dc. These are fairly raw notes.
What’s Inside America’s Banks?
The Atlantic |by Frank Partnoy and Jesse Eisingerdc.
dc. good question. people? Ideas? organized crime?
no one wanted to lend to or trade with the banks during the fall of 2008,
dc.who would that have been?
Banks today are bigger and more opaque than ever, and they continue to behave in many of the same ways they did before the crash.Barclays paid a large fine in June to avoid civil and criminal charges that could have been brought by U.S. and U.K. authorities. T
why did they get away with it?
“Investors can’t truly understand the nature and quality of the assets and liabilities. They can’t readily assess the reliability of the capital to offset real losses. They can’t assess the underlying sources of the firms’ profits. The disclosure obfuscates more than it informs, and the government is not just permitting it but seems to be encouraging it.”
this article is amazing, wanting bacnks to be strong for investors. nothing about society or bank profits at 40% of all profit.
Documentation for the new Basel III, Haldane noted, totals 616 pages. And federal regulations governing disclosure are even longer than that. In the 1930s, a bank’s reports to the Federal Reserve might have contained just 80 entries. Yet by 2011, Haldane said, quarterly reporting to the Fed required a spreadsheet with 2,271 columns.The Glass-Steagall Act of 1933, which Haldane said was perhaps “the single most influential piece of financial legislation of the 20th century,” was only 37 pages. In contrast, 2010’s Dodd-Frank law was 848 pages and required regulators to create so many new rules (not fully defined by the legislation itself) that it could amount to 30,000 pages of legal minutiae when fully codified.Perhaps there is a silver lining in the loss of sophisticated investors’ trust. The disillusionment of the elites, on top of popular outrage, could foment change. Without such a mobilization, all of us will remain in the dark, neither understanding nor trusting the banks. And the rot will spread.
So no change without elites being motivated to do it?
To paraphrase the physicist Max Planck, “Science advances one funeral at a time.” A quotation from Abraham Lincoln might be appropriate here: “The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew and act anew.”http://www.newsecuritybeat.org/2013/01/building-sustainable-cities-warmer-cro…
Building Sustainable Cities in a Warmer, More Crowded World
By Laurie Mazur // Thursday, January 3, 2013
But today, we have a more nuanced understanding of the population-environment connection. We know that the relationship between human beings and the environment is complex, mediated by systems of production and consumption. And we know that population growth is not the only demographic change that matters: age structure and population distribution also shape environmental impact.
In other words, the planet’s “carrying capacity” is not just about human numbers, but about how people live, and where.
the number of city-dwellers will soar to nearly five billion, 60 percent of the world’s population two billion will live in “informal settlements,” or slums.Or, as Alex Steffen puts it in Carbon Zero: Imagining Cities That Can Save the Planet:
Every day, at least 200,000 people move to cities or are born in them. That’s like building a city the size of San Francisco every four days. Then doing it again, four days later. Then doing it again – and repeating the process several thousand times in the next 40 years.
This theory has real-world implications. In many countries, it is seen as a justification to “grow first and clean up later.”
Except that the “cleaning up” part may never come. In his book The Citizens at Risk: From Urban Sanitation to Sustainable Cities, development economist Gordon McGranahan shows that real cities rarely follow the orderly arc of the EKC. It is true that affluent city dwellers demand better conditions, but this effect is mainly for local environmental problems – such as contaminated water from poor sanitation. The same effect does not necessarily hold true for global environmental problems, including climate change, as more affluent city-dwellers consume more and expand their
In economic terms, rising seas could swallow nearly a tenth of the world’s wealth, according to the OECDLaurie Mazur is a consultant on population and the environment for the Wilson Center’s Environmental Change and Security Program and director of the Population Justice Project.http://www.cnbc.com/id/100351111
US Will ‘Soon Get Messy’ Again: Roubini
cnbc.com |by Shai Ahmedhttp://www.motherjones.com/environment/2013/01/lead-crime-link-gasoline
America’s Real Criminal Element: Lead
Mother Jones |by Kevin DrumSo we’re back to square one. More prisons might help control crime, more cops might help, and better policing might help. But the evidence is thin for any of these as the main cause. What are we missing?In 1994, Rick Nevin was a consultant working for the US Department of Housing and Urban Development on the costs and benefits of removing lead paint from old houses. This has been a topic of intense study because of the growing body of research linking lead exposure in small children with a whole raft of complications later in life, including lower IQ, hyperactivity, behavioral problems, and learning disabilities.higherhigher childhood blood lead levels are consistently associated with higher adult arrest rates for violent crimes. All of these studies tell the same story: Gasoline lead is responsible for a good share of the rise and fall of violent crime over the past half centurySo this is the choice before us: We can either attack crime at its root by getting rid of the remaining lead in our environment, or we can continue our current policy of waiting 20 years and then locking up all the lead-poisoned kids who have turned into criminals. There’s always an excuse not to spend more money on a policy as tedious-sounding as lead abatement—budgets are tight, and research on a problem as complex as crime will never be definitive—but the association between lead and crime has, in recent years, become pretty overwhelming. If you gave me the choice, right now, of spending $20 billion less on prisons and cops and spending $20 billion more on getting rid of lead, I’d take the deal in a heartbeat. Not only would solving our lead problem do more than any prison to reduce our crime problem, it would produce smarter, better-adjusted kids in the bargain.
There’s nothing partisan about this, nothing that should appeal more to one group than another. It’s just common sense. Cleaning up the rest of the lead that remains in our environment could turn out to be the cheapest, most effective crime prevention tool we have. And we could start doing it tomorrow.
Support for this story was provided by a grant from the Puffin Foundation Investigative Journalism Project.
Currency Manipulation, the US Economy, and the Global Economic Orderhttp://www.piie.com/publications/interstitial.cfm?ResearchID=2302
by C. Fred Bergsten, Peterson Institute for International Economics and Joseph E. Gagnon, Peterson Institute for International Economics
The United States must eliminate or at least sharply reduce its large trade deficit to accelerate growth and restore full employment. The way to do so, at no cost to the US budget, is to insist that other countries stop manipulating their currencies and permit the dollar to regain a competitive level.
this seems to me to be naive. full speed ahead here would mean lower wages for americans, and more polluting manufacturing. There is no pan for anything like full employment. Who mkaes the bulk of the profits in a full steam economy?
Peterson is being self serving here.
Rather as it was.
At Revolution, we made our first bets on the concept of sharing nearly a decade ago with our investments in Exclusive Resorts (2003) and Flexcar (2005). Now the “sharing economy” extends across multiple verticals – we’re sharing cars, movies, extra rooms in our homes, online lectures, and even our time. The announcement yesterday that Avis Budget Group will acquire Zipcar marks a significant milestone for the concept of collaborative consumption. By Steve Case on January 02, 2013 http://themonkeycage.org/blog/2013/01/03/governing-the-world-a-review/
Governing the World: A Review
themonkeycage.orgThe book starts with the Concert of Europe (1815). There is little acknowledgement of earlier ideas, such as those expressed by Grotius and Abbe st. Pierre. Even Immanuel Kant is discussed mostly in passing. Yet, the chapters on the 19th century are magnificent. Mazower persuasively links the competing visions of Bentham, Mazzini, and Marx to failed and successful political efforts at creating new forms of international governance. He tracks how these ideas continued to influence leaders, such as Woodrow Wilson, Vladimir Lenin, and Franklin Roosevelt, and how these ideas were transformed by events, the rise of the social sciences, and domestic political cleavages.Unfortunately, the tone changes dramatically in the book’s latter chapters where sophisticated and lucid analysis of the complex interaction between power, ideas, and technocracy makes way for a gloomy indictment of the way the rise of technocracy, global capitalism, and unilateralist US foreign policy have doomed the idea of governing the world. As Paul Kennedy points out in his review in the FT, Mazower foreshadows this conclusion in the introduction but if one would have started with reading chapter one, the latter chapters would take you by surprise. The introduction also contains some choice words for political scientists (p. xvi, emphasis added):dc. but he may be right. interesting that judgement is on conlcusions, not the reasoning.
Political scientists have addressed the question of the benefits of multilateralism, but mostly as part of an American conversation among scholars and policymakers about the character of U.S. foreign policy and the usefulness of the United Nations to the American national interest. Couched in the quasi-scientific literature that this literature prizes, there is much talk about rationality and burden sharing, game theory, and the logic of risk. But because its chief function is to counsel those in power in Washington, it has rather little to say about the ideological goals behind liberal internationalism in its various incarnations.dc. seems right to me.
Big Banks Are “Black Boxes,” Disclosure is “Woeful”Big Banks Are “Black Boxes,” Disclosure is “Woeful”
The Big Picture |by Barry Ritholtz on January 3, 2013The second is the heart of the article: How opaque, misleading, non-disclosing and —WTF, let’s just say it — fraudulent bank balance sheets are.
Perhaps the most damning quote in the entire column comes from former Federal Reserve Board member Kevin Warsh. He suggested that the financial statements a big bank files with the SEC are worthless:
“Investors can’t truly understand the nature and quality of the assets and liabilities. They can’t readily assess the reliability of the capital to offset real losses. They can’t assess the underlying sources of the firms’ profits. The disclosure obfuscates more than it informs, and the government is not just permitting it but seems to be encouraging it.”
Why Income Inequality Is Here to Stay
HBR.orgRobert Lucas, a Nobel prize winner, thought that “nothing [is] as poisonous” to sound economics as “to focus on questions of distribution.”Yet most of this new research simply studies the problem; the ideas on how to check rising income inequality in the United States and elsewhere seem to be remarkably fewRawls’ view, what is needed is at least “liberal equality” where inheritance of wealth is limited and access to education is effectively equalized for all.John Roemer, in his 1998 book Equality of Opportunity and more recent writings, tried to further elaborate the idea that incomes should be proportional to effort, and should abstract from all circumstances that favor or disadvantage a person. Thus if there are two classes of people who, because of their different backgrounds, have different levels of productivity (say, the productive As, and the less productive Bs) incomes must not be decided based on this difference in productivity. Rather it is the effort that should be rewarded.
Suppose that you belong to a disadvantaged class B, but that your effort puts you at the 80th percentile of all B’s distribution of effort. Then you should be paid as much as an A who is at that same percentile point (80th) of all A’s distribution of effort — even if A, due to the advantage he or she inherited, produces more than you.But even this short sketch suffices to show how seemingly far away are these ideas from the mainstream political desires of the US electorate. For all but the tamest of these proposals, any popular support is lacking.So, it seems, it is not the ideas that are wanting but willingness to try them.Thanks To Gerrymandering, Democrats Would Need To Win The Popular Vote By Over 7 Percent To Take Back The Househttp://thinkprogress.org/justice/2013/01/02/1382471/thanks-to-gerrymandering-democrats-would-need-to-win-the-popular-vote-by-over-7-percent-to-take-back-the-house/?mobile=nc
As of this writing, every single state except Hawai’i has finalized its vote totals for the 2012 House elections, and Democrats currently lead Republicans by 1,362,351 votes in the overall popular vote total.
Democratic House candidates earned 49.15 percent of the popular vote, while Republicans earned only 48.03 percent — meaning that the American people preferred a unified Democratic Congress over the divided Congress it actually got by more than a full percentage point. Nevertheless, thanks largely to partisan gerrymandering, Republicans have a solid House majority in the incoming 113th Congress.Worse, top Republicans are already threatening to use the looming debt ceiling fight to torpedo the entire U.S. economy unless Congress agrees to slash Social Security or Medicare benefits for seniors. They will have the leverage to attempt this because the incoming House bears no resemblance to the one America actually voted for. And individual Republican House members will be able to engage in this political dangerous game of chicken comfortable in the knowledge that partisan gerrymandering makes many of them untouchable in a general election.
Partisan gerrymanders, like the one that now all but locks the GOP majority in place, have been the subject of repeated court challenges. America can thank the five conservative justices on the Supreme Court for allowing these gerrymanders to continue.
The big issues in macroeconomics: unemployment
crookedtimber.orgFollowing up my previous post, I want to look at the main areas of disagreement in macroeconomics. As well as trying to cover the issues, I’ll be making the point that the (mainstream) economics profession is so radically divided on these issues that any idea of a consensus, or even of disagreement within a broadly accepted analytical framework, is nonsense. The fact that, despite these radical disagreements, many specialists in macroeconomics don’t see a problem is, itself, part of the problem.fn1 The linked NY Times story is the most striking example of the body contradicting the lead that I have seen in recent times. After proclaiming Latvia a success, the story notes that, in addition to 14 per cent unemployment, 5 per cent of the population has emigrated, poverty is worse than anywhere in the EU except Bulgaria, and output is far below the pre-recession level. The concluding comment The idea of a Latvian ‘success story’ is ridiculous,” ought to be the opening.
dc. another article that seems to not look at outsourcing, robots and other labor excluding approaches.
here is the whole article.
The big issues in macroeconomics: unemployment
Following up my previous post, I want to look at the main areas of disagreement in macroeconomics. As well as trying to cover the issues, I’ll be making the point that the (mainstream) economics profession is so radically divided on these issues that any idea of a consensus, or even of disagreement within a broadly accepted analytical framework, is nonsense. The fact that, despite these radical disagreements, many specialists in macroeconomics don’t see a problem is, itself, part of the problem.
I’ll start with the central issue of macroeconomics, unemployment. It’s the central issue because macroeconomics begins with Keynes’ claim that a market economy can stay for substantial periods, in a situation of high unemployment and excess supply in all markets. If this claim is false, as argued by both classical and New Classical economists, then there is no need for a separate field of macroeconomics – everything can and should be derived from (standard neoclassical) microeconomics.
The classical view is that unemployment arises from problems in labor markets and can only be addressed by fixing those problems. Within the classical camp, Real Business Cycle theory allows for cyclical unemployment to emerge as an voluntary response to technology shocks and changes in preferences for leisure – hence Krugman’s snarky but accurate quip that, according to RBC, the Great Depression should be called the Great Vacation. More generally, on the classical view, long-term unemployment has to be explained by labour market distortions such as minimum wages, unions, restrictions on hiring and firing, and so on.
The RBC school mostly treated the Great Depression as an exceptional case, to be dealt with later, and they have been no better on the Great Recession. While some have tried, it’s obviously silly to explain the current recession as the product of technology shocks in the ordinary sense of the term. If you treat the financial sector meltdown as a technology shock, RBC amounts to little more than the observation that opium makes you sleepy because of its dormitive quality. Since financial sector booms and busts are clearly driven by the the general business cycle, you get the theory that the business cycle is caused by … the business cycle.
Looking at the broader classical view, there are two big problems. First, over the past twenty or thirty years unions have got weaker nearly everywhere, minumum wages have generally fallen in real terms, or at least relative to average wages, and labour markets have been ‘reformed’ to become more flexible. So, you would expect low and falling unemployment. The low rate of US unemployment in the 1990s and (to a lesser extent) 2000s was indeed taken as a vindication of this prediction. So, sharp increases in unemployment are the opposite of what was expected. The even bigger problem is that, since 2008, unemployment has risen sharply in many different countries, with very different institutions. Many of these countries have reacted by cutting social protections (here’s Latvia, for example) but unemployment has remained high.
The main alternative to the classical view is a “sticky wage/price” interpretation of Keynesianism. The basic idea is that the aggregate economy is subject to demand shocks, which result in prices and wages being too high. But reducing wages and prices is difficult, because of co-ordination failures. Reducing wages and prices in one sector, or reducing wages but not prices doesn’t help. In fact, cutting wages on a piecemeal basis depresses demand even further. So the economy stays under-employed for a long time.
If you accept the sticky wage story, then you get the kind of policy line supported by the New Keynesians in the current debate. This says that, under normal conditions, monetary policy can be used to avoid deflation. In the current “liquidity trap” case where interest rates are at zero, and expanding the money supply has no effect, it’s necessary for governments to create demand directly through fiscal policy.
Lots of Keynesians (including me) and other critics of the classical view aren’t satisfied with the sticky wage interpretation, or at least regard it as incomplete. There isn’t a single well-developed alternative, however, so I’ll give some thoughts of my own, and invite others to comment. The big problem with the the sticky wage story is that it implicitly assumes a unique general equilibrium with an associated distribution of real wages. But in reality, there’s a lot of room for political processes/class struggle to influence wages and unemployment is part of that struggle (the “reserve army of labor”). So cutting real wages in a depression may produce a new lower-wage equilibrium, which leaves existing wages still “too high” to clear the labor market. Obviously, there are limits on this process, but they may not be relevant.
In empirical terms, the sticky wage story implies that real wages should be countercylical (higher in recessions). The alternative versions of Keynesianism generally imply the opposite. The empirical evidence, sadly, is indecisive.
But the disagreements among Keynesians, or between Keynesians and various heterodox schools, are less important than their collective disagreement with the classical view. According to classical economics, a global recession like the one we are observing, occurring simultaneously in many very different countries and lasting for many years, should be impossible, or at least highly improbable. For the classical view to work, lots of separate and differently organized labor markets must have simultaneously gone haywire, and stayed that way for a long time. But the improbability of this hypothesis hasn’t shaken the faith of classical supporters.
fn1 The linked NY Times story is the most striking example of the body contradicting the lead that I have seen in recent times. After proclaiming Latvia a success, the story notes that, in addition to 14 per cent unemployment, 5 per cent of the population has emigrated, poverty is worse than anywhere in the EU except Bulgaria, and output is far below the pre-recession level. The concluding comment The idea of a Latvian ‘success story’ is ridiculous,” ought to be the opening.
UnderstandingSociety: World history
blogspot.com |by Daniel Little on January 1, 2013There are several key points that have emerged as fundamental. The first is to be vigilant about making Eurocentric assumptions about development and change.A second is to expect variation rather than convergence.Third, it is important to avoid the conceptual schemes of nationalism and states.Fourth, the way in which we consider historical time sometimes needs more critical reflection. Victor Lieberman’s focus on the punctuated patterns of consolidation that took place from Burma to Kiev is one aspect of this reflection; the world’s clock was synchronized in a pattern that was quite distinct from the internal patterns of change in each of the affected countries. And the historian needs to be attentive to both clocks. Likewise, world historians need to be open to considering temporality on a range of scales — from the months of the Terror to the decades of contention that preceded and followed the French Revolution, to the century and a half that separated the French Revolution from the Chinese Revolution.Fifth, the global impact of environmental factors needs to be given the emphasis it deserves.Mark Elvin’s environmental history of China is a great example (The Retreat of the Elephants: An Environmental History of China).UnderstandingSociety: World history
blogspot.com |by Daniel Little on January 1, 2013
World history is more timely today than ever. “Globalization” is almost a cliché, from “The world is flat” to “the homogenization of cultures” to the “commodification of place.” Everyone recognizes the fact of globalization in the contemporary world. But we need to understand the many ways in which many parts of the world were deeply and systemically interconnected long before the post-World War II wave of revolutions in communications networks, rapid travel, containerized shipping, and military power contributed to the current interconnectedness of most countries and peoples. We need a strong historiography for the global world. And we need better and more detailed understandings of the histories of many of the regions of the world, taken in their own terms.
To be most productive, however, we need to approach the tasks of global history with some fresh thinking. There are several key points that have emerged as fundamental. The first is to be vigilant about making Eurocentric assumptions about development and change. Whether in the domains of politics, economics, or culture, it is crucial to avoid the assumption that Europe set the model for developments in key areas of historical change. New historiography of Eurasian economic development illustrates the power of an approach that avoids Eurocentrism, including Bin Wong (China Transformed: Historical Change and the Limits of European Experience), Ken Pomeranz (The Great Divergence: China, Europe, and the Making of the Modern World Economy.), and Prasannan Parthasarathi (Why Europe Grew Rich and Asia Did Not: Global Economic Divergence, 1600-1850).
A second is to expect variation rather than convergence. There are many ways that human societies have found to solve crucial problems of coordination, order, production, and the exercise of power. Global historians need to be alert to the development of alternative institutions of politics, economics, culture, or social cohesion in different locales. In particular, it is important to take note of divergences as well as parallels in the political and economic development of great civilizations like those of India, China, Southeast Asia, or West Africa.
Third, it is important to avoid the conceptual schemes of nationalism and states. “France,” “Indonesia,” and “India” are places with diversity and internal variation, and they each followed distinct rhythms of consolidation as states and nations. It is often more revealing to look to regions that cross the boundaries of existing states; we learn much by looking at the dynamics of change in regions that are smaller than nation-states (the American South, for example, as an economic and racial regime that had little in common with Northern cities); and it is sometimes the case that we are best off considering the histories of dispersed peoples and activities (Zomia (James Scott, The Art of Not Being Governed: An Anarchist History of Upland Southeast Asia (Yale Agrarian Studies Series)), diasporic histories (Tai Lands and Thailand: Community and the State in Southeast Asia), bandits (Bandits, Revised Edition)).
Fourth, the way in which we consider historical time sometimes needs more critical reflection. Victor Lieberman’s focus on the punctuated patterns of consolidation that took place from Burma to Kiev is one aspect of this reflection; the world’s clock was synchronized in a pattern that was quite distinct from the internal patterns of change in each of the affected countries. And the historian needs to be attentive to both clocks. Likewise, world historians need to be open to considering temporality on a range of scales — from the months of the Terror to the decades of contention that preceded and followed the French Revolution, to the century and a half that separated the French Revolution from the Chinese Revolution.
Fifth, the global impact of environmental factors needs to be given the emphasis it deserves. Climate change, exhaustion of woodlands, extension of mining and extraction — all these processes and factors influence human activity at a range of levels, and their impact needs to be assessed carefully on the basis of historical and physical data. Mark Elvin’s environmental history of China is a great example (The Retreat of the Elephants: An Environmental History of China).
Finally, world historians need to pay particular attention to the mechanisms of influence through which places exchanged cultural and economic material in the long centuries from the development of substantial Mediterranean trade in the ancient world to the shipping lanes of the contemporary world. Trade, the diffusion of ideas through cultural contact and migration, the effects of the book trade, the military logic of colonialism, the advent of organized long-distance communication and travel, the creation of international governance institutions — these mechanisms of social exchange constitute many of the pathways through which global integration occurs, and their dynamics are worthy of close attention by historians.
Significantly, almost all these factors find their way into the work of many recent historians who are taking on the challenge of making sense of the history of the modern world. World historiography is on a very promising trajectory.
Michael Hudson: America’s Deceptive 2012 Fiscal Cliff, Part III– Why Today’s Fiscal Squeeze Imposes Needless Austerity
The financial sector promises that privatizing roads and ports, water and sewer systems, bus and railroad lines (on credit, of course) is more efficient and will lower the prices charged for their services. The reality is that the new buyers put up rent-extracting tollbooths on the infrastructure being sold. Their break-even costs include the high salaries and bonuses they pay themselves, as well as interest and dividends to their creditors and backers, spending on stock buy-backs and political lobbying.
dc. from world bank experience I would completeley agree.
Public borrowing creates a dependency that shifts economic planning to Wall Street and other financial centers. When voters resist, it is time to replace democracy with oligarchy. “Technocratic” rule replaces that of elected officials. In Europe the IMF, ECB and EU troika insists that all debts must be paid, even at the cost of austerity, depression, unemployment, emigration and bankruptcy. This is to be done without violence where possible, but with police-state practices when grabbers find it necessary to quell popular opposition.Financializing the economy is depicted as a natural way to gain wealth – by taking on more debt. Yet it is hard to think of a more highly politicized policy, shaped as it is by tax rules that favor bankers. It also is self-terminating, because when public debt grows to the point where investors (“the market”) no longer believe that it can be repaid, creditors mount a raid (the military analogy is appropriate) by “going on strike” and not rolling over existing bonds as they fall due. Bond prices fall, yielding higher interest rates, until governments agree to balance the budget by voluntary pre-bankruptcy privatizations.
Selling Saved-up Treasury Bonds to Fund Public Programs is Like New Deficit Borrowing
In the case of Social Security today the beneficiary of government debt is still the financial sector. The economy must provide the housing, food, health care, transportation and clothing to enable retirees to live normal lives. This economic surplus can be paid for either out of taxation, new money creation or borrowing. But instead of “the West,” the major payers of the Social Security tax are wage earners across the nation. Taxing labor shrinks markets and forces the economy into austerity.The Federal Reserve’s three waves of Quantitative Easing since 2008 show how easy it is to create free money. Yet this has been provided only to the largest banks, not to strapped homeowners or industry. An immediate $2 trillion in “cash for trash” took the form of the Fed creating new bank-reserve credit in exchange for mortgage-backed securities valued far above market prices. QE2 provided another $800 billion in 2011-12. The banks used this injection of credit for interest rate arbitrage and exchange rate speculation on the currencies of Brazil, Australia and other high-interest-rate economies. So nearly all the Fed’s new money went abroad rather than being lent out for investment or employment at home.U.S. Government debt was run up mainly to re-inflate prices for packaged bank mortgages, and hence real estate prices. Instead of alleviating private-sector debt by writing down mortgages in line with the homeowners’ ability to pay, the Federal Reserve and Treasury created money to support property prices – to push the banking system’s balance sheets back above negative net worth. The Fed’s QE3 program in 2012-13 created money to buy mortgage-backed securities each month, to provide banks with money to lend to new property buyers.The Fed provided nearly free credit to the banks under QE2, and Chairman Ben Bernanke promised to continue this policy until such time as the unemployment rate drops to 6.5%. The pretense is that low interest rates spur employment, but the most pressing aim is to provide easy credit to revive borrowing and bid asset prices back up.Governments have the power to resist this deflationary policy. Like commercial banks, they can create money on their computer keyboards. Indeed, since 2008 the government has created debt to support the Finance, Insurance and Real Estate (FIRE) sector more than the “real” production and consumption economy.
dc. the comments are terrific as an education. These are excerpts.
The last two paragraphs say it all. The real “war” we have always been fighting is internal and is long since over. The war was between big capital and labor, and no one can possibly doubt who won. At this point, the only question remaining to be answered is what is the end game for big capital with all their ill-gotten gains, especially once the resources start to run out in earnest. Although, I think we all have a pretty good idea what the answer to that question is too. Foreclosure and “termination by other means.” But I think I’ll check out the book anyway. Thanks.
Oh, one more thing! The austerity part is not “needless” at all. It’s an integral part of the plan. The military calls it “preparing the ground,” or similar.
“gambling” seldom really enters into it.
When John Paulson got together with Goldman Sachs, and created that Abacus CDO, stuffing it with the crappiest, sure-to-fail mortgage loans/tranches possible, then both of them purches buckets of CDS (at a report $1.4 million per CDS, with an insurance payout of $100 million per), there wasn’t any gambling involved — it was a sure deal of financial fraud.
Today looks to be much of the same. When economic shocks turn into social movements, all pretense of control falls by the wayside.Dear digi;
Unfortunately for us, Stalins generally follow Lenins, viz, Napoleon after the Directory, Cromwell after the Puritan Revolution, Tiberius after Augustus, etc. One fine example of the opposite would be Washingtons’ successors after the American Revolution. But then, it has been argued that the American Revolution wasn’t a true Social Revolution. We may soon be witnesses to how America does handle one.Although the Likudniks are some of the nastiest people on the planet, too many people can’t let go of the kitschy collective farms which weren’t called collective farms so it wasn’t too Communist. Much of our foreign policy really is driven because of what people saw when they were kids.No more leaders, please, of any stripe. We’ve been down that road plenty of times already. Post-collapse, I’m rooting for Anarcho-Syndicalism and a return of the Goddess (figuratively, of course). Hierarchy is soooo last-millennium.From Wikipedia:
quoting, Classical liberalism is a political ideology, a branch of liberalism which advocates civil liberties and political freedom with limited government under the rule of law and generally promotes a laissez-faire economic policy…There was a revival of interest in the ideas of classical liberalism in the 20th century, led by Friedrich Hayek and Milton Friedman, who argued that government should be as small as possible in order to allow the exercise of individual freedom. Some call this modern development “neo-classical liberalism”, because it holds political views similar to classical liberalism.
It was actually Yves in Econned who clued me in to how this works. Once the banks have used their agency-backed money as collateral to borrow (essentially to trade it in for) government money at the Fed, at 0% interest rates, then then the private-sector banks can use the government money to 1) lend out, or 2) engage in all the speculative activities Hudson excoriates. But the banks don’t lend the money out at the same 0% interest rate they receive it from the Fed. The difference between the 0% they borrow from the Fed at and the interest rate the banks lend the money out is called the “interest rate margin.” What we saw in the wake of the GFC was greatly enhanced interest rate margins, so that the banks could “earn their way out of negative equity.” Please correct me if I’m wrong, because I don’t have my reference materials in front of me, but as I recall the language Yves used was that the Fed “engineered” the inflated interest rate margin.
None of the above Fed operations should be confused with TARP, which was fiscal policy (spending money into the economy), as opposed to monetary policy (lending money into the economy).
Tax Facts – a pamphlet publication from the 1920s – it reflects the same stuff we see today. Seems back then – they knew a difference that we are just now re-learning.
“The great sore spot in our modern commercial life is found on the speculative side. Under present laws, which foster and encourage speculation, business life is largely a gamble, and to “get something for nothing” is too often considered the keynote to “success”. The great fortunes of today are nearly all speculative fortunes; and the ambitious young man just starting out in life thinks far less of producing or rendering service than he does of “putting it over” on the other fellow. This may seem a broad statement to some: but thirty years of business life in the heart of American commercial activity convinces me that it is absolutely true. If, however, the speculative incentive in modern commercial life were eliminated, and no man could become rich or successful unless he gave “value received” and rendered service for service, then indeed a profound change would have been brought in our whole commercial system, and it would be a change which no honest man would regret.”
– John Moody, Wall Street Publisher, and President of Moody’s Investors’ Service. Dated 1924
“In spite of the ingenious methods devised by statesmen and financiers to get more revenue from large fortunes, and regardless of whether the maximum sur tax remains at 25% or is raised or lowered, it is still true that it would be better to stop the speculative incomes at the source, rather than attempt to recover them after they have passed into the hands of profiteers. If a man earns his income by producing wealth nothing should be done to hamper him. For has he not given employment to labor, and has he not produced goods for our consumption? To cripple or burden such a man means that he is necessarily forced to employ fewer men, and to make less goods, which tends to decrease wages, unemployment, and increased cost of living. If, however, a man’s income is not made in producing wealth and employing labor, but is due to speculation, the case is altogether different. The speculator as a speculator, whether his holdings be mineral lands, forests, power sites, agricultural lands, or city lots, employs no labor and produces no wealth. He adds nothing to the riches of the country, but merely takes toll from those who do employ labor and produce wealth. If part of the speculator’s income – no matter how large a part – be taken in taxation, it will not decrease employment or lessen the production of wealth. Whereas, if the producer’s income be taxed it will tend to limit employment and stop the production of wealth. Our lawmakers will do well, therefore, to pay less attention to the rate on incomes, and more to the source from whence they are drawn.”
the whole article and all the comments worth reading. quite an educaion, in economics and in thinking, and in the current state of people’s state of mind.
The thing is they ran this experiment, showed that the actual data doesn’t align with game-theory predictions, and then proceed to speculate as to the causes of this deviation, creating pretty mathematical equations to make their case (they posit “regret aversion,” fwiw). But not once do they interview any of the test subjects to find out why they actually acted as they did.
In any other social science, this paper would have included both quantitative and qualitative data, for obvious reasons. But it’s Econ, so they run their experiment, do some math, present some numbers and equations and not once inquire with the actual humans involved.
Michał Kalecki long ago identified the political constriants capital holders place on achieving a full employment economy.Income distribution and the constancy of the share of wages
Income distribution is the other pillar of Kalecki’s efforts to build a business cycle theory. To do this, Kalecki assumes that the industries compete in imperfectly competitive markets, more particularly in oligopolistic markets where the firms set a mark-up on its variable average costs (raw materials, wages of employees on the shop floor that are supposed to be variable) in order to cover their overhead costs (salaries to senior management and administration) to obtain a certain amount of profit. The mark-up fixed by firms is higher or lower depending on the degree of monopoly, or the ease with which firms raise the price without seeing reduced the quantity demanded. This can be summarized in the next equation:
Kalecki’S Theory Of Income Determination: A Reconstruction And An Assessment
Kalecki’s theory of income determination is notable for having been built, unlike Keynes’, on imperfectly competitive foundations. This constitutes a clear advantage both under the profile of realism as well as of interpretative power. An imperfectly competitive framework most naturally leads to the issue of the incomplete exploitation of productive capacity, since an imperfect competitor is typically constrained in what he perceives to be able to trade. At the price he sets he would obviously like to trade more and, if he is a producer, only partially exploits his productive capacity. In the real world an imperfect competitor feels his sales, and his opportunities for profit, to be intrinsically constrained by insufficient demand, and tends naturally to believe that a policy increasing demand should improve the results of his business. This can contribute to form social support for expansionary policies. 2
Hudson said, there is no real ‘debt’; nobody owes the nation’s public-issued money to anybody and it doesn’t have to be repaid – so its very much different from your IOU. It is merely exchange media.
I was looking for the science behind it.
The whole world operates within what German monetary-economist Dr. Bermd Senf terms “the fog around the money”, and nowhere is that more true than with governmental finance – the national balance sheet.
MMT-MCT Fields Institute Seminar: Stephanie Kelton
A better understanding of the relationship between society’s use of resources for the production and consumption of wealth is Dr. Frederick Soddy’s book titled “The Role of Money”.People like Walter Lippmann argued (see Liberty and the News, A Test of the News, Public Opinion, The Phantom Public and A Preface to Morals) that only a staff of highly trained specialists had the expert knowledge to administer our increasingly complex modern government and that truth grew out of such supposedly disinterested scientific inquiry—with the average citizen reduced, in his perspective, to an emotionally confused member of the crowd.I think the confused nature of our monetary system is a feature, not a bug, because the confusion lends itself both to looting and to covering the looting up.http://boingboing.net/2013/01/01/robots-are-taking-your-job-and.html
Take a look at these farm houses which I saw under construction in remote areas of Yunnan province China. They were not unusual; farmsteads this size were everywhere in rural China. Note the scale of these massive buildings.http://www.aljazeera.com/indepth/features/2012/12/20121223142623649526.html
The (failed) state of macroeconomicsWhen econbloggers aren’t arguing about cyborgs, they spend a fair bit of time arguing about the state of (mainstream) macroeconomics, that is, the analysis of aggregate employment and unemployment, inflation and economic growth. Noah Smith has a summary of what’s been said, which I won’t recapitulate. Instead, I’ll give my take on some of the issues that have been raised (what follows is inevitably monkish wonkish)
The main issues at stake are
• Is there a consensus ? [1a]
• If not, what are the main points of disagreement ?
• What, if anything, has macroeconomics achieved in the last 40 years
Where should we go next?
dc. the general discussion post election. post cliff is heating up. the emerging issue is the integration of governance and economy without going too authoritarian. can it be done?