Global financial system implosion begins

[littlebabyjesus]

There is another model, which is state-backed or mutual-backed investment banks that provide initial capital for private businesses in private-public partnerships. Germany has a system that does this to an extend with its landesbanks. It works. Combining this with a worker-owned business model, you avoid the creation of a parasitic rentier shareholder class.

The reason this doesn't happen isn't because shareholder capitalism is more dynamic or more efficient. It isn't. The reason it doesn't happen is because the parasitic rentier class clearly doesn't want it to happen - it would remove their source of unearned income, but it is this source of unearned income that puts them in the positions of power that allow them to maintain the system to their own advantage. Breaking that position is the problem faced by the rest of us.

 

[ymu]

Keynesian economics is as logical as it gets Frank. If you don't know that, it's because you have been listening to ill-educated and/or corrupt sources.

 

[Frank Merton]

Keynesian economics is as logical as it gets Frank. If you don't know that, it's because you have been listening to ill-educated and/or corrupt sources.

Where did you get the idea that I though Keynesianism was illogical? I don't think I've posted anything about it.

I will say though that recent US history hasn't seemed to support it much; in spite of the government running huge deficits the economy just sputters.

 

[ymu]

Nowadays, at least in the States, stock brokers get less than ten dollars for even the largest trades when one does it on the internet. I don't know how they make a living. What shareholders produce is initial capital. When an enterprise begins in Vietnam, it is the state that must take the risk that the venture will succeed or not. When this is farmed out to private investors, they take the risk.

With central planning (which we still have) the decision of which enterprises to allow and which not to are still taken with regard to the plan. However, it makes it easier to get capital if you allot profit to private investors. Usually the state keeps a significant portion.

Of course small and family enterprises work on a different non-public basis, so there all that is needed is evidence that the business serves a need in its particular location.

You don't know how brokers make a living? Seriously?

Have you looked at their incomes compared to the mean or median wage in the US? It's cheap now because computers make trillions of trades per second with no human intervention, and where human intervention is required, it is to click a button.

It doesn't matter whether they make 1c or $1m. They have produced no new wealth, just shifted a bit of existing wealth into new hands. Even if they did it for free, it would be a waste of a useful brain.

I don't mind the private sector existing, but only where the public sector competes like crazy to provide better value. Hard to beat national-scale collective purchasing by a non-profit organisation. But if they can do it, whilst obeying employment regulations, they are more than welcome to try. It does require a public sector that acts on behalf of the public rather than on behalf of rich fuckers who don't care about anything except getting richer, no matter how toxic the effect on everyone else.

 

[Frank Merton]

You need to get some sense of humor. I know full well how they make their money.

 

[ymu]

Where did you get the idea that I though Keynesianism was illogical? I don't think I've posted anything about it.

I will say though that recent US history hasn't seemed to support it much; in spite of the government running huge deficits the economy just sputters.

Krugman is the uber-Keynesian. If you dismiss him, you dismiss Keynes. You dismissed him. I assumed you knew enough about him to do that. Illogical, I know.

Bush was not a Keynesian! He inherited the Keynesian surplus required in boom times, cut taxes for the rich whilst raising spending on war, and screwed all of us over in the most spectacular way. This is pro-cyclical, not counter-cyclical, as is austerity during a recession/recovery. The consequences are obvious.

Keynes is all about the timing. All Keynesians are austerians during the boom.

 

[littlebabyjesus]

Where did you get the idea that I though Keynesianism was illogical? I don't think I've posted anything about it.

I will say though that recent US history hasn't seemed to support it much; in spite of the government running huge deficits the economy just sputters.

It doesn't sputter. Not really. The US is one of the richest countries in the world.

There is an argument that the US is following a path of neocolonialism by running huge deficits - imperialism through bankruptcy. Marx mentions in Capital the situation in ancient Rome in which the Romans demanded tribute from Asia Minor and then used that tribute to buy the goods from Asia Minor that they needed. The US is running a modern twist on this by taking loans from the likes of China that everyone knows they will never repay. Eventually, the Chinese will float their currency and the value of the loans will be halved overnight. This is a form of imperialism and domination.

The key to imperialism is that you extract from the rest of the world more than you give to it. That's exactly what the US does by running deficits.

 

[Frank Merton]

It doesn't sputter. Not really. The US is one of the richest countries in the world.

Last I looked I think they have about nine percent unemployment and a growth rate less than the population increase. This is sputtering. I don't think Keynesianism is the problem; I think Obama has scared the investing classes into sitting on their money just enough to keep what should be a roaring inflationary boom into being nothing more that stuttering. This shows that money is not the only factor influencing an economy -- mood also has its role.

 

[Frank Merton]

The US is running a modern twist on this by taking loans from the likes of China that everyone knows they will never repay. Eventually, the Chinese will float their currency and the value of the loans will be halved overnight. This is a form of imperialism and domination.

My what stupid people you think the Chinese must be.

 

[littlebabyjesus]

My what stupid people you think the Chinese must be.

Nothing stupid about it. Just as the people of Asia Minor were not stupid. The ruling classes of China do extremely well out of the arrangement. The ordinary workers have little choice - they take the best jobs they can and are paid only a small fraction of what they should be. Most of us are in this situation to a greater or lesser extent - we know full well when we're being exploited as our bosses extract surplus value from our labour.

 

[Frank Merton]

Nothing stupid about it. Just as the people of Asia Minor were not stupid. The ruling classes of China do extremely well out of the arrangement.

If what the US owes the Chinese will get repaid pennies to the dollar (and I agree this may happen) then the Chinese must be being stupid unless there is some reason for the Chinese to do this. My feeling is that the Chinese are, first, being good world citizens since they have the excess cash, and, second, don't see the future quite as you do, but think they can continue to manage their currency as they always have.

 

[ymu]

They're doing OK, under the circumstances. Austerity at state level has hurt them, but there's no austerity at Federal level (yet). Thanks in part to the spectacularly bad performance of the UK economy since Osborne took over.

This is part of the evidence that austerity is as stupid now as it was in the 1930s.

But you don't do evidence. Still, someone else might be interested.

 

[Frank Merton]

What I see from your chart confirms what I said; the recovery has been a muddling half-assed affair only slightly better than the Great Depression and worse than every other recovery since. Your own chart belies your position.

 

[littlebabyjesus]

The self-interest of those who wish to grow the Chinese economy rapidly first lies in selling the labour of their workers for cheap. That's what they are currently doing by keeping their currency artificially low. They lend the excess back to places like the US, who continue to buy the goods, and the economy continues to grow.

However, at some point, the internal Chinese market develops to a point where Chinese consumers can increasingly replace foreign consumers. The argument for floating the currency then grows - these increasingly rich Chinese consumers also want to import stuff too, after all. The argument in favour of ripping yourself off - which is what keeping your currency low is doing - becomes weaker and weaker. Eventually, there is a compelling case for floating, and at this point, the value of your foreign debts goes down. But you knew all along that you were never going to get all that money back - and with Chinese consumers now sufficiently rich to replace the foreigners, you no longer need to rip yourself off and cut your losses by floating.

But of course, the bosses in China are very rich. It is the politically powerless workers who bear all the brunt of the rip-off nature of the country's exchange rate.

 

[littlebabyjesus]

What I see from your chart confirms what I said; the recovery has been a muddling half-assed affair only slightly better than the Great Depression and worse than every other recovery since. Your own chart belies your position.

No. Not at all. That chart shows that there can be no double-dip in the US, France or Germany as their economies recovered back to the pre-recession level.

The UK, with its self-defeating 'austerity', is far from this position. Taking the pre-recession GDP as 100 units, it shrank to about 94 units then rose to about 97 units before falling back again. That's double-dip, and it's been avoided by the US.

 

[free spirit]

What I see from your chart confirms what I said; the recovery has been a muddling half-assed affair only slightly better than the Great Depression and worse than every other recovery since. Your own chart belies your position.

the bottom chart is I believe the UK. The top chart shows that the countries that tried the austerity route doing a lot worse than those that ran with a more keynesian approach, though personally I think the US version was pretty half arsed version of it, with a lot of states and cities doing their own version of austerity to undermine the federal government's relatively tame attempts at propping the economy up.

 

[Frank Merton]

The Chinese government (and the Vietnamese government too) are presently on a course of trying to shift to a more domestic and less export oriented economy, and they may as part of that allow the currency to drift down a little. These are managed currencies.

In the meantime by helping the US Treasury out by buying some of its bonds (although most are being bought by the Fed) they are good guys helping keep world economies afloat, which also of course helps them with their exports.

What I see as most likely is that Obama will get some economic sense and let his economists run the economy while he pays attention to other matters. This will permit a considerable boom in the US, quite overdue, and the growth will enable the US to handle its deficit without a significant devaluation, and the Chinese will get their money back with interest.

 

[littlebabyjesus]

The Chinese government (and the Vietnamese government too) are presently on a course of trying to shift to a more domestic and less export oriented economy,

They are indeed. I don't know too much about Vietnam, but for China, part of that shift towards a less export-oriented economy will be allowing the value of its currency to drift upwards, and eventually floating it entirely. The Chinese constantly make noises about floating their currency without actually doing it, but I think it is inevitable that they will eventually (because it will be in their own self-interest), perhaps within the next three years, as mooted here:

China said Monday it would move to allow its currency to float more freely and further liberalize state-set interest rates in a broad financial plan through 2015.
Financial regulators voiced support for reform in the five-year plan for the 2011-2015 period, which was released by the central bank on Monday.

 

[Frank Merton]

the bottom chart is I believe the UK. The top chart shows that the countries that tried the austerity route doing a lot worse than those that ran with a more keynesian approach, though personally I think the US version was pretty half arsed version of it, with a lot of states and cities doing their own version of austerity to undermine the federal government's relatively tame attempts at propping the economy up.

Well then it doesn't tell me anything. The European economies are not comparable because of the Greek/etc. problems.

 

[Frank Merton]

The Chinese have been promising to let their currency float "more freely" for at least the last couple of decades. They will do it if and only if they decide it is in their best interest. Otherwise they just make promises.

 

[BigTom]

They're doing OK, under the circumstances. Austerity at state level has hurt them, but there's no austerity at Federal level (yet). Thanks in part to the spectacularly bad performance of the UK economy since Osborne took over.



This is part of the evidence that austerity is as stupid now as it was in the 1930s.

But you don't do evidence. Still, someone else might be interested.

There's a more up to date graph of this now:

from: http://notthetreasuryview.blogspot.co.uk/2012/04/recessions-and-recoveries-historical.html

What's interesting about having seen the older one first is how since that one was produced, our economy has continued to stagnate and now we are recovering far, far worse than in the great depression, and how what you say has been borne out in the time between your graph was produced and this one (which is from January this year for anyone who can't be bothered to click through and check)

 

[littlebabyjesus]

The Chinese have been promising to let their currency float "more freely" for at least the last couple of decades. They will do it if and only if they decide it is in their best interest. Otherwise they just make promises.

Yes. And it will be in their best interest when the current model no longer delivers the high levels of growth that it currently delivers. It may well be a slide down to a full floatation rather than an overnight decision - and the timing will also depend on the returns from their vast investment programmes in parts of Africa, etc. They'll turn the US adrift by reducing their credit line in return for an agreement that the US will only pay x cents to the dollar on their existing debt (which is what floating would mean) when it is in their interests to do so - but the stated plans are that this will be done gradually.

 

[littlebabyjesus]

There's a more up to date graph of this now:

from: http://notthetreasuryview.blogspot.co.uk/2012/04/recessions-and-recoveries-historical.html

What's interesting about having seen the older one first is how since that one was produced, our economy has continued to stagnate and now we are recovering far, far worse than in the great depression, and how what you say has been borne out in the time between your graph was produced and this one (which is from January this year for anyone who can't be bothered to click through and check)

Cameron/Osborne - the most incompetent economic management in history.

 

[Frank Merton]

Yes. And it will be in their best interest when the current model no longer delivers the high levels of growth that it currently delivers.

So the Chinese know what they are doing. That is my point. They may not get paid back 100% on the dollar, but they will do fine from it all. So will everybody else for the most part if the world economies go into real growth. I see that only for the Americas and Asia, but who knows?

 

[ymu]

What I see from your chart confirms what I said; the recovery has been a muddling half-assed affair only slightly better than the Great Depression and worse than every other recovery since. Your own chart belies your position.

That's a comparison of UK performance over several recessions. Hence the appalling comparative performance this time around because our government is run by brain-dead ideologues and outright crooks.

The first chart is what you need. It's a country by country comparison.

Well then it doesn't tell me anything. The European economies are not comparable because of the Greek/etc. problems.

The UK is not part of the Euro. Germany increased spending whilst forcing austerity on Italy.

That chart says huge amounts, for those who are willing to consider that they might have been misinformed by incompetents, naifs and well-paid liars, and thus might still have something to learn about the world.

 

[Frank Merton]

I would need a similar chart of the US to see how its recovery has done compared to past recoveries. If it looks at all like the British chart, then Obama may be competing with Cameron. Why do you think the British are lagging past performances?

 

[littlebabyjesus]

So the Chinese know what they are doing.

Absolutely they do. I didn't mean to suggest otherwise. But so do the US. And the current situation is one in which the US is taking more than its 'fair share' through deficit. In the end, trade must be equalled out - no country can run a deficit or surplus long-term, except through military force - and the mechanism for this equalling out would be the Chinese floating their currency and writing off a lot of the US's debt. The US does very well out of this situation, potentially, but is also left with a headache. If I were the US, I'd be seeking to reduce the country's trade deficit now, not waiting for the Chinese to float.

We shouldn't overstate China's importance in this, of course - they are only one of many creditors for the US. China owns about 7% of US debt. Overall, 46% of its debt is owed to foreign investors. As a comparison, 30% of UK debt is owed to foreign investors.

 

[littlebabyjesus]

Why do you think the British are lagging past performances?

The state is cutting spending at a time when the private sector is not investing. It's really painfully obvious.

 

[Frank Merton]

And the current situation is one in which the US is taking more than its 'fair share' through deficit. In the end, trade must be equalled out

If both sides are happy then what is to complain about fair? In the end monetary flows have to equal out, but there are many ways to do that other than just trade or altering currency values. The US has run huge trade imbalances with the rest of the world for ages, but generally balances it with other unmeasured exports.

 

[Frank Merton]

The state is cutting spending at a time when the private sector is not investing. It's really painfully obvious.

Okay so they need to start printing money. I would buy that, but only on what you have told me.