Sunday, May 31, 2009

Naïveté

Has the threat of a Great Depression vanished?

World share prices have enjoyed a three-month rally, led by commodities, retailers and financials, capital markets have re-opened, with record issuance of equities and corporate bonds, credit spreads have narrowed and government bond prices have fallen in exactly the way they did at the start of the recovery in 2003. Yet most economic commentators have remained sceptical or even contemptuous of all this evidence. Surely, they argue, the threat of another Great Depression could not just have vanished in a puff of statistics? Is anyone so naive as to think that a crisis caused by over-leveraging can be solved by government borrowing and money-printing? Actually, some people are so naive.

Posted by devo @ 11:07 PM (1258 views)
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11 thoughts on “Naïveté

  • I will not be pleased if little professor’s posting of the same article attracts more comments than mine.

    Think on.

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  • I wouldn’t care, but my posting would have appeared first if I hadn’t decided to look up the various spellings of naivety.

    Life can be very unfair at times.

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  • little professor says:

    Hey, you deserve bonus points just for the best use of diacritic marks in a HPC posting

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  • Anyway, thought I’d share this with you:

    I watched a repeat of On the Buses on ITV3 yesterday.

    Guess how much rent Blakey was paying Mrs. Butler for his room?

    £4 a week!

    The power of inflation!

    Mind you, the character Bob Todd played (I didn’t catch his name) did manage to exert his power as Blakey’s superior, to extort an extra £2 a week for Mrs. B.

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  • 3. little professor said… Hey, you deserve bonus points just for the best use of diacritic marks in a HPC posting

    Thanks lp, you’re a gentleman. FWIW, I have successfully used acute accents before in HPC postings, but this was my first attempt at including a diaeresis. As you can imagine, I’m very pleased.

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  • @Little Professor and devo

    Well done but no more backslapping please (‘diaeresis’ sounded like a disease to me – I required a dictionary.)

    What I’d be interested to hear about is more analysis of Kaletsky’s article. My first impression is how many topics and opinions he quotes – it’s not easy to form a clear argument against so many angles at once.

    Some of it is just mystifying to me: “Inadequate consumption in China, Germany and Japan could prevent a rebalancing of the world economy and create new asset bubbles.” Sorry, maybe I’m a bit dim but can anybody explain that to me?

    ‘Structural inflation, created by unions, protectionism and energy cartels, could turn a cyclical stagnation into long-term “stagflation”.’ So mismanagement of the money supply by central banks is not a potential cause of inflation?

    Whenever I see a problem, I try to reduce it to parts that can be understood; Kaletsky is doing the exact opposite. The article reminds me of an old saying: “bullsh1t baffles brains.” (the blog monster will not let me use the bull**** word)

    Trying to address every aspect of Kaletsky’s piece would be a thankless chore for the reader and blogger.

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  • 6. quiet guy said…What I’d be interested to hear about is more analysis of Kaletsky’s article.

    You flatter Kaletsky by giving his ramblings undeserved attention.

    The use of the words “Great Depression” in his headline says it all. He finally gets it. Who knows, flashman might be next.

    What!? What did I say now?

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  • @devo

    “flashman might be next.”

    Tut tut. I’d be quite interested for Flashman’s take on this article (but I’m about to go off the net until next weekend so will not be able to respond.)

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  • spanner in the works of course is that average salaries are falling

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  • Antole is picking and choosing his data eg he points to Case Schiller in the context of housing but fails to take into account comments that the markets are still over priced relative to earnings, he mentions the savings rate but not the unprecendented levels of personal indebteness, he mentions growth but does not describe how it will happen (fiscal largesse might help but it is not in itself enough and the Obama plan in this regard seems very flawed and fails to focus on infrastructure, the brown plan on the other hand is non existent); again no mention of trade imabalances and in particular the how we replace consumption and what we do with the destruction of capital investment inferred by this (Commericial Property not only bubbled but bubbled in response to a rabid consumer)

    I would agree the US are getting close to affordabilty in housing which is a good thing and a reason to be optimistic. In the UK that is however pointedly not the case, we also have greater sov debt and significanly higher personal debt whose servicing is predicated on consumpation and finance. Where we go from here long term is not clear but we will (becaues we need) have years of pain, or if you prefer creative destruction before this occurs.

    All that said agree that this is not going to be the great depression. Significantly technology is still in its infancy as are the emerging nations. There are medium term global growth stories there, if we don’t end up in a war.

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  • I’m told that a feature of high intelligence is that you can argue any point and end up running round in circles – or up your own ?%&. I think this has happened with Mr Kaletsky.

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