He accused central banks of an "asymmetric" bias for the last quarter century. They let asset booms run their course, but throw the kitchen sink at each downturn. The result is ever-rising debt ratios, making it ever harder to right the ship again. "This can contribute to a kind of 'debt trap'. Over time, policy runs out of ammunition," he said.

This is well understood. More contentious is the BIS claim that low rates themselves become "self-validating" and pull the monetary regime downwards over time - "easing begets easing".

Like a chav with a credit card.

What we have here is chav-nomics

Edited January 7, 2016 by TheCountOfNowhere

[Si1]

We need a tough ass like Gove or May to be next PM

[billybong]

One assumes the central bankers will take note of what the BIS says as the BIS is run by them.

Edited January 7, 2016 by billybong

[onlyme2]

Two faced shysters still won't admit what we already know.

Central bank policy has destroyed industry and the functionaing economy. Take jsut one example - brownfield sites - to you and me factories whut down and staff shitcanned to feed a property bubble driven by central bankers, pricing out both companies, their employees and giving the company a bonus to shutter their operations and shoft them abroad.

This has been policy in order to pus their globalisation goals.

[Si1]

Bounce

[Neverwhere]

Bounce

Thanks for bumping this, I missed it yesterday and the original BIS paper is pretty interesting!

As well as demonstrating that credit booms tend to result in misallocation of labour into lower productivity sectors (low allocation on the graph below) it seems to offer pretty good empirical support for the idea that, if a credit boom is already in existence, it would be long-term beneficial to actively unwind it prior to financial crises hitting even if this resulted in an economic downturn; not only because of the misallocation of labour problem during the boom, but because financial crisis-free recessions that are immediately preceded by credit booms are signficantly less damaging to productivity than financial crises that are immediately preceded by credit booms (as are financial crises that are not preceded by credit booms, and it seems fairly inevitable that there will always be another financial crisis eventually).

To wrap-up these results, we simulate the estimated path for productivity based on specification (5). To do so, we consider two different assumptions. The first relates to the occurrence of a financial crisis and the second to the allocation component, which can be either "high" (relatively small misallocations having little effect on productivity during the expansion) or "low" (large misallocations causing more damage).²² We therefore end up with four different scenarios and simulate each productivity path.

In Graph 3, the red lines refer to paths with a crisis and the blue ones to those without a crisis. In turn, continuous lines refer to paths associated with a relatively high allocation component and dashed lines to paths associated with a low one. Three conclusions stand out.

First, in the absence of a crisis, the allocation component makes a modest difference for the subsequent evolution of productivity. The gap between the solid and the dashed blue lines remains below one percentage point during the first six years after the start of the recession and then rises to 2 percentage points 2 years later.

Second, by contrast, when a financial crisis hits, the allocation component matters much more. The difference between the red solid and the red dashed lines is around 5 percentage points 3 years after the peak and reaches more than 11 percentage points after 6 years.

Finally, the drag on productivity due to a financial crisis is much larger when these labour misallocations have been large during the expansion, ie the allocation component prior to the recession is low. The dashed red line is much lower than the rest. Put differently, it is the combination of a financial crisis with past misallocations that generates the largest and most long-lasting damage to productivity.

²² We consider the sample distribution for the allocation component and identify the case of a low allocation component (high allocation component) as equal to the value of the 25th percentile (75th percentile). Interestingly, the moments of the full sample and conditional distributions for the allocation component are very similar. Thus, conditioning or not on the occurrence of a financial crisis does not change significantly the value of the distribution quartiles.

Edited for clarity.

Edited January 9, 2016 by Neverwhere

[Neverwhere]

Two faced shysters still won't admit what we already know.

Central bank policy has destroyed industry and the functionaing economy. Take jsut one example - brownfield sites - to you and me factories whut down and staff shitcanned to feed a property bubble driven by central bankers, pricing out both companies, their employees and giving the company a bonus to shutter their operations and shoft them abroad.

This has been policy in order to pus their globalisation goals.

They do kind of say something along those lines (my emphasis):

In this paper we have investigated the relationship between credit booms, productivity growth, labour reallocations and financial crises. We have identified two new possible stylised facts. First, credit booms tend to undermine productivity growth as they occur, largely through labour reallocations towards lower productivity growth sectors. Second, labour reallocations that occur during a boom, and during economic expansions more generally, have a much larger effect on subsequent productivity if a crisis follows. This effect dominates that of other variables, including the non-allocational (common) component of productivity growth. In other words, this second stylised fact is consistent with the view that when economic conditions become more hostile, misallocations beget misallocations; they have a long reach. These findings, based on a large sample of over twenty advanced economies and over forty years, are robust to different definitions of credit expansion and to the inclusion of various controls.

[. . .]

Third, the findings enrich our understanding of the medium- to long-run effects of monetary policy and of its effectiveness in addressing financial busts (Borio (2015)). If loose monetary policy contributes to credit booms and these booms have long-lasting, if not permanent, effects on output and productivity, including through factor reallocations, once the bust occurs, then it is not reasonable to think of money as neutral over long-term policy horizons. This is at least the case if a financial crisis erupts. After all, financial booms and busts linked to crises have had a length of between 16 and 20 years (eg Drehmann et al (2011)), and our results confirm that misallocations take time to develop and have very long-lasting effects. Nor is it surprising if monetary policy may not be particularly effective in addressing financial busts. This is not just because its force is dampened by debt overhangs and a broken banking system – the usual “pushing-on-a-string” argument. It may also be because loose monetary policy is a blunt tool to correct the resource misallocations that developed during the previous expansion, as it was a factor contributing to them in the first place.

[wonderpup]

The Central banks exhibit classic Stockholm syndrome in that they identify most closely with the financial interests that have more or less captured their cognition to the point where what is good for the financial oligarchy must be good for everyone else too.

So in their minds bailing out the financial system and protecting it from losses is their raison d'être- and anyone who thinks otherwise is clearly a fool.

[Neverwhere]

More recent evidence also suggests that credit booms may damage the economy even as they occur by reducing productivity growth, regardless of whether a crisis follows (Cecchetti and Kharroubi (2015)). The mechanisms are not well understood, but Cecchetti and Kharroubi conjecture that the allocation of resources plays a key role. The financial sector's expansion may benefit disproportionately projects with high collateral but low productivity. And financial institutions' high demand for skilled labour may crowd out more productive sectors. Both mechanisms are in line with empirical evidence that during financial booms productivity growth falls disproportionately in manufacturing industries that are either R&D intensive or hold less tangible assets.

[Bland Unsight]

The Central banks exhibit classic Stockholm syndrome in that they identify most closely with the financial interests that have more or less captured their cognition to the point where what is good for the financial oligarchy must be good for everyone else too.

So in their minds bailing out the financial system and protecting it from losses is their raison d'être- and anyone who thinks otherwise is clearly a fool.

You need to read Fragile by Design. Central banks do not exist to protect the financial system from losses. Anyone who thinks that is an ignorant idiot. The government, the central bank and the private banks are a tangled web. However, sometimes visiting brutal losses on the equity investors and creditors of some private banks (but not others) is the way in which the government, through its central bank, renegotiates and rebalances. Anyone who ignores this oft-repeated historical reality is clearly a fool.

[wonderpup]

You need to read Fragile by Design. Central banks do not exist to protect the financial system from losses. Anyone who thinks that is an ignorant idiot. The government, the central bank and the private banks are a tangled web. However, sometimes visiting brutal losses on the equity investors and creditors of some private banks (but not others) is the way in which the government, through its central bank, renegotiates and rebalances. Anyone who ignores this oft-repeated historical reality is clearly a fool.

What is the doctrine of too big to fail if not an explicit recognition that the Central bankers are committed to defending the financial system from losses if those losses are deemed to be a threat to the financial system?

And once you have established that it is the role of central bankers to mitigate systemic risk it's no longer possible to argue that their role is not to protect the financial system from losses- the only argument left to you is a squabble over who is and who is not to be included in the magic circle of 'systemically important' institutions.

In the absence of Central Banks there could never be such a thing as 'systemic risk'- there could only be risk and it's consequences. The notion that the 'system' needs saving is one that could only ever arise in the presence of a potential savior- so the Central Banks are in fact the origin of the crisis they seek to prevent- they are the disruptive force that creates the 'systemic' problems they are so determined to solve.

Had the Central Banks not intervened to 'save' the financial sector in 08 there would have been consequences for sure- a huge amount of fictitious capital would have evaporated on wall street and in the city- but the idea that civilization would have ended is absurd- yet this idea was not only accepted by Central Bankers everywhere but was used to justify the massive bailouts of financial institutions that then followed- a clear case of Stockholm syndrome in which the institutions of the state so strongly identified with the interests of the financial elite that they lost all perspective.

[R K]

BIS in tight monetary policy shocker.

Worked so well in EZ.

[Gigantic Purple Slug]

You need to read Fragile by Design. Central banks do not exist to protect the financial system from losses. Anyone who thinks that is an ignorant idiot. The government, the central bank and the private banks are a tangled web. However, sometimes visiting brutal losses on the equity investors and creditors of some private banks (but not others) is the way in which the government, through its central bank, renegotiates and rebalances. Anyone who ignores this oft-repeated historical reality is clearly a fool.

This though is inconsistent with the idea of "too big to fail".

To me the only point of government is to ensure stability. The price we pay for government (taxes) and loss of personal freedom is the premium on an insurance policy.

If the government fails to act to ensure stability, then there is no point to having it. This to me is why what has happened re the situation on house prices is so unforgiveable.

The idea of too big to fail is that an institution can place itself into a position where its failure can cause enough damage to present a threat to society and therefore the government should bail it out, leading to that institute taking more risks as a result.

To me the government should be dismantling too big to fail organisations, it should be identifying organisations that present systematic risks and place restrictions on their operations to limit the damage that is done in the event of a collapse. This IMO is their responsibility. It's what we pay for. Question is, are they doing enough ?

[wonderpup]

To me the government should be dismantling too big to fail organisations, it should be identifying organisations that present systematic risks and place restrictions on their operations to limit the damage that is done in the event of a collapse. This IMO is their responsibility. It's what we pay for. Question is, are they doing enough ?

The reality is that most of them want to get hired by the same too big to fail outfits when they leave office- so they have little real incentive to take them on- something about biting the hand that feeds you.

The problem with corruption is that it only really works as long as most people are not corrupt- if too many people join in they end up not feeding on the system but consuming it entirely from within, like an over breeding colony of maggots.

Five former members of David Cameron 's cabinet are among dozens of ex-Coalition ministers earning up to £600 an hour in the sector they used to regulate.

The Prime Minister faces calls for a tougher crackdown on the Whitehall gravy train after a Mirror investigation revealed at least 25 former government bigwigs are raking in well over £1million between them in relevant industries.

Many are trousering thousands of pounds a day in plum part-time roles as directors, advisers or board chairmen.

Labour MP Paul Flynn said: "It is wrong that anyone should be selling their inside knowledge and contacts.

"It used to be that a Ministerial post was the pinnacle of any career.

"Now it seems to be a stepping stone to retirement riches."

Ex-Health Secretary Andrew Lansley, former Energy Secretaries Chris Huhne and Ed Davey, ex- Northern Ireland and Environment Secretary Owen Paterson and former Schools Minister David Laws all now work for firms linked to the areas they were previously paid to oversee

http://www.mirror.co.uk/news/uk-news/david-camerons-gravy-train-scandal-7153710

[Saving For a Space Ship]

This though is inconsistent with the idea of "too big to fail".

To me the only point of government is to ensure stability. The price we pay for government (taxes) and loss of personal freedom is the premium on an insurance policy.

If the government fails to act to ensure stability, then there is no point to having it. This to me is why what has happened re the situation on house prices is so unforgiveable.

The idea of too big to fail is that an institution can place itself into a position where its failure can cause enough damage to present a threat to society and therefore the government should bail it out, leading to that institute taking more risks as a result.

To me the government should be dismantling too big to fail organisations, it should be identifying organisations that present systematic risks and place restrictions on their operations to limit the damage that is done in the event of a collapse. This IMO is their responsibility. It's what we pay for. Question is, are they doing enough ?

The reality is that most of them want to get hired by the same too big to fail outfits when they leave office- so they have little real incentive to take them on- something about biting the hand that feeds you.

The problem with corruption is that it only really works as long as most people are not corrupt- if too many people join in they end up not feeding on the system but consuming it entirely from within, like an over breeding colony of maggots.

http://www.mirror.co.uk/news/uk-news/david-camerons-gravy-train-scandal-7153710

Do the Mp's sign the official secrets act? Can they be prosecuted for telling corps the gov details after leaving office ?

Chances are being enforced are v. low