NationStates Jolt Archive

http://www.businessspectator.com.au/bs.nsf/Article/Lacy-Hunt-$pd20090129-NR997?OpenDocument

Debt deflation debacle

Renowned economist Dr Lacy Hunt, of Hoisington Investment Management, talks to Business Spectator's Isabelle Oderberg from Texas to explain:

The US is in a period of debt deflation that may take up to 15 to 20 years to normalise
The S&P is at risk of some 'false dawns'
There will be a major shift in US consumer behaviour as savings start to rise and people live more within their means
He describes the US stimulus in its current form as a grab bag of political promises and says it may be doing even more damage
Diversified equity portfolio models may not work in the debt deflation environment

So there's an introduction to where we're heading. I've been forming this view more and more over the past few weeks (for those in the know, it doesn't have anything to do with the work I've been doing). TARP was a fuck-up, the vast majority of the money approved by Congress was wasted.

So we're now in the same situation we've seen before. Banks' debt and bad assets need to be refinanced, essentially the banks have to save. There is no one who still trusts them to hand them money in sufficient amounts because they have all the incentives to try and minimise the disclosure of damage come reporting time. So they don't lend, they take all the cash they can get and keep it - but that's a slow process that can take a decade or more. During this process the economy shrinks or doesn't grow, unemployment creeps up and the general pessimism and discontent can destroy societies from the inside out.

There is one way to fix this quickly. The Japanese didn't have the guts for it in the end, and the previous administration obviously didn't either. No one seems to right now.

Essentially, you take over the problem banks, nationalise them completely and without regard for the shareholders. Then you split them apart, into a good part that isn't encumbered by CDOs, CDS exposures, subprime- or any other sort of problem loans, and a bad part. You can then do an initial public offering with the good part and essentially bring it to the share market as a new company, with a secure balance sheet and the ability to take deposits and lend out money pretty much straight away. The proceeds go back to the taxpayer to pay for part of the expenses of the exercise, and the government could also keep some shares or other securities that pay a good return for the following few years.

The various bad banks must then be pooled together and just held on to. Some of the assets and instruments might still have value in them, others won't. Either way, the government is the only entity that has the ability to stand for them and still continue business as usual.

Obama has let it shine through that his solution to the whole thing will be revealed some time next week. If it's not some version of the above, we're all screwed for many years to come. Japan has had 0% or thereabouts interest rates for a decade and ran one stimulus package than another. It doesn't work, and as the interview above points out, in the US government spending tends to achieve virtually nothing from a Keynesian perspective because of the way it ends up being spent. No amount of "let's put money into infrastructure and green technology" is going to fix this problem, because the system has in the middle of it giant sponges that will not let money go through them properly for the next 10 years. The reason Japan didn't recover because its banks were too close with the government, too important to face up to the extent of their troubles and left on life support to fix them in their own time and behind the scenes. We're doing the exact same thing right now, all over the world.

So what do you reckon? Does Obama have the balls to take this step?

Nationalize bad banks? Doesn't that go against your "truly free market" principles?

"people live more within their means" That phrase pisses me off. Granted there are people that were stupid. Case an point a woman said her inlaws would take second mortgages so they can take a trip, buy a car, etc. Guess what; they all lost their houses.

A guy who had a good job, paid his bills, taxes, mortgage on time; looses his job(be it outsourced, "right sized", etc). and is about to loose his house and the free marketeer/conservative response is "well he wasn't living within his means" or " he bought more house then he could afford"

It seems to me it's an attempt to suggest the business leadership didn't fail/screw everybody; consumers just weren't living within their means.

Essentially, you take over the problem banks, nationalise them completely and without regard for the shareholders.

crazy talk.

and how fucked up is it that we've got commies and free-marketeers making this call now?

Nationalize bad banks? Doesn't that go against your "truly free market" principles?

"people live more within their means" That phrase pisses me off. Granted there are people that were stupid. Case an point a woman said her inlaws would take second mortgages so they can take a trip, buy a car, etc. Guess what; they all lost their houses.

A guy who had a good job, paid his bills, taxes, mortgage on time; looses his job(be it outsourced, "right sized", etc). and is about to loose his house and the free marketeer/conservative response is "well he wasn't living within his means" or " he bought more house then he could afford"

It seems to me it's an attempt to suggest the business leadership didn't fail/screw everybody; consumers just weren't living within their means.
QFT. It's a prolonging of the sort of economic wankery that got us here in the first place.

What is wrong with the financial system is fundamentally simple: People do not have confidence in the financial system any more because they've now realised that the only thing supporting such confidence in the past was their confidence in it. A belief in the power of money and economics is an act of entirely circular reasoning, and always was. The mistake was that it was assumed that the enclosed system of self-reference would never be disrupted and the lie exposed.

The truth will always out. What is needed now is not book balancing but a complete philosophical overhaul of what we mean by value, commodity, labour and progress. Because over the past thirty years, we've lost sight of those meanings under a deluge of pragmatism, if indeed we ever really had them. What is needed now is not to work out our figures but to work out the bedrock of our society, because if we don't, we'll have a lot more to worry about than a few job losses.

Here is my view. The problem at the moment is that we are creating the needed ingredients of a period of double digit inflation as soon as the economy recovers (and it will recover) because of all the money that is being printed to fund these bailout packages. Here is what I would do

I would stop all the bailout packages; let the bad entities fail and let the natural movements of the market fix themselves. I would, however, direct the Federal Reserve to ensure that the money supply does not decrease as that would be dangerous. Given that America faces some major problems, it might also be time to attempt to get rid of the budget deficit and do something to fix the $53 trillion in obligations that the United States Government has - it will be painful, but necessary lest it cause more pain in the coming decades - that will probably mean a massive reworking of the taxation system.

Yes, it goes against what the Keynesians suggest, but then Keynesianism was generally a failure. Furthermore, Obama has the best opportunity to do something like that - in the eyes of the public, he can do no wrong.

It might also pay to reconsider moving back to the Gold Standard

Keynesianism was generally a failure.

evidence?

It might also pay to reconsider moving back to the Gold Standard

oh, never mind

evidence?

The massive inflation of the late 1960s and 1970s that was generally caused as a result of Keynesian policies. You cannot borrow and spend forever without creating inflation, and once the control mechanism of the gold standard disappeared, it stopped being borrow and spend, it became print and spend.

crazy talk.

and how fucked up is it that we've got commies and free-marketeers making this call now?

Even the most rabid anti-nuke activist would immediately support the use of nuclear medicine to kill cancer in a patient ;)

Medical metaphors are always crappy, I know. I'm sorry

Essentially, you take over the problem banks, nationalise them completely and without regard for the shareholders. Then you split them apart, into a good part that isn't encumbered by CDOs, CDS exposures, subprime- or any other sort of problem loans, and a bad part. You can then do an initial public offering with the good part and essentially bring it to the share market as a new company, with a secure balance sheet and the ability to take deposits and lend out money pretty much straight away. The proceeds go back to the taxpayer to pay for part of the expenses of the exercise, and the government could also keep some shares or other securities that pay a good return for the following few years.

The various bad banks must then be pooled together and just held on to.

This is basically what I was saying in September.

(Except I said that the 'bad parts' should be sold along with the good parts, so that people would be incentivised to buy the bundles of 'bad' and sell them off cheap - like by renegotiating problem loans at dimes-on-the-dollar.)

Given that America faces some major problems, it might also be time to attempt to get rid of the budget deficit and do something to fix the $53 trillion in obligations that the United States Government has - it will be painful, but necessary lest it cause more pain in the coming decades - that will probably mean a massive reworking of the taxation system./Source for that number?

Nationalize bad banks? Doesn't that go against your "truly free market" principles?
Less so than "let banks that made wrong decisions and are insolvent continue to exist as a chain around everyone's legs".

"people live more within their means" That phrase pisses me off. Granted there are people that were stupid. Case an point a woman said her inlaws would take second mortgages so they can take a trip, buy a car, etc. Guess what; they all lost their houses.
I think you're misinterpreting what is being said. The US in aggregate has not been living within its means. It's been racking up trade- and budget deficits for decades in ever increasing amounts, using nothing as security other than the promise of future growth.

While there's little to be said at this point about the quality of this security, the ability to make more debt, and the cost of doing so, has increased rapidly. It doesn't matter whether Mr. X has a credit card debt or not - the fact is that his entire existence could depend on cheap credit indirectly, through his workplace, his local government, the local supermarket etc etc

In one way or another, that debt's gotta go, and people in general will be living more within their means then than they are right now.

It seems to me it's an attempt to suggest the business leadership didn't fail/screw everybody; consumers just weren't living within their means.
I don't think the person in this article is trying to defend anyone or anything. As most economists do, he's stating what are seen as obvious facts in a way that people with more political ambitions then take to mean different things. If there is one failing of the profession, it's the inability to defend itself against interpretation.

evidence?
From the interview:
The most recent academic research that I have seen, published in 2008, indicates that the multiplier on government expenditure is just close to zero. If the government spends an additional dollar it has to fund that dollar either by raising taxes on the private sector or borrowing funds in the capital markets that would have gone to the private sector. Government spending, the government sector in the US, the productivity is at best zero and perhaps slightly negative, so when we enlarge the government sector and shrink the private sector we reduce the growth, potentiality, of the US economy. We shrink the pie and we make things worse off.

The very extensive efforts that government spending by the Roosevelt administration in the 1930s really produced no meaningfully positive results. In April of 1939 as the rest of the world was going to war our unemployment rate was still above 20 per cent. The Japanese ran deficits of 10, 12, 14 per cent of GDP. They've had nothing more than a few interim cyclical recoveries in the past 20 years.

This is basically what I was saying in September.
A lot of people have been. I'm not sure it would have been necessary from the start, but the fact of the matter is that a few wrong decisions about mark-to-market accounting, letting Lehman's fail and TARP have made the situation so bad now that we are now left with no other options. But the real question is: what's Obama going to do?

(Except I said that the 'bad parts' should be sold along with the good parts, so that people would be incentivised to buy the bundles of 'bad' and sell them off cheap - like by renegotiating problem loans at dimes-on-the-dollar.)
If there was a market for the bad parts, there wouldn't be as much trouble. Distressed debt funds can get all they could possibly want just from dealing with corporates (or municipals for that matter) which happen to have hit a temporary dry spell. There's no need to take over the really, really nasty bits.

A lot of people have been. I'm not sure it would have been necessary from the start, but the fact of the matter is that a few wrong decisions about mark-to-market accounting, letting Lehman's fail and TARP have made the situation so bad now that we are now left with no other options. But the real question is: what's Obama going to do?


TARP hasn't made the situation any worse, although it's horrible mismanagement has certainly reinforced just how horrendously mismanaged the whole arena is, and how much regulation would be needed to restore it.


If there was a market for the bad parts, there wouldn't be as much trouble. Distressed debt funds can get all they could possibly want just from dealing with corporates (or municipals for that matter) which happen to have hit a temporary dry spell. There's no need to take over the really, really nasty bits.

And anything really toxic could/would/should be held - but a lot of the toxic debt could be packaged along with the 'good'. The good debt is kind of the loss-leader in the package, and the 'bad' debt is basically amnestied, which would release that debt-burden, and allow that proportion of the market to start comsuming/purchasing/re-investing.

Neu-L has undergone a sea-change since October. I think he'd be crazy if he hadn't.

Obama needs to be interventionist and it's high time that a US president put the citizens who elected him before the shareholders. As for the interventionist details described above, I'm not an economomist but I know that I wouldn't be putting money into the black holes of bank lending debts. I'd be offering more generous first home buyer grants, building more public housing and investing in green technologies to earn carbon credits - as well as getting the unemployed off the dole and into productive jobs (as FDR did). I'd have the long-term unemployed planting trees ander the supervision of local governments.

How about the pork spending in the upcoming stimulus package. All kinds of crazy uneeded shit is being put in. Stuff that I will be paying for when I get older. These kinds of things will force the government into taking more of people's money to pay off this debt. Instead of saving these companies I say we let them fail. Perhaps then people will learn from their mistakes instead of begging the government to save them when their company is endanger and then turning around and telling them to back off when everything is fine. My final statement is that for the economy to survive we will need to take some power from the unions and drop the minimum wage some so businesses will stop shipping jobs overseas.

The massive inflation of the late 1960s and 1970s that was generally caused as a result of Keynesian policies. You cannot borrow and spend forever without creating inflation, and once the control mechanism of the gold standard disappeared, it stopped being borrow and spend, it became print and spend.

i don't recall 'borrow and spend forever' being vital to keynesianism. where can i find such a sentiment?

in so far as you can point to something in the 70s causing keynesian ideas to lose a bit of traction, it was actually stagflation that did it.

and besides the fact that attachment to the gold standard appears to have worsened the great depression on a country by country basis, if you can't trust the banks to keep the inflation in check on their own, how can you trust them to actually stick to the gold standard in the future anyways?

How about the pork spending in the upcoming stimulus package. All kinds of crazy uneeded shit is being put in.


Like?

I was watching Lou Dobbs, a couple of days ago, and he was talking about 'pork' spending, like investing in museums (that was one of the things he specified). Apparently, he thinks that's bad. But that was the end of it - WHAT would that investment DO? Would it be creating jobs? If so - it's the exact opposite of 'pork', isn't it?


Stuff that I will be paying for when I get older. These kinds of things will force the government into taking more of people's money to pay off this debt.


It's boom/bust economics for you. The debt we rack up now we have to pay when the going is good.


Instead of saving these companies I say we let them fail.


All of them? If the banks and the car industry go under - how many Americans will be without work?

Obviously, all the bank workers and the autoworkers. And the car sales people. And the car repair people. And the car insurance people. And eventually, road people. And the car-parts manufacturers. etc.

It's not unreasonable to suspect that actually letting these couple of main industries fall over, could lead to... say, 25% unemployment. How would you deal with that?


Perhaps then people will learn from their mistakes instead of begging the government to save them when their company is endanger and then turning around and telling them to back off when everything is fine.


There's the problem - the lack of regulation in the boom, when the industries can't support themselves if they bust. Ideally - there'd be some kind of regulation that would compell companies to account bust cycles as a business cost, and budget and prepare accordingly. They'd make smaller profits when the times were good, but they'd level out the badtimes considerably.


My final statement is that for the economy to survive we will need to take some power from the unions and drop the minimum wage some so businesses will stop shipping jobs overseas.

FAIR trade, instead of 'free' trade, would do the same. I agree the system needs better balance, but blaming the unions isn't the answer.

Where is the pork spending you say?
* Manufacturers of kids' wooden arrows - $6 million.
* Puerto Rican and Virgin Is- lands rum producers - $192 million.
* Wool research.
* Auto-racing tracks - $128 million.
* Corporations operating in American Samoa - $33 million.
* Small- to medium-budget film and television productions - $10 million.

http://tonyphyrillas.blogspot.com/2008/10/pork-spending-inside-bailout-bill.html


not to mention money to replace a roof in atlanta because some pilots thought it to bright. This also includes money for people who sued back when the exon valdez sank.

Ok maybe we should save the banks this time. But this should be the only time. Ever.

The US auto companies KNEW that oil would become more expensive in the future yet the still made SUV's. When foreign cars started selling better than American cars they lobbied for tariffs on imported cars. The auto industry specifically has been propped up by the government and without it it would collapse. I say it's high time we made them fend for themsleves.

As for unions I know they are not the source of our economic woes but they are one of the reasons we loose jobs to China and the like.

If what I say makes me look anti union then that is wrong. I am for unions to help common labourers and those who are very specialized and can't afford to lose their jobs. The problem I have is when unions or businesses become dominant over one another. I feel that it is only natural that businesses and unions be able to deploy cetain strategies to get what each side wants. Not have one get its way all the time.

Somebody argue with me... Please.

Somebody argue with me... Please.
Alright then. You're mother is a whore and your entire argument was faulty because it did not account for X (Where X is something your argument didn't account for. Like the gravity on Jupiter or the number of angels that can dance on the head of a pin, I don't see any numbers for that sort of thing on there).

How about the pork spending in the upcoming stimulus package. All kinds of crazy uneeded shit is being put in. Stuff that I will be paying for when I get older. These kinds of things will force the government into taking more of people's money to pay off this debt. Instead of saving these companies I say we let them fail. Perhaps then people will learn from their mistakes instead of begging the government to save them when their company is endanger and then turning around and telling them to back off when everything is fine. My final statement is that for the economy to survive we will need to take some power from the unions and drop the minimum wage some so businesses will stop shipping jobs overseas.

Howsabout first, we stop paying companies to set up off-shore??

Then, maybe we can look at what is colloquially termed "Regulatory Burden"-the more regulations you have, the fewer companies can actually comply with them.

Start with your economic externalities, start cutting off things like GATT that pay companies with taxpayer money to set up manufacturing off-shore. Once you've cut off the Carrot and the STick that have been driving jobs out, then you can start on the core items-cost of Real Estate, Capital, Materials, energy, and Labour.

Once you've tuned everything else to actually function, you can now hit Labour costs-and yes, the laws need re-vamping. UAW having a single-price monopoly on auto workers in Michigan is a bad idea for two reasons-first, it eliminates the need to compete for the best workers, and second, it doesn't account for differences in market share between companies, which tends to then price the products at the wrong end of the scale.

But more needs to be done than screwing with the Unions-you need to screw with the laws regarding "Corporate Governance", particularly the tendency for big companies to exhibit the same diseases as big government.

Nah! United D, I couldn't be stuffed entering a union-bash argument. The US speculators and banks stuffed up the world economy. Unions were effectively nobbled by globalisation years ago and conservative parties have to be really desperate if they want to try to pin anything on the unions these days.
Hey! They've shifted most of the jobs to China where the nice Central Commoittee of the Communist Party won't allow strikes. Still the Capitalists try to use the union bash.
A poor workman blames his tools.

Nah! United D, I couldn't be stuffed entering a union-bash argument. The US speculators and banks stuffed up the world economy. Unions were effectively nobbled by globalisation years ago and conservative parties have to be really desperate if they want to try to pin anything on the unions these days.
Hey! They've shifted most of the jobs to China where the nice Central Commoittee of the Communist Party won't allow strikes. Still the Capitalists try to use the union bash.
A poor workman blames his tools.

Aw, crap, now I'm agreeing with YOU.

Well even a stopped clock is right twice a day Sudova!
LOL

Alright then. You're mother is a whore and your entire argument was faulty because it did not account for X (Where X is something your argument didn't account for. Like the gravity on Jupiter or the number of angels that can dance on the head of a pin, I don't see any numbers for that sort of thing on there).

Damn your good. How will I ever counter that?

Neu-L has undergone a sea-change since October. I think he'd be crazy if he hadn't.
I don't think I have. I don't believe in the free market any less now than I did then, nor do I think the government is any more of a saviour now than I did before.

But the fact of the matter is that we don't live in a free market, and the system as it exists in reality has lead to this situation and dictates certain outcomes and solutions. I don't know whether in a free market a subprime crash would have happened - maybe, but definitely in a different way. But there's no point in talking about what-ifs when we've got a task of this magnitude at hand. And besides, it's not like Citi would still be around in a free market anyways. The fact that its shareholders still have any value left is purely due to the government...it might as well just take the thing behind the house and shoot it, it would only be fair.

And I still think anyone who blames "deregulation", "neo-liberalism" or any other buzzwords going in that direction has no idea where to even begin thinking about this stuff.

I want to add another industry to our targets. Hedge Funds! Two of the biggest have since been found out to be Ponzi schemes. These have been operating for 20 years in some cases. What does that do to consumer confidence?

I am starting to believe more and more that it all built on nothing. Moving zeros on a page does not count as work.

We need to start re-designing the whole system. I think off-shoring was the biggest mistake we could have made. We are giving away America.


Yet on bright note Apple is exploding maybe there is something to the fact that they actually make stuff. They put a little care and pride into their work. I think we need to think about going back to basics.

Sorry after reading some of the other post. Executive compensation as well especially for shareholders. CEO X takes company Y and basically runs it into the ground and still walks away with huge bonus, severance packages etc.

Damn your good. How will I ever counter that?With a link to some kind of research regarding angels, pins, or, unimaginatively, the gravity on Jupiter.
And then an opinion on the research.

Where is the pork spending you say?

not to mention money to replace a roof in atlanta because some pilots thought it to bright. This also includes money for people who sued back when the exon valdez sank.


okay. I know it is more money then either of us will see in a lifetime, but by your numbers the pork is less then 1% of the bill. You cant reverse a budget deficit by shaving 1% of spending off.
the 1990 rise of republicans in congress was based off the idea we will cut your taxes and pay for them by cutting out the pork.
1st their wasn't enough pork to cut out.
2nd if they replaced the pork with their own pork.

also some of the things your listing as pork are not necessarily pork.
On the movie studios look at what was done in the depression. Authors and historians were sent to gather slave narratives and such issues. It was part of the plan to keep the recently graduated from college employed(high tendency to lead socialist rebellion).

it isn't going to be fixed by viewing economics as an isolated phenomena, devoid of responsibility to the rest of existence. that's the real bottom line here.

every hundred years, capitolism's reality check bounces, for exactly the same reason: self imposed disconect from social and environmental responsibility. every time it is repaired, those repairs that work, fall into the catigory of what is called 'socialism'.

whatever the romatic simplicity of the concept of market forces, without responsibility toward society and the environment, they work only for the dynamics of symbolic value itself. this is what and why i call this the circular illogic of symbolic value.

what works for moving little green pieces of paper around may work find for moving little green pieces of paper around, even for motivations that overcome the resistance of other forms of fanaticism. but the movement of little green pieces of paper has no more to do with human happiness then human emotional attachment to popular assumptions about it, and absolutely none what so ever, in any positive sense, with where the air we breathe comes from.

There is one way to fix this quickly. The Japanese didn't have the guts for it in the end, and the previous administration obviously didn't either. No one seems to right now.

Essentially, you take over the problem banks, nationalise them completely and without regard for the shareholders.

You evil commie! COMMIE! COMMIE! :D

Seriously, now: I bet there's some legal or constitutional provision that forbids a nationalisation without some sort of compensation.


Then you split them apart, into a good part that isn't encumbered by CDOs, CDS exposures, subprime- or any other sort of problem loans, and a bad part. You can then do an initial public offering with the good part and essentially bring it to the share market as a new company, with a secure balance sheet and the ability to take deposits and lend out money pretty much straight away. The proceeds go back to the taxpayer to pay for part of the expenses of the exercise, and the government could also keep some shares or other securities that pay a good return for the following few years.


A warning: here's what happened with Alitalia (italian state airways).
Alitalia was split into a "good company" (keeping all valuable assets) and a "bad company" (taking all debt on itself). Then the "good company", after receiving a substantial subside by the State, has been sold for, let's say, two used buttons and a piece of string to a private-owned joint venture. The "bad company" goes bankrupt (as it was intended to do from the beginning... I think that this could be a felony, actually, but nevermind) and its debts are paid by the State (that is, the taxpayers).

So, to sum it up the taxpayers paid for the subside to the good company, paid for the bad company's debt, and get nothing.
The private-owned joint venture gets a debt-free airways company for nothing.

I distrust these bad company/good company systems.


The various bad banks must then be pooled together and just held on to. Some of the assets and instruments might still have value in them, others won't. Either way, the government is the only entity that has the ability to stand for them and still continue business as usual.


Why continue business as usual within a frame that has proven itself a failure? Why should the State waste taxpayers' money on that system? If it's rotten let it go bankrupt.

If you mean that the State should take the assets, reform the system, and act, at least for a while, as bank, I'm with you... but the bank system has to be reformed deeply, and bankrupt proceedings are perhaps the fastest and clearest way to do it.

A warning: here's what happened with Alitalia (italian state airways).
Alitalia was split into a "good company" (keeping all valuable assets) and a "bad company" (taking all debt on itself). Then the "good company", after receiving a substantial subside by the State, has been sold for, let's say, two used buttons and a piece of string to a private-owned joint venture. The "bad company" goes bankrupt (as it was intended to do from the beginning... I think that this could be a felony, actually, but nevermind) and its debts are paid by the State (that is, the taxpayers).

So, to sum it up the taxpayers paid for the subside to the good company, paid for the bad company's debt, and get nothing.
The private-owned joint venture gets a debt-free airways company for nothing.

I distrust these bad company/good company systems.

I believe that says more about your government than about the actual method of dealing with a failing company. Perhaps if they had allowed the sale of the whole thing to Air France-KLM when they had the chance, rather than worrying about dem dirty foreigners owning the airline, they wouldn't have needed to break it up in the first place.

Seriously, now: I bet there's some legal or constitutional provision that forbids a nationalisation without some sort of compensation.
If there was, two weeks ago would have been a good time to get the Supreme Court to think about it.

Why continue business as usual within a frame that has proven itself a failure? Why should the State waste taxpayers' money on that system? If it's rotten let it go bankrupt.
I think the problem is that you can't seem to separate in your head the basic system, in which banks take deposits, make investments, strive for returns, act as dealers, brokers and whatever, with the actions that have been taken within this system over the past few years.

Do you really think anyone who has seen this shit from the inside would be likely to do anything that could even remotely lead to a repeat? Fact of the matter is that the bankers themselves are traumatised to some extent across the entire industry, the more senior and high-level, the more intensely so. Even the good banks that could come out of this plan would not go back to the sort of leverage and the sort of disregard for the cost of risk that we saw previously.

Yes, the news media doesn't talk about it, but people are in fact learning from this. Actual people, the ones sitting in offices every day doing the work, as opposed to the people you hear about, the CEOs and Directors whose every act is a matter of evening news material. And even they, other perhaps than the dudes in charge of places like Citi or RBS, are learning, are demanding better ways to do business in the future and have now taken on the primary responsibility of taking apart the company and rebuilding it from the ground up.

If you mean that the State should take the assets, reform the system, and act, at least for a while, as bank, I'm with you... but the bank system has to be reformed deeply, and bankrupt proceedings are perhaps the fastest and clearest way to do it.
The state could never act as a bank. It's got neither skills nor the necessary independence to do it. That's why the worst possible thing to do now (and one thing I fear Obama is seriously considering) is to write laws or put people in charge to tell banks who to lend to and how much.

The state has to take things like Citi, split them, restructure them and sell them in an IPO, all in less than 6 months. It can't be involved any longer than that before it starts creating the next bubble.

Do you really think anyone who has seen this shit from the inside would be likely to do anything that could even remotely lead to a repeat? Fact of the matter is that the bankers themselves are traumatised to some extent across the entire industry, the more senior and high-level, the more intensely so. Even the good banks that could come out of this plan would not go back to the sort of leverage and the sort of disregard for the cost of risk that we saw previously.
What are you smoking, and can I have some?

Seriously, we've seen bubbles being driven by investors and banks running headless into them, drunk on the profits they were making, ignoring every other single damn bubble that had come before them and somehow believing that this time the Tinkerbell Theory of Economics* would be in play. And all getting caught with their pants down when it bursts and deep hurting commences. Then once again we get the 'we're sorry, it'll never happen again' until the very next bubble comes along. Then wash, rinse, repeat. No, I believe all too well that these same people will be more than happy to do this AGAIN if the chance shows up. The bubble might change basis, but they will go for it.


*Tinkerbell Theory of Economics: That if you wish hard enough, phenomenal growth will keep going forever in defiance to every other economic law.

okay. I know it is more money then either of us will see in a lifetime, but by your numbers the pork is less then 1% of the bill. You cant reverse a budget deficit by shaving 1% of spending off.
the 1990 rise of republicans in congress was based off the idea we will cut your taxes and pay for them by cutting out the pork.
1st their wasn't enough pork to cut out.
2nd if they replaced the pork with their own pork.

also some of the things your listing as pork are not necessarily pork.
On the movie studios look at what was done in the depression. Authors and historians were sent to gather slave narratives and such issues. It was part of the plan to keep the recently graduated from college employed(high tendency to lead socialist rebellion).

I'm usre there is more. Even then if some of that is helpful what have we done to keep companies from wasting the money we give them? Even if the money is used responcibly I will still be the one paying it off my hole life.

it isn't going to be fixed by viewing economics as an isolated phenomena, devoid of responsibility to the rest of existence. that's the real bottom line here.

every hundred years, capitolism's reality check bounces, for exactly the same reason: self imposed disconect from social and environmental responsibility. every time it is repaired, those repairs that work, fall into the catigory of what is called 'socialism'.

whatever the romatic simplicity of the concept of market forces, without responsibility toward society and the environment, they work only for the dynamics of symbolic value itself. this is what and why i call this the circular illogic of symbolic value.

what works for moving little green pieces of paper around may work find for moving little green pieces of paper around, even for motivations that overcome the resistance of other forms of fanaticism. but the movement of little green pieces of paper has no more to do with human happiness then human emotional attachment to popular assumptions about it, and absolutely none what so ever, in any positive sense, with where the air we breathe comes from.

Part of the reason that we got in this situation is because of socialism. The government was propping up american business which eventually failed anyway. Governments also raised the minimum wage and passing laws that gave unions more power than they need.

What are you smoking, and can I have some?


I suspect it's bonus packages, and no, he won't let you have any. That's why he's defending it so hard. :p

Seriously, now: I bet there's some legal or constitutional provision that forbids a nationalisation without some sort of compensation.

There is--the Fifth Amendment.

"nor shall private property be taken for public use, without just compensation.'

There is--the Fifth Amendment.

"nor shall private property be taken for public use, without just compensation.'

though with the right court, there is a pretty easy case to be made that the only just compensation is that they get nothing.

They are public companies. Most of these shareholders aren't big fat capitalista. They're regular guys who just happen to have a bank account or a retirement fund.

They are public companies. Most of these shareholders aren't big fat capitalista. They're regular guys who just happen to have a bank account or a retirement fund.

bank accounts are insured and their stock value has already crashed, held up only by those willing to bet that the government will give them more free money.

Whatever happened to: "I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again. "

I thought we could just 'inflate' our way out any such troubles.

I'm all for seizing the common, but it won't solve anything. The debt actually has to be cleared. The capital structure needs to be crammed down too. That makes good bank/bad bank irrelevant. Once that is done, the bits can be sold off. I'd prefer funding the sensible banks (there are a few) and allowing them to take management.

Of course, everyone above a certain level in these institutions should be fired and banned from working in the financial industry for life. I know that there are some good ones, but better safe than sorry. And in any event, when you talk about bankers being traumatized by this, I would say they are not. What you are seeing is fear of ending up hanging from a lamppost, or rapey prison. Nobody in the industry learned anything from 98, and if there isn't some sort of mass purge to create a decent institutional memory that will last a decade or two, then nobody will learn anything from this either.

Whatever happens, we'll be doing this again in about thirty years.

whatever happened to: "i would like to say to milton and anna: Regarding the great depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again. "

i thought we could just 'inflate' our way out any such troubles.

I'm all for seizing the common, but it won't solve anything. The debt actually has to be cleared. The capital structure needs to be crammed down too. That makes good bank/bad bank irrelevant. Once that is done, the bits can be sold off. I'd prefer funding the sensible banks (there are a few) and allowing them to take management.

Of course, everyone above a certain level in these institutions should be fired and banned from working in the financial industry for life. I know that there are some good ones, but better safe than sorry. And in any event, when you talk about bankers being traumatized by this, i would say they are not. What you are seeing is fear of ending up hanging from a lamppost, or rapey prison. Nobody in the industry learned anything from 98, and if there isn't some sort of mass purge to create a decent institutional memory that will last a decade or two, then nobody will learn anything from this either.

Whatever happens, we'll be doing this again in about thirty years.

qft

They are public companies. Most of these shareholders aren't big fat capitalista. They're regular guys who just happen to have a bank account or a retirement fund.

So 'just compensation' just got a whole lot easier.

No, I believe all too well that these same people will be more than happy to do this AGAIN if the chance shows up. The bubble might change basis, but they will go for it.
After the Great Depression investors changed their behaviour significantly, and were a lot more risk averse for many decades. Not until two generations of practitioners later did we get to a point where people once again ignored the macro-risks to such an extent. I see no indication that it should be different this time.

I suspect it's bonus packages, and no, he won't let you have any. That's why he's defending it so hard. :p
I don't know where you think I work, but my bank isn't going to be paying out bonus packages this time for most staff. And certainly not to interns.

I'm all for seizing the common, but it won't solve anything. The debt actually has to be cleared. The capital structure needs to be crammed down too.
Well, taking over bad parts of most or all banks would firstly allow a lot of the obligations to be netted out to start with. The remainder would eventually have to be paid back or otherwise dealt with, but the point is that the government has the balance sheet and the time to actually do it without affecting its normal operations too much. A commercial bank, the normal economic function of which is to distribute money around the economy, can't do that, it will fix itself and largely scale down this function, with the evident macroeconomic consequences.

The point is that after the nationalisation, the government can take whatever parts of the assets, debt etc it wants to form a new entity to relist and release back into the economy.

I'd prefer funding the sensible banks (there are a few) and allowing them to take management.
Of the not-so-sensible ones? That might get a few CEOs thrown out, but it doesn't really solve the problem that the stupid banks are now not lending anymore. Different managers can't suddenly start again.

Just to make it clear: I'm not talking about a wholesale nationalisation of all banks or financial institutions - I'm talking about the Citi, RBS, BofA types, the huge firms which really fucked up beyond a loss on a P&L statement.

And in any event, when you talk about bankers being traumatized by this, I would say they are not. What you are seeing is fear of ending up hanging from a lamppost, or rapey prison. Nobody in the industry learned anything from 98, and if there isn't some sort of mass purge to create a decent institutional memory that will last a decade or two, then nobody will learn anything from this either.
You don't mean to say that 98 has anything on this right now, do you? I mean, this isn't a bad year, or a math model gone wrong, this is a system-wide collapse. As I said, after the Great Depression people's perception and treatment of risk changed significantly.

http://www.economist.com/finance/displaystory.cfm?story_id=12903074

Even if you do get traders or investment bankers who don't really get what happened here, their customers just won't stand for excessively risky positions for a long time to come.

Whatever happens, we'll be doing this again in about thirty years.
Well, if that's true, let's hope the government is learning how to do it properly in the meantime.

After the Great Depression investors changed their behaviour significantly, and were a lot more risk averse for many decades. Not until two generations of practitioners later did we get to a point where people once again ignored the macro-risks to such an extent. I see no indication that it should be different this time.
Really? Let me tell you a little story. Once upon a time, due to a strong currency and very attractive prices on real estate that seemed would never go down, banks got flush with money. They started to invest and to speculate. They bought things that they probably shouldn't have bought and it got to the point where they were literally running out of things to do with all this money they had. Since the prices of the real estate keep going up, and up, and up, anyone with any real estate could get a loan, even if they weren't the best of characters. Even if they were securing that loan with another loan for a piece of real estate that was mortgaged about six ways from Sunday. But it was all ok, everyone was rich and getting richer and it would seem as if the land prices would rise forever.

That was Japan in 1989. Then bubble burst and Japan had, as referenced by your own article, its lost decade. Some of the details may be different from what is currently happening in the US, but it sounds oh so familiar, right? It was 20 years ago, but evidently all those investors didn't learn a single damn thing from it. Nor did they from getting their fingers burned on the dot com bubble.

No, as you yourself said, this happened before during the great stock crash of '29 and they didn't learn from it. It might have taken it a bit to re-play, but once again, they went for it.

Source for that number?

The documentary IOUSA

That was Japan in 1989. Then bubble burst and Japan had, as referenced by your own article, its lost decade. Some of the details may be different from what is currently happening in the US, but it sounds oh so familiar, right?
How many Wall Street bankers went through this in Japan at the time? It's not about reading it in a bulletin, or going through figures on a screen, it's about actually experiencing first hand.

It was 20 years ago, but evidently all those investors didn't learn a single damn thing from it. Nor did they from getting their fingers burned on the dot com bubble.
The dot.com bubble was a minor inconvenience, as all share market bubbles are. Real estate is where it hurts.

Print money, but introduce the death penalty for anyone who tries to increase prices from their current level, put surveillance equipment everywhere, even in people's houses, and make it illegal for anyone to even talk about the printing of the money. Then there's more money in the economy, yet inflation doesn't soar, because no-one's allowed to talk about it or raise prices. Thats my solution. Who's with me?

Disclaimer: I may not have a particularly strong grasp of economics

Print money, but introduce the death penalty for anyone who tries to increase prices from their current level, put surveillance equipment everywhere, even in people's houses, and make it illegal for anyone to even talk about the printing of the money. Then there's more money in the economy, yet inflation doesn't soar, because no-one's allowed to talk about it or raise prices. Thats my solution. Who's with me?

Disclaimer: I may not have a particularly strong grasp of economics

The ultimate government control of business. I like it! Even though Alan Greenspan just rolled over in his grave.

He's not dead yet? Are you sure? I coulda sworn he died back in 1996...

Why the hell did we get off the gold standard?

How many Wall Street bankers went through this in Japan at the time? It's not about reading it in a bulletin, or going through figures on a screen, it's about actually experiencing first hand.
So in other words you're saying that investment bankers really are that stupid? It was 20 years ago, 20. We're not talking ancient history here, surely they saw the effects. Surely those international business that dealt with Japan or were Japanese owned felt those effects. Surely economists studied what went wrong with the world's second largest economy (And don't forget that during the bubble Japan was damn close to overtaking the US). And yet... you're telling me no one learned from that because they worked Wall Street and not Niki?

The dot.com bubble was a minor inconvenience, as all share market bubbles are. Real estate is where it hurts.
Ah, so they ARE that stupid.

Why the hell did we get off the gold standard?
Because the gold standard is a very silly, stupid idea that would cripple the economy?

Why the hell did we get off the gold standard?

because after 10 years of having interest rates way too low (hence fed reserve over prints money) and exporting our inflation via the Breton woods system the governments of western Europe said look here are the dollars give us the gold.
And Nixon said screw you, and took us off the gold standard leaving Europe with a bunch of dollars that suddenly dropped in value 80%.

It is only "stupid" to get caught in the bubble. Even if you knew an asset is overvalued it still might make sense (in an economic sense, even if not common sense) to buy it if you think you can sell it to somebody for a higher price if the market keeps going up. That is part of why you see this happen again and again. Go back and look at all the "panics" that have happened in the US or even the tulip craze in Holland. This behavior is nothing new. It is just has a bigger impact because of how interconnected we all are now financially. The other factor is with the growth of instruments like collateralized mortgage obligations that it was much easier to help fund more and more real estate mortgages to the point where it seems like the people funding them got in way too deep in their eagerness to try and keep churning out the mortgages to make money.

You can't really just go nationalize a bunch of banks because nobody is quite sure who the problem banks are...that is why we are having the liquidity problem in the first place. People suspect certain banks are in deep trouble, but, it is hard to prove. A lot of banks and other financial institutions are stuck with a bunch of assets that you can't value, such as CMOs. Unlike say a bond where you can usually get some rough idea of the price they are complicated and based on bundles of real estate mortgages that people mostly just used the market price to figure them out. Now that nobody is willing to buy them there is no market...thus no market price. Originally the idea behind the $700 billion bailout was to help clear/rejuvenate the market of these types of obligations by buying the bad ones. But the US treasury dept figured out that they couldn't get a way to price these things either.

I understand the frustration but if there were a simple fix it would probably have been done already. Like others have pointed out a lot of what makes the global financial market system work is trust. Seizing companies worth billions of dollars that have portfolios with trillions of dollars in them is not going to reassure anybody that they should open up their wallets to invest in anything.

Part of the reason that we got in this situation is because of socialism. The government was propping up american business which eventually failed anyway. Governments also raised the minimum wage and passing laws that gave unions more power than they need.

Which businesses did the government prop that caused the financial crisis? Which governments increased the minimum wage to the degree that the economy suffered? The laws concerning unions in the US are notoriously weak. Less than 9 percent of the private sector labor force is unionized.

Well, taking over bad parts of most or all banks would firstly allow a lot of the obligations to be netted out to start with. The remainder would eventually have to be paid back or otherwise dealt with, but the point is that the government has the balance sheet and the time to actually do it without affecting its normal operations too much. A commercial bank, the normal economic function of which is to distribute money around the economy, can't do that, it will fix itself and largely scale down this function, with the evident macroeconomic consequences.

Yah, I get that, but it is the debt overhang which is crippling everyone else right now. So I would cram down the seized banks' bond holders to offset the losses in addition to seizing the common. As for the credit swaps, fuck them, I'd give a thirty day warning, and if you had been writing bond cover you couldn't pay, then the consequence would be rapey prison. I'd have to jail one or two, but the rest - and I guarantee this - would come up with the cash.

The point is that after the nationalisation, the government can take whatever parts of the assets, debt etc it wants to form a new entity to relist and release back into the economy.

No. I totally get the advantages of a US nationalized money center banking system. It would actually reliquefy much of the credit markets. It's not a bad thing. But there is no way some of this shit is ever going to pay. Someone has to take the losses, and it shouldn't be the taxpayer.

And, of course, if the US does this, it will destroy every other bank in the world.

Of the not-so-sensible ones? That might get a few CEOs thrown out, but it doesn't really solve the problem that the stupid banks are now not lending anymore. Different managers can't suddenly start again.

Some banks in the US actually do understand credit risk, and actually aren't in bad shape. Give them a chance. Nationalization of the big banks - which are the problem - will destroy their deposit base. I'm not into punishing the successful, only the stupid.

You don't mean to say that 98 has anything on this right now, do you? I mean, this isn't a bad year, or a math model gone wrong, this is a system-wide collapse. As I said, after the Great Depression people's perception and treatment of risk changed significantly.

Not at all. But that was when people -the current generation- first stared into the abyss. The only lesson learned was that they could get away with it. Had I been in charge of the fed, I would have withdrawn liquidity at that time: just so the message would be properly understood about risk management.

But it didn't happen that way. You had better learn that a lot of the people in charge of credit are psychopaths.

Even if you do get traders or investment bankers who don't really get what happened here, their customers just won't stand for excessively risky positions for a long time to come.

Much of it is automatic dude. It's all about the ratings. If you can rate something at a certain level, then there is automatically a buyer. All this shit went on because there actually is very little personal discretion.

You were saying that you wanted a thesis topic, and jokingly I said what happened before the 29 'crash. But that is boring. Here is what you should look at instead: Structurally, there were many funds that had to absorb cash flows with paper of a specific grade. The chase for yield &c. This was an almost automatic process. So I would say, it would be very useful if someone looked at how there was a lack of human decision - let's call it de-supervision - of the entire investment process.

Would be good stuff I think, if someone looked into that.


Well, if that's true, let's hope the government is learning how to do it properly in the meantime.

No, they won't learn. Before the repeal of Glass-Stegal, I pointed out that it came into existence in the first place for a reason. Nobody thought that it was necessary. Everybody thinks it is now. (Personally I actually disagree with both camps, but I have a very nuanced view of this shit).

Not to get into it, but you can't possibly compare Japan to the US. Even I know that. Japanese banking and US banking are two totally dissimilar entities. Moreover, Japanese asset prices and US asset prices run under a totally different system.

There is no point in comparing either.

Why the hell did we get off the gold standard?

also if it is such a concern there is a way for you to get back on the gold standard personally. http://en.wikipedia.org/wiki/Digital_gold_currency

The gold standard means nothing. It won't stop credit bubbles because money is created privately, not by the government.

I wish people could understand that. It is deflation time now.

The gold standard means nothing. It won't stop credit bubbles because money is created privately, not by the government.

I wish people could understand that. It is deflation time now.

what the gold standard did was encourage trade.
It fixed exchange rates so if I was in France manufacturing stuff for sale to the US, I wouldn't have to worry a sudden shift in exchange rates making my products too expensive for the American market.

Print money, but introduce the death penalty for anyone who tries to increase prices from their current level, put surveillance equipment everywhere, even in people's houses, and make it illegal for anyone to even talk about the printing of the money. Then there's more money in the economy, yet inflation doesn't soar, because no-one's allowed to talk about it or raise prices. Thats my solution. Who's with me?

Disclaimer: I may not have a particularly strong grasp of economics

Well Dumb Ideologies, you have just created a situation where people stop producing stuff. Similar measures (involving prison sentences) have been tried in other countries, and they have all failed - all people have done is stopped making stuff.

Of course, I understand that this was all sarcastic, but who knows.

Well Dumb Ideologies, you have just created a situation where people stop producing stuff. Similar measures (involving prison sentences) have been tried in other countries, and they have all failed - all people have done is stopped making stuff.

Of course, I understand that this was all sarcastic, but who knows.

you can always do what Dot com CEO's did.
take out a business Loan, open online business, sell stocks. Give CEO very high salary. Retire to Caribbean after business goes belly up.

Not to get into it, but you can't possibly compare Japan to the US. Even I know that. Japanese banking and US banking are two totally dissimilar entities. Moreover, Japanese asset prices and US asset prices run under a totally different system.

There is no point in comparing either.
When what happened in Japan effectively mirrors what is currently happening in America, yes, it makes sense to take a good look at it.

what the gold standard did was encourage trade.

The gold/dollar standard required capital controls to work effectively, and the old gold standard required deflation during trade deficits. Modern countries find it politically unpopular to reign in inflation. Deflation would be ruinous for existing governments.

When what happened in Japan effectively mirrors what is currently happening in America, yes, it makes sense to take a good look at it.

No, it really doesn't. There are vast and significant differences between the US markets and the Japanese ones. It would take me thousands of words to go into specific details, but in short: Japanese Banks are not American Banks, and you cannot value Japanese assets the same way you would value American assets.

There are a whole bunch of underlying assumptions about both which are radically different.

So what happened (is happening) in Japan, can never happen in the US. Because there will be default and bankruptcy.

The gold/dollar standard required capital controls to work effectively, and the old gold standard required deflation during trade deficits. Modern countries find it politically unpopular to reign in inflation. Deflation would be ruinous for existing governments.

sounds more like Breton Woods then the heyday of the gold standard late 19th century to pre WWI.

what the cold standard did was encourage trade.
It fixed exchange rates so if I was in France manufacturing stuff for sale to the US, I wouldn't have to worry a sudden shift in exchange rates making my products too expensive for the American market.

It's not really a big deal devaluing currency. It requires a country to make itself intentionally poorer. If they have to do that, they are on their chinstrap anyway, so it's not a big deal.

I'd guess this is a hangover from the aftermath of WWI.

I would say, that if devaluation works, any advantage gained can be at best transitory. And in an efficient free trade market, the frictional effects that give a production advantage will be outshadowed by people purchasing assets on the cheap.

It won't stop credit bubbles because money is created privately, not by the government.
Money isn't created at all. It is only accepted. It doesn't fundamentally exist in any way other than in peoples' minds, and the delusion that it does is only possible because government imposes it in order to get your taxes.

No, it really doesn't. There are vast and significant differences between the US markets and the Japanese ones. It would take me thousands of words to go into specific details, but in short: Japanese Banks are not American Banks, and you cannot value Japanese assets the same way you would value American assets.

There are a whole bunch of underlying assumptions about both which are radically different.

So what happened (is happening) in Japan, can never happen in the US. Because there will be default and bankruptcy.
I'm sorry, but given that the whole bubble economy of Japan was underpinned by land speculation that was extremely over valued that ended up with bank speculating unwisely AND acquiring bad loans as a result of that speculation, you're going to have to do better than "Nu-uh" as a rebuttal, especially as the OP article mentions the whole mess in Japan as akin to the current problem besetting the US.

What we need to do is fire 50% of Congress, cut administrative jobs in govt. by 25%, and make a few other tweeks here and there. That will save a good 8 billion a year straight away in govt. money.

If Corperations can do it we should be able to do it. Hows that make things better, we will have politicians who are less likely to be yes men to those corperations we are borrowing this business model off of.

I've seen some of the shit the money will be going to if the plan that floats now goes, UGH. Makes me want to side with the republicans in their nay.

Money isn't created at all.

Macroeconomics. Money is created in banks, hence "privately".

I'm sorry, but given that the whole bubble economy of Japan was underpinned by land speculation that was extremely over valued that ended up with bank speculating unwisely AND acquiring bad loans as a result of that speculation, you're going to have to do better than "Nu-uh" as a rebuttal, especially as the OP article mentions the whole mess in Japan as akin to the current problem besetting the US.

Land is always overvalued in Japan. The MOF has decreed it as so. Further, credit is extended in Japan on the basis of what it will be spent on, not on risk. There is an informal system of command economy going on over there.

Despite outward superficial similarities, Japan is nothing like the west, so what happened there, can never happen here - not least because the legal system is totally different.

Further, what you see as a bubble, was an intentional asset price inflation to allow increase in productive capacity (a scam directed by the MOF, in other words). And it worked. There was no thought about the collateral damage it would cause, but it's pretty clear that they don't care anyway.

The bottom line is that Japan is not a free market economy - nor does it pretend to be. So any comparisons re: asset prices are irrelevant.

sounds more like Breton Woods then the heyday of the gold standard late 19th century to pre WWI.

The gold/dollar standard is the Breton Woods system. You called it the gold standard in an earlier post. The old gold standard was referring to the heyday.

Smash all states and ruthlessly greedy banks. Unite the workers to take over all factories, industries and companies and turn them in cooperatives. Eliminate national borders to create an International stateless society

Problem solved

The gold/dollar standard is the Breton Woods system. You called it the gold standard in an earlier post. The old gold standard was referring to the heyday.

the capital controls were to keep everyone from(well mostly the french) from over printing their own currency changing it into dollars then cashing those in for gold.

the old gold standard where everyone had enough gold to back their currency in was far more effective.

Ps thx for not calling me on that typo 3 post back.

Smash all states and ruthlessly greedy banks. Unite the workers to take over all factories, industries and companies and turn them in cooperatives. Eliminate national borders to create an International stateless society

Problem solved

Yes, but now you have the problem that no-one wants to work, because the profit motive has been destroyed. Now you have mass famine in 1930s Ukraine, or 1950s China style.

the capital controls were to keep everyone from(well mostly the french) from over printing their own currency changing it into dollars then cashing those in for gold.

The capital controls were there to allow countries to have fixed exchange rates and ability to change monetary policy according to local conditions.

the old gold standard where everyone had enough gold to back their currency in was far more effective.

I'm not so sure about that, but its a moot point. There's not enough gold to back the US's currency, much less the world's.

Ps thx for not calling me on that typo 3 post back.

Typos happen to everyone.

The capital controls were there to allow countries to have fixed exchange rates and ability to change monetary policy according to local conditions.

the French were specifically doing it to undermine the system(they didn't like the US holding that much power). IMF threatened to cut them out of the system two or three times.
Gold standard pre WWI was self regulating as long as you didn't over print the currency. because when gold reserves ran low the government would buy gold the demand would increase and people would either dig it up at a faster rate or melt their jewelry down.


I'm not so sure about that, but its a moot point. There's not enough gold to back the US's currency, much less the world's.

Most of these dollars and euros exist as foreign reserves, which incidentally are not required when you have a gold standard.
So first we would have to try and find a way to neutralize these foreign reserves.
And you were to use the current price of 400- 500 dollars an ounce there should be enough. Breton woods was crap. Every major trader(US EU japan) has to be on the gold standard or there will be too many flaws in the system.
those unable to go on the gold standard can peg their currencies to the dollar/euro and continue holding foreign reserves(Latin American as Latin America did during the old gold standard days)

the French were specifically doing it to undermine the system(they didn't like the US holding that much power). IMF threatened to cut them out of the system two or three times.

This may be true but it was hardly the only reason for capital controls. Robert Mundell won the Nobel Prize for demonstrating that domestic autonomy to change monetary policy, price stability, and free capital flows, At best one can have two out of the three.

Gold standard pre WWI was self regulating as long as you didn't over print the currency. because when gold reserves ran low the government would buy gold the demand would increase and people would either dig it up at a faster rate or melt their jewelry down.

Yeah, but this happened with a time lag. Generally since WWII, without the old gold standard, the business cycle has been smoother and and recessions milder than pre WWI.

So first we would have to try and find a way to neutralize these foreign reserves.

How would we do this?

Every major trader(US EU japan) has to be on the gold standard or there will be too many flaws in the system.

Or this.

Yeah, but this happened with a time lag. Generally since WWII, without the old gold standard, the business cycle has been smoother and and recessions milder than pre WWI.

But we have seen the value of our currencies drop sharply. In New Zealand, it used to be possible to buy a litre of milk for 3 cents; a loaf of bread for 4 and a newspaper for 8. That of course has an impact especially on savers; if the value of your money is deteriorating, why save?

It's a good thing this issue is going as well as it is.
http://www.boston.com/business/articles/2009/02/02/foreign_workers_sought_for_high_pay_jobs/
Money well spent, no?

Yeah, why save?

Buy something, quick. Then when it isn't worth anything any more, throw it away.

Let he who is without sin cast the first stone.

Let he who is without sin cast the first stone.

At the worthless junk that's been piling up in my closet.

At the worthless junk that's been piling up in my closet.

Stone the closet!

My remark was addressed to AP. I thought that taking the last two words of AP's post, and putting them in my three word opening sentence, would make that plain. Apparently not.

Here: Alexandrian Ptolemais, you are full of shit.

Typos happen to everyone.

Except too me.

To obvious? Ah well.

But we have seen the value of our currencies drop sharply. In New Zealand, it used to be possible to buy a litre of milk for 3 cents; a loaf of bread for 4 and a newspaper for 8. That of course has an impact especially on savers; if the value of your money is deteriorating, why save?

Ones saves because one can get a higher return when adjusted for inflation. When deflation occurs why save one's money in a bank or invest when one gets a riskless return by putting money in one's mattress when banks are failing and anybody who wants to borrow risks increasing real interest rates?