166 comments on DrumBeat: December 13, 2008
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166 comments on DrumBeat: December 13, 2008
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creg,
I agree. Whether we have inflation or deflation will be a policy decision. What happens to the U.S. Dollar will depend on who's pulling the policy levers.
This argument that deflation is inevitable or the only possilbe outcome is without merit.
This argument that deflation is inevitable or the only possilbe outcome is without merit.
And your credentials for making this statement are: ???
The point Ilargi and others have been making is that all the money being created is disappearing into the debt black hole, never to emerge. Of the trillions (now) of dollars that have been given to the banks, how much has actually gone back into the economy in the form of credit? Are the banks lending the money to the auto industry, the construction industry or to governments at affordable rates? Their solution to avoid disaster is to let the banks collapse (and the debt black holes with them) and spend whatever money governments have directly in useful activites that build a real economy. Blanket unsubstantiated statements to the contrary hold no merit.
It's not his credentials that would make him right or wrong. Just ask for the points in the argument itself. You're asking for an argument to be proved by Authority, begging for an Ad-Hom argument to start up.
That said,
The solution you refer to sounds sensible.. it seems that money trickles up, not down, and so should be planted down low in the economy. Throw water at the base of the fire, not on the biggest flames, right? My question is how could this be best expressed; in WPA-type jobs programs to catch the recently unemployed and so get critical infrastructure jobs underway while keeping families from falling (further) apart? Instead of direct Mortgage-forgiveness, is there a better instrument that encourages the best corrections for mis-valued housing stock, and doesn't spur the superdevelopment of more cheap construction?
Bob
FWIW...there was a study awhile back that found increasing food stamp allotments is the best way to stimulate the economy. People use food stamps, they don't hoard them. And the money stays in the US, a lot more than middle-class tax rebates do (that might be spent on new TVs or whatnot).
What about the possibility of competing currencies? Like what they had in Austria during the great depression. That got the town moving pretty quickly again till the authorities stepped in. Money is a human invention to facilitate trade of goods and services.
People can always use other things for trade and exchange, such as cigarettes, gold coins, alcohol etc.
At a local level, a lot can be done to stave of deflation if people chose to innovate and apply new ideas.
That should be fine, right after the average weight of a US citizen has returned to normal and the obesity plague has resolved.
Ironically, the poor tend to be more obese than the rich. Junk food is cheap, while fresh fruit, vegetables, and meat are expensive. So increasing food stamp allotments might actually reduce obesity.
Exactly..
you can't buy McD's with food stamps.
"You can't buy ammo with food stamps"
The Milagro Bean Field War
Funny book, bad movie
Well give it just a bit of time, they are hard and fast into their 1$ menu, only a matter of time before they take foods stamps and government vouchers. They are going to be the new soup kitchens. The planning and infrastructure are there, so a grant to feed people from the government is no different than collecting cash. This is, at least, for the first part of the slide down Classic capitalism.
So it gets bad, Obama wants to help, he sets it up so you present your id, and get a free meal, and the government prints some dollars to pay the McDonalds corp. Far fetched right? I can picture a time when the drive thru becomes the walk thru for free food.
Don in maine
"Far fetched right?"
Not really, I could see it happening.
Whether, where and how much the government decides to inject money into the system is again a policy decision.
The government can give money to banks, big corporations, small businesses, middle-class homeowners or poor people on welfare. It can choose to give money to all of these, some of these, or none of these.
The point I'm trying to make is that, if it wants to, it can create out of thin air $1 trillion, $10 trillion or $100 trillion and lavish it on all of the above. And it is a mistake to think that wouldn't cause inflation.
$100 trillion. Hmmm. Sounds like a lot. I assume you were just trying to make a point and so picked what seemed to you an incredibly high figure to make it.
And I think most people would be pretty much in your camp.
The trouble is that even hundreds of trillions of dollars may vastly underestimate the amounts being sucked under by hedge fund schemes.One estimate I've seen was $1140 trillion. But, given the secretive nature of these things, it could be much more than even that.
As long as the amount going into the toilet is less than the amount flushing down, we still have net loss of money in the system=deflation.
And when do you stop? If not at $100 trillion, at a quadrillion? Unfortunately zeros after ones are cheap.
Gee, A party in my name that i haven't been invited to. Where's the booze?
First: VK cites my reaction to a LondonBanker article called Deflation is inevitable, which can be found, among other places, at The Automatic Earth.
Doughboy, it's a mistake to think that the US can print whatever they want, at least for now. Big Mistake.
All US debt that is sold abroad goes through the bond markets, and when you print as much as you want, they will kill you. Simple. Murder all international trade, and you can print what you fancy, but then you have an entire other set of problems to deal with, like no buyers. Given that the US for the past decade has survived solely on international deb t purchases, I often wonder what is hard to understand about that.
Not that it would matter much either way: the gambling debt is so astronomical that printing presses nor helicopters could keep up once the chips start falling down.
Hi Ilargi,
It's great that you've popped over here for a bit of play. I wouldn't dream of accepting your challenge one-on-one (I've seen too many episodes of Zorro to forget what can happen to the shirt-fronts of those so foolish.) Besides, I pretty much agree with everything I've read of yours so far, at least to the extent that I could follow it.
What I have is a question, posted a few days ago over on The Automatic Earth.
In brief:
It seems to me that all of the various 'bail-out' funds must eventually wind up in the pockets of actual individuals, or institutions consisting of individuals.
And, if so, then who are they? Are they Arab Sheiks, Columbian Drug Lords, Sovereign Funds, Paulson's cronies, or just who, precisely? Is that even knowable and traceable in the first place?
Isn't it fair to conclude that those beneficiaries are the motive force behind the stunningly stupid outpouring of money?
My current opinion is that what is being sold to the public as 'solutions' is really just a robbery in broad daylight, whereby cash is involuntarily being 'borrowed' in our name , given to robbers for nothing, to be repaid by us peasants in some bleak and murky future (in the form of taxes, inflation and low wages I suppose.) The repayment part may be left vague because even the robbers don't expect anyone to be able to do it.
I would deeply appreciate further education about what happens beyond the event horizon of that Black Hole we keep hearing about.
DBS, I understand why you would think so, but it sort of just ain't so.
What's missing in your reasoning is that the majority of gamblers at the table - I'm talking about bankers with $100 million bonuses here- put in bets that were worth many times more than they could cover. You presume that for every winner, there's a loser. But what if one of the guys at the crap table defaults, and can't pay his losses?
Say that's $10 billion. What's it going to be? An art-deco redesign of the kneecaps, or a $1 billion loan provided by the Treasury? See, whether the creditor accepts that 10% down payment for now or not, the fact remains that the $1 billion loan vanishes into a previously created black hole of $10 billion. And before you say: but that's still $1 billion changing hands, you need to realize that not only did the creditor just potentially lose $9 billion, (s)he also used the probability of the full $10 billion payback (back in the day when that looked safe) as the collateral for a $100 billion bet of his/her own. Say that bet was lost, and only $1 billion was recuperated so far, with no kneecaps artistically modified. Where will the remaining $99 billion end up? Or, for that matter, more importantly, where will it come from?
The whole thing works as a zero sum game as long as the losers can cover their obligations. If they can't, considering it's not a two or three-way game, but an entire intricate web of losses and very few gains, all the bail-out funds will disappear into a deep pond of previously suffered losses. And since everybody who once was a winner is now a loser, and many will default on their losses, money will vanish just like that. If some one goes bankrupt, there's the same action: money is being written off as not collectable.
Ilargi,
Thank you for taking the time to walk me through the maze. It took several careful re-readings for the mechanics of how it works to finally sink in, and I've a few neural circuits that will never work properly again, but I believe that I now get it.
Black Hole is very appropriate nomenclature.
I see a big "Game Over" sign flashing for all but the absolutely most audacious in finance and government. For the rest of us, hard and very dangerous times.
"If some one goes bankrupt, there's the same action: money is being written off as not collectable."
Yup, it can be kind of painful though. we just won a judgement of $117,000, the company promptly declared bankruptcy. turns out they had bled it bone dry. Managed to grab about $900. Now we are on to discovery to try to find exactly what they did and where the money went, just more legal fees and time.
I think we can just kiss it goodbye. Pretty much sucks. Could have done a lot of PO prep with that.
Dead on ilargi.
Don in Maine
A flaw I see is the assumption that the banking crisis is the cause of the economic downturn. The banking crisis was caused by the recession that started over a year ago. All those gamblers counted on economic growth to cover their bets and when growth stopped more and more bets could no longer be covered and the casino closed. The big mistake of the Paulson plan was an attempt to reopen the casino instead of directly investing those funds in manufacturers and needed infrastructure which would sustain well paid workers. It is almost impossible to get bankers who have just been burned to loan money to folks who may soon lose their jobs. If businesses have no customers then bankers won't loan them money either. The recovery depends on creating well paid jobs which will keep folks working for the next five to ten years.
They should just let the banks default and fail, guarantee all the deposits in the failed banks and than use the 700 billion in TARP funds to create 100 new regional banks each with a capital base of 700 million.
The people laid off from the big banks would transfer to these smaller ones.
A clean start, would cause havoc for some time, US GDP would tank sharply but it gives a fighting chance for the financial system to hold and assist in preparing for peak oil.
If I understand correctly, this bubble that has burst means that people's ability to access credit has been curtailed so sharply that demand for oil will simply give way as no one will be able to afford it.
It's like the floor just fell through, we could easily face a situation where oil production plummets from 75 mn barrels to 25 mn in one year due to limited financing, lack of credit and loss of purchasing ability.
That would be THE shock scenario. It would mean that governments would basically have to take over at all levels of society?
Speaking of booze, peak oil = peak alcohol. I keep my johnny walker close to me!
Methinks there is a zero missing there somewhere.
But yes, in theory really feasible, even Meredith Whitney hinted at regional banks recently, the witch! In practice the problem is that the present financial system owns the government. As I wrote earlier today at TAE:
The guys you voted for have only one goal: to stay in power, A nd it's the old system that gave them that power. Regional banks to them is a threat, not an opportunity or a solution.
I wrote a lot more on that topic, on who owns and decides what, and the perversity of power right here in the comments at TAE today.
WOW, so that would be 7 billion for each bank and with a reserve ratio of 10%, that's 70 billion for each region in America.
I hope that the present financial system won't own the government in the future, as they'll be too broke :-)
What I find really strange is that I always thought that American politicians are held accountable for what they do eg Nixon, Clinton, the recent senators were caught in scandals. It may take time but usually justice is served.
I'm used to seeing despots and tyrants back in Africa. We had one for 24 years and the current one is no different - rigged an election, resulted in 2000 deaths. But America?? :-( The land of hope and freedom. Sometimes on blogs that I follow, I find myself to be the only one thinking that America is actually a great place. There's a lot of anger out there, just looking at the TOD board, marketwatch, mish, CR, TAE etc.
What i'd like to point out is that America's politicians might not be so bad compared to the rest of the world and especially developing countries. America might be on the descent but the fact that it so dominated the world and for so long must mean that you guys are doing something right!?
From an outsider's view, it seems like a really cool place.
I found this on Bill Boner's the daily reckoning, Chicago sounds a lot like back home I must say ;-)
You are obviously confused about the difference between the Fed and the US Treasury. The Treasury issues debt. The Fed can buy debt with money it creates out of thin air.
The Fed is like a money counterfeiter. The difference being that when the Fed creates money it is legal because those dollar bills are Federal Reserve Notes.
If the foreigners stop buying US Treasury notes the Fed can buy them. This'll cause inflation - inflation that is the opposite of the supposedly inevitable deflation.
Most commenters on here provide no information about themselves. Opinion is opinion. At least Ilargi and others claim to be active and trained/experienced in finance and the way banking operates. The technical posters on TOD reveal backgrounds of training and experience that support their work. Many people make reasoned and supported arguments even without any credentials. However there are many more who use tones of authority " ... without merit." with neither credentials nor reasoned arguments to support them. In any event, the resolution of this argument will come through either a renewed spurt of growth or producers going bankrupt with consequent shortages because prices deflate below costs. Perhaps we won't have long to wait.
If I say that I am not in economics, does that help?
I would like one of the money supply gurus to elaborate on the difference between 'potential' gains/losses and 'real' gains losses.
If I had 1 potato yesterday, and today I have 2 - I have gained a potato.
If my house cost me $100000, then it's 'value' rose to $200000, and now its back to $110000..I haven't lost $90000. I only lost the potential to sell it at the peak value and leave the country with the money.
There was no increase in wealth as real estate prices went up. There was the opportunity offered to get further into debt by increasing your loan against the increase in potential sale value as collateral.
So talk about 'trillions disappearing' due to falling property values is daft. On the other hand, money given to bail out bankers, well maybe that really is lost?
Anyone care to explain??
I think that a lot of people used appreciating home prices to borrow against the appreciation e.g. HELOC's. They used this money to make purchases, pay for their kids tuitions, healthcare etc. So when home prices rose, their spending ability increased and they indulged lavishly. As home prices fall, their HELOC's disappear, they can't borrow at all, affecting the real economy, they "feel" poorer and hence are inclined to spend less.
Thus this affects the economy as at every stage, people spend less, hence the economy worsens, as the economy worsens banks don't want to lend money, thus the people spend even less. It goes on, till it can't go on in this vicious circle.
Also the banks made a lot of income of rising home prices, they packaged all sorts of bonds and sold them off to investors across the world and each other. As home prices fell, people walked away from their homes, thus when they stop paying mortgages, the banks couldn't pay of their investors. Thus their holdings of CDO's became essentially worthless as the income stream had ceased. This led to massive write downs, further hampering the banks ability to lend as now they need capital replenishment either through equity or preferred stock or direct investments by government or sovereign funds.
Banks also made side bets of the bonds and loans they made, this is how the CDS market came about I believe and as the CDO's went bad, the side bets went bad as well. And the banks incurred further losses.
I believe that most banks leveraged up 20-40 times. Thus even a small loss means that their entire capital base is wiped out, think of Citi or AIG. Thus they can't lend out anymore as they need to rebuild their capital.
I think that's what I understand, I'm sure to have missed some points. But the basic gist of it is, that people borrowed and spent to much based on the illusion that growth in debt is real growth.
Thanks, that is a nice summary.
I understand the transient in the economy pinching off the supply of loaned money.
It's just that I have noticed that many commentators talk about:
drop in house values of [xx%] X the number of mortgages = money withdawn from circulation.
All that has been withdrawn is the extra debt that COULD have been offered to consumers by loan companies if your collateral value was higher, not the total value drop in 'potential sale value'. Moreover repaying that debt would have decreased their future spending power by more than they would have gained in loan [because of interest] so less money now means more money not paid in interest. The consumer will be richer..
I appreciate that the leverage in the banking system makes it very unstable for decreases. That is purely an issue with bad regulation standards.
If only municipal governments were forced to apply this obvious fact to property taxes.
I would refer you to another one of Martenson's segments that describes how money is created. The fellow is really a brilliant communicator and describes the process in a way that almost anyone can understand.
http://www.chrismartenson.com/crashcourse/chapter-8-fed-money-creation
As one can see from the video, there is abolutely no limit to the amount of dollars that the government can create, if it wants to.
It's this last point that people get hung up on. They either so fervently believe the government will do one thing or the other, or should do one thing or the other, that they lose sight of the fact that what the government ultimately will decide to do is not written in stone.
What I would like to ask, is how and why does Zimbabwe experience hyperinflation?
The people obviously have no ability to borrow given their incomes and banks are not willing to lend given that the economy is so bad. Yet hyperinflation is taking place.
But at the same time, a hyperinflation usually ends up in the collapse of the Government. Think of how much worse this global depression would be with rising prices?
The money poured into the banks is designed to prevent massive bank failures. We don't want to wake up on a Monday to all find out that all of our money in all of our bank accounts is gone. It would be truly moronic to let the banking system collapse. No one but little guy doomers could possibly want this to happen, so it won't happen.
It doesn't really matter to working people and people interested in investing in the living economy if we pour money into the black hole of the banks. In fact, inflating away debts is good for the living. The only people it's bad for are people with money who have an unrealistic desire for a life without risk.
It's true that bank bailouts are not enough to deal with the problems in the economy, which is why Obama's stimulus packages will be directed at jobs.
The programs we're creating will work well enough to stave off doom.
I think doomers are people who recognize that there are serious problems with the economic arrangements of the recent past. They want the system to collapse so that they can be proved right about the problems with the system and live the rest of their lives as part of something better.
But I don't think there's any need to hurt so many people so drastically to get things moving in a better direction, especially within your own life.
Plus, I think it's a big mistake to give up on others so easily. Even those who've been wrong for a long time, and a major pain in the a55 to the rest of us, are still capable of learning and can be part of a future solution.
Also, it's not healthy for the doomer him/herself to be a doomer. It keeps you from dealing effectively with life.
Mo_Gamble wrote:
A clearly short sighted statement. There are many people who no longer have control over their income, such as retired folks who live on fixed incomes. Even working folks will be hit hard by inflation if their incomes do not keep up with inflation, which has been the situation for the average worker in the U.S. for decades. Risk taking is not a bad idea if one is young and can expect to recover after failure, but the older one gets, the less risk is tolerated. You too (if you should survive until retirement) will be likely to find your resources limited, so you might rethink your claim...
E. Swanson
Moe, I appreciate your investment in making the system work well, I really do. That said, however, there are a number of uncritical assumptions here.
1. That the various bailouts and Obama's jobs program can fix things. I think we both know there are real questions about whether this is true - for example, 2-3 million jobs provided by Obama is unlikely to fix job losses if they continue at the pace they currently are - several quite mainstream economists are predicting a million job losses a month through most of 2009. 2 million jobs gets us to February, and then what?
2. You are assuming that the financial system won't collapse - I cannot speak for them, but my guess is that Ilargi and Stoneleigh would say something on the order of that it already has. That is, most of the banks and financial institutions that exist right now are still struggling, despite many billions poured in. They are not lending money out. Many dozens or hundreds of bank failures are being predicted, and the FDIC has substantial financial problems.
I appreciate your assertion that the programs you are creating will stave off doom - and they may stave off some measures of doom - I hope so. My own hope, for example, is that we will get universal health care out of this, which will ensure that the very worst outcomes of this situation are somewhat mitigated. But yours is simply an assertion, and you seem to question the motives of anyone who isn't simply a cheerleader for your position.
I hope that you are right - that when we look back on this in a year, we find that the worst outcomes were avoided. But thus far, most people who have said "oh, all we have to do is this and we'll be ok" have been wrong - not just a little wrong, but horribly wrong. And doing so has caused a great deal of suffering - that same message has led people to keep their savings in the stock market, even when they depend upon them to live, the same reasoning has led people to fail to prepare to live with much less. Much of the suffering comes not from those who prophecy hard times, but from those who assume they will not come.
Sharon
Yeah, my gal Sharon.
As I said earlier today at TAE:
One thing to add: the only reason US big banks still exist and look viable is that they are allowed to hide their gambling losses in level 3 and/or off balance sheets. I opened today's Debt Rattle with Jim Rogers saying that most US big banks are bankrupt. If people don't believe anonymous me, maybe they'll believe a billionaire. It's just the same thing I've been saying for ages, just from another source. It's like everybody keeps listening to, and quoting from, the same tight group of "experts", economists with a degree, who with for banks and other involved parties, and who keep on being utterly wring all the time, but still get the NYT/Bloomberg call the day after. It's hilarious, and deeply sad at the same time. You would never know what is real if that's all you read.
Oh, yeah, we might get universal health care out of this. But if we do, rest assured it will be a festive collection of loopholes, donut holes, evasions, broken promises, and requirements that one impoverish oneself to get "care". In other words BAU dressed in a sham, just like Medicare/Medicaid, only worse, because the broader the reach the less "the government", that magical provider of all things, will be able to afford it.
Careful about making such an absolute statement Moe. You might want to read (or re-read) Taleb (who says he currently wakes up at night in terror of the current systemic and potentially unstoppable crash of the financial system).
"We don't want to wake up on a Monday to all find out that all of our money in all of our bank accounts is gone."
Then they should just bail out depositors and not the bad gambling debts. They are doing the opposite.
“The programs we're creating will work well enough to stave off doom.”
Now you have just gone off the deep end. wtf?
“In fact, inflating away debts is good for the living.”
The one and ONLY group who inflation is good for are those whos income keeps up with and ahead of the inflation. The kind of inflation that people are projecting means that maybe 1% of the population will do good. The rest are truely F#@ked.
You sir have lost touch with reality.
Moe - Reading over my comment I realize I was rude and coming from a hairy old troll like me seems ironic so I apologize.
It looks like you are feeling good about being a part of something, change.gov, and you now feel optimistic about the future.
I would not consider myself a doomer but I am very pessimistic and proud of it. I do not want to argue which is better optimistic or pessimistic.
To each his own.
I will just caution against too much of one or the other.
Last piece of advice;
Find a small to medium size town with some agriculture in and around it and adopt it, make it yours.
Cheers!
Well, I am happy to pick up the trollish tone you are so ready to drop ;-)
No one gives a rat's tuckus about the "health of banks" except those who work in them and own them. The only reason anyone worries about banks is because their money is in them.
But that money is guaranteed. All you have to do is up the guarantee a bit more, then let the freakin' idiot corrupt @#$%^ banks fail and GIVE THE MONEY TO THE PEOPLE!
(There, I used all caps. That proves I'm a troll and also a lunatic who has been completely driven over the edge by the current insanity. I'm just wondering why more aren't here in the asylum with me ;-)
By the way, I really liked the title about $990 Million for Global Warming Fun! I want in on that party! (But I am trying to imagine what global warming fun is exactly.)
That Obama is looking toward "market solutions" shows that we are completely and utterly farked.
Oh, wait. I forgot. The magic of the market is always perfect at allocating resources in the most efficient way that yields the greatest benefit to the greatest number.
Just like it did with housing.
Just like it did with food in the last year.
Just like it did with credit itself.
Just like it is doing with oil.
Just like it is doing with GW.
I believe it was Rubini who noted that the market is working perfectly--it sets a value on everything and it has set a value on nearly all human (and most non-human) life at something below zero.
So all is well, after all. Thank heavens for that.
Back in the early days of computers, some writers warned that we could create a race of super-intelligent and powerful computerized robots that would come to the logical conclusion that humans were not worth saving and they would annihilate us. It turned out we didn't need armies of computerized robots--just a system of universalized greed called "the free market."
"We thought we were getting something for nothing, but we were getting nothing for everything." Wendell Berry
We can't blame the "Market".
At the heart of the current malaise is fractional reserve banking, central banks deciding the price of money using the rate of interest as their main tool and far too much government intervention.
People's actions are guided by these things,their investment decisions are guided by capital gains tax, income tax etc.
All these bailouts we are seeing only serve to increase the debt load, making the problem worse. People are misguided and misled by other people. The market works, in fact it works to well. The fact that there were these monstrous credit bubbles shows how attuned and optimized society has become at allocation of money and resources.
The fact is that the markets are working, even today, they are telling us that the CDS market is worth zero, that the car companies are worthless. What the markets is revealing is the extent to which capital has been mis-allocated by previous bad decisions, it's just that no one wants the answers that Mr Market is giving i.e. The global banking system is insolvent, so basically most nations in the world are bankrupt.
I do see your point.
However ... Mr. Market would be working fine if we were not all bankrupt and saying "how did we get here?"
Mr. Market would also be working fine if attuned to the real value of the ecosystems that Mr. Market is devouring rather than conserving with care.
Mr. Market is real good at saying: "Ooops! You all made a deal with the Devil and now it is tiumke to pay! Ha, Ha, Ha!"
I call that a badly designed and run economy.
Corrupt Crony Capitalism, etc, etc.
Solutions? None that seem to be realistic "in a world where.... we've designed our economy to protect the pirates at the top at the expense of all the other pirates."
We stumble on like drunken ... pirates. Certainly not comprehending the bigger problem of the state of the real (ecological) economy and incoherently trying to convince ourselves that we have an endless supply of rum. Abiotic or otherwise.
I believe in silver linings, but this is the biggest, darkest cloud I've ever seen. We don't control the planet or the species -- both are ungovernable. The ride is quite fun at times, but also sometimes truly terrifying.
Did you ever close your eyes through some parts of a movie?
I agree.
All the errors that have compounded over the centuries i'd say are striking simultaneously. The biggest debt bubble in history, imminent decline of fossil fuels, potentially devastating climate change underway, peak oil implies peak NPK fertilizer = peak food production?, peak minerals?
:-( All this doomer talk, I think I should go down by the river and enjoy the sunshine and the ducks swim by.
Hopefully humans will adjust. We are resilient and innovative and Barack Obama could lead the way forward (Or is that just wishful thinking and hope - maybe I am doomed to hope!)
We certainly can blame our unquestioning certainty that we cannot blame "The Market", in that case. Markets are good only for allocation. They cannot address distribution or scale.
Permagrowth (aka "liberalism" - which is at heart an economic philosophy) tries to finess the allocation issue with whatever leaks to the slovenly slugs and union workers during the allocation process. Rising tide lifts all boats.
What's different this time is that we've hit limits. We cannot pump up the scale. It seems as if any attempt to do so brings with it such a quantity of externalities as to be an absolute negative return. A new coal plant, for instance. More cars. It's as if since the 70's we've been sliding on diminishing marginal returns - now they are absolute. That's only my hypothesis. Call it an assertion if you wish.
Absent the ability to increase scale and thereby leak a little on the unworthy, there is no way to address distribution. Markets do not address distribution; that's a matter of fairness, community values and social morality. Markets are immoral. [Markets could be amoral in a bigger structure, but where they are themselves the structure, that structure is immoral.]
Consequently, "liberalism", progressivism, obamaism, IMF, World Bank and every other institution, technology and society founded on liberal economic underpinnings is a dead man walking. The issue of our times is scale. Lberalism aka permagrowth can't handle that. It's not only irrelevant, but the "solutions" forthcoming from that philosophy make matters worse. Crisis of legitimacy everywhere.
Sharon Astyk writes how she hopes national health care might be an outcome. I share that hope; it seems the easiest way to "increase legitimacy" at all sorts of levels. It addresses distribution. It also paves the way for an entire culture to change from a "liberal" screw-they-neighbor mindset to a "communitarian" we're-all-in-this-together POV. Call me an optimist.
cfm in Gray, ME
As senior troll here at TOD I shall have to ask you to moderate your trollish ways ;}
BTW,I loved your comment.
Compared to other sites even the "trolls" on TOD are nice and intelligent. LOL.
VK, you haven't been here at TOD long enough. We do recall the bad old days at TOD when there were several trolls operating simultaneously at full volume...so much so, that they were actually banned (although some attempted to come back, under various guises-hi James Bond!). We only have a couple of ethanol trolls left now.
Thank you Moe. I am one of the others and it is good to better understand those who will fix things for me.
My wife and I are seniors and essentially without debt. We own our home and have some money in the bank that is well below the FDIC insurance.
As I understand it, you and those like you would like the money supply to increase so that the money we worked for and saved (my, what a novel idea) will be worth less. In other words you and yours would like to steal some of our purchasing power.
That is not nice and neither is the horse you rode in on.
Right on. WTF? Yeh, let's just screw those people who saved all those years and paid off their houses and handled their money wisely whilst preparing for retirement. Let's reward those who ran up their debt beyond belief and have those credit cards with $30,000 and up in debt. Screw 'em. They can always go back to work, even if they are pushing 70 or 80. Oh, wait, they are not hiring seniors? Or anyone, for that matter.
Moe appears to be one of the brigands:
Deflation has become inevitable
http://londonbanker.blogspot.com/
While it may be true that pouring money into investment banks and other banks may, in part, be intended, to also save individuals with money in the bank, a side effect is that many of those who were instrumental in getting us in this mess will continue to pull down their multi million dollar salaries. While congress may intended some restraint be shown in salaries and that bonuses not go to the undeserving, no one really knows what is actually going on within these institutions and Paulson doesn't care.
The question is, was this the only way to save the individual bank accounts. In addition to raising the limit guaranteed by the FDIC to $250,000, what else could be done? And I see little evidence that we are not just going to continue business as usual. All the toxic instruments still exist and they are still toxic. Are these being banned?
All this seems like going to the bank and giving the guy who just robbed your house and wallet even more money so that the "system" can be saved. Let us not just save the system;let us think about an alternative system where people are not paid millions of dollars to create and exploit exotic financial instruments that end up coming back and biting us in our big fat ass.
Just recently, the person in charge of the congressional oversight committee admitted she did not have a clue what Paulson has really done with our money. And this woman is an expert.
Stop the madness. Not one more penny injected into the financial system until we find out what really is going on. And, is it too late to get some of this money back? Ooops. Sorry. All gone.
Don't forget that the 250,000 dollar limit is only good until 12/31/09! No telling what will happen before then or after then really. John
It would be truly moronic to let the banking system collapse.
That is the accusation here:
http://www.tbrnews.org/Archives/a2899.htm
The only people it's bad for are people with money who have an unrealistic desire for a life without risk.
This bugs me, because the last time we had a scenario like this, in the 1970s, my grandmother, who didn't have much to begin with, was looted (via Regulation Q) in order to bail out politically connected people like banksters, massively overpaid automobile workers, and those affluent enough to get certificates of deposit, which IIRC took at least $100k in those days. Certainly a person who has become too old to be hired is not in a position to take risks, not with the "living economy" and not with anything else.
It might bug me less if the people looted by inflation were the ones who caused the problem in the first place...
My grip on economics is challenged but I wonder ...
Does the argument's merits reappear if one presumes that the Policy Lever Pullers (PLP) will act in their - and their club members - self interest ?
As a joe on the street, I expect my interests to not be anywhere near the same as the PLP interests.
Stoneleigh has never argued that inflation will *NEVER* happen - she's been quite explicit that she believes that the US, for example, may eventually inflate its currency, but only after an extended period of deflation.
It is no secret that I'm a partisan of both Stoneleigh and Ilargi's, so I'm unlikely to be the one to come up with evidence that they've been wrong. When Ilargi argued that the financial crisis would overwhelm concerns about peak oil and that we'd see oil prices drop like a stone, frankly, I thought he was out of his skull. He was right, I was wrong and the two of them have had a consistent understanding of what was happening.
Do I think they are infalliable? Absolutely not. But I can't think of a major subject on which they've been substantively incorrect - and I've been reading the blog since it started.
Sharon
Thanks for the reply. I read TAE pretty regularly but my challenges prevent me from much of anything but 20-20 hindsight.
BTW,
sounds great to me !
Sharon
This is a very strange thing to say for somebody who takes pride in getting the truth out. How should I see this?
You can view it any way you choose to. That said, my partisanship has been based on my growing conviction that they understand what's going on correctly - vindicated by in Ilargi's case, several years of correspondence and shared discussion and analysis. "Partisan" doesn't mean "blind partisan" - I'm their partisan because I think they are correct, and because I think their pattern of correctness means they are worth paying attention to. If I catch them lying, I'll tell you - but I haven't even caught them being significantly wrong, which is why I'm not the person to look to for evidence of their mistakes.
Sharon
Sharon, I personally find your positive view of TAE reaffirming. Those of us with financial skills that don't go much beyond a three column ledger depend upon others to try and clarify things. After over four years of paying attention and reading about these issues I am only left persosonally with the need to form an impression of the truth of things. Many comentators have contributed to that in my case. You, Ilargi, Stonleigh and Jeff Brown have been very important in my development. ELP has crystalized a direction of action and many of you have helped raise issues of what this involves in detail. TAE has helped, over the past few months, in clarifying the timing and the direction of the problem. Thanks.
As it stands right now, I think you're right on.
But it doesn't necessarily have to be that way.
Kevin Phillips in Wealth and Democracy does a stellar job of describing the political ebb and flow in the United States as it relates to wealth. There were indeed eras--the Gilded Age, the Roaring Twenties and the period from about 1980 to present, eras Phillips calls "Capitalist Heyday Periods"--when financial elites exerted inordinate political power. But there were other eras, such as those under the administrations of Jefferson, the two Roosevelts, Washington, Jackson and Lincoln, where the power and influence of bankers, financiers and corporate elites was greatly rolled back and kept in check by a more populist--and democratic--polity.
The current "Capitalist Heyday," however, is without historical precedent in its excess and extremity.
Layered on top of this are resource constraints that those in previous eras didn't have to deal with.
For these reasons, I think all bets are off as to what the outcome might be.
I used to think we would inflate our way out. Now, I'm not so sure, the neo-Hooverian tendencies (no deficits allowed) in the US body politic are much stronger than I had imagined. Once we see a little bit of evident recovery the temptation to end the Keynsian stimulus prematurely could be too strong to resist. Then we would see a repeat of 37 -and for essentially the same reason. Except this time we have the economic theory to know it is a mistake. But ideology trumps science (is economics science?) in the US.