Global financial system implosion begins

[ymu]

renewed wasn't in your sentence. That article was 22/10/10, just checked Greece& Ireland got there own thread 20/09/10, bit odd that.

Still didn't grasp what he was talking about from just that sentence, (there were tax rises in Japan in 97 turns out), a quick google of Japan Krugman gives you a page linking to articles he wrote in tail end of the 90's which are interesting.

I'm not understanding any of your first paragraph.

Your link to the Krugman archive is borked - this one works. Checking it out now.

 

[gosub]

LD:http://www.forbes.com/2010/04/15/japan-default-global-debt-opinions-columnists-gordon-g-chang.html

though he is from high frequency economics which as far as I'm concerned makes him a lunatic.

 

[gosub]

I'm not understanding any of your first paragraph.

Your link to the Krugman archive is borked - this one works. Checking it out now.

He's banging on that nobody other than UK is looking at sorting out deficits, when for a month(at that stage) we've been banging on about pressure on Greece and Italy to do just that (later joined by Portugal with Spain looking iffy)

or the not mentioning "renewed" :Japan didn't fuck their economy by raising taxes in 97, twas fucked welll before then.

 

[ymu]

Did you post the Krugman page to show that he didn't believe then what I'm saying he's saying now? Because the intro to the links and the very first article are reinforcing the point he's making now, not contradicting it at all.

The state of Japan is a scandal, an outrage, a reproach. It is not, at least so far, a human disaster like Indonesia or Brazil. But Japan's economic malaise is uniquely gratuitous. Sixty years after Keynes, a great nation - a country with a stable and effective government, a massive net creditor, subject to none of the constraints that lesser economies face - is operating far below its productive capacity, simply because its consumers and investors do not spend enough. That should not happen; in allowing it to happen, and to continue year after year, Japan's economic officials have subtracted value from their nation and the world as a whole on a truly heroic scale.

http://web.mit.edu/krugman/www/jpage.html

The purpose of this paper is to show that the liquidity trap is a real issue - that in a model that dots its microeconomic i's and crosses its intertemporal t's something that is very much like the Hicksian liquidity trap can indeed arise. Moreover, the conditions under which that trap emerges correspond, in at least a rough way, to some features of the real Japanese economy. To preview the conclusions briefly: in a country with poor long-run growth prospects - for example, because of unfavorable demographic trends - the short-term real interest rate that would be needed to match saving and investment may well be negative; since nominal interest rates cannot be negative, the country therefore "needs" expected inflation. If prices were perfectly flexible, the economy would get the inflation it needs, regardless of monetary policy - if necessary by deflating now so that prices can rise in the future. But if current prices are not downwardly flexible, and the public expects price stability in the long run, the economy cannot get the expected inflation it needs; and in that situation the economy finds itself in a slump against which short-run monetary expansion, no matter how large, is ineffective.

http://web.mit.edu/krugman/www/japtrap.html

This is exactly what Krugman and Stiglitz and every other economist quoted on this page have been banging on about. Austerity budgets don't work following a recession when there is high unemployment and low interest rates - they can't work because there is nothing left to give.

This is another short article from Krugman, but it links to the references - which are well worth reading: Austerity Games, Here And There

And here's Stiglitz, explaining the same thing:

There is a shortage of aggregate demand – the demand for goods and services that generates jobs. Cutbacks in government spending will mean lower output and higher unemployment, unless something else fills the gap. Monetary policy won't. Short-term interest rates can't go any lower, and quantitative easing is not likely to substantially reduce the long-term interest rates government pays – and is even less likely to lead to substantial increases either in consumption or investment. If only one country does it, it might hope to gain an advantage through the weakening of its currency; but if anything the US is more likely to succeed in weakening its currency against sterling through its aggressive quantitative easing, worsening Britain's trade position.

Of course if Britain succeeds in getting the world to believe that its economic policies are among the worst – an admittedly fierce contest at the moment – its currency may decline, but this is hardly the road to a recovery. Besides, in the malaise into which the global economy is sinking, the challenge will be to maintain exports; they can't be relied on as a substitute for domestic demand. The few instances where small countries managed to grow in the face of austerity were those where their trading partners were experiencing a boom.

http://www.guardian.co.uk/commentis.../19/no-confidence-fairy-for-austerity-britain

 

[free spirit]

He's banging on that nobody other than UK is looking at sorting out deficits, when for a month(at that stage) we've been banging on about pressure on Greece and Italy to do just that (later joined by Portugal with Spain looking iffy)

or the not mentioning "renewed" :Japan didn't fuck their economy by raising taxes in 97, twas fucked welll before then.

erm, how would it be a fasion fad if it wasn't happening elsewhere?

 

[ymu]

He's banging on that nobody other than UK is looking at sorting out deficits, when for a month(at that stage) we've been banging on about pressure on Greece and Italy to do just that (later joined by Portugal with Spain looking iffy)

or the not mentioning "renewed" :Japan didn't fuck their economy by raising taxes in 97, twas fucked welll before then.

There's a big difference between countries being forced into austerity because they're at the point of needing to be bailed out, and a chancellor opting for it for no apparent reason.

Japan fucked its economy by going for an austerity solution to the recession of the 1990s. Recessions come and go - turning them into a prolonged depression is optional.

 

[ymu]

The Daily Kos has a nice article on the S&P propaganda up now:

After taking a modest hit Monday from the S&P's surprise announcement that it might, a couple of years down the road, lower the triple-A credit rating of the United States, the Dow Jones seemed to be suffering no after-effects Tuesday. That may well have to do with the fact that the other two ratings agencies Fitch Ratings and Moody's did not take similar action. Or it may be the widespread ridicule that greeted the S&P's announcement.

More...

 

[gosub]

Standard & Poor do propaganda, whilst The Daily Kos has nice articles, though it does link to a NYtimes oped that links to a bloomberg piece on who's holding US bonds

 

[roryer]

It's interesting that the Black Swan event that could spell the end of the Corporatist financial plutocracy which rules the world, happened in Japan, as it is a country with some fascinating lessons to share.

The young are known as herbivores (soushoku danshi or “grass eating men”), they live modestly in micro houses, take long walks, shun sex, chat on the Internet and don’t spend much.

Economists disparage this generation as “consumption haters” and estimate their frugality has cost the economy $420 billion.

The reason that this economic system must either implode, explode or change is summed up by the above quote, especially when contrasted with the reality of events in recent months.

How can a generation who try to live lightly on the earth be seen by 'economists' as a 'problem'?

(Japan imports most food, and all of it's oil, accounting for over half of all energy needs. Nuclear powers the energy hungry lifestyle of modern Japanese).

It is clear therefore that an economic system that preaches excess is fatally flawed.

The discussion here on this board is missing the point, since the OP began posting the end of the system, what is the point discussing the current economic gospel?

I'm a late-comer, but I don't see the relevance of the Keynesian or Monetarism discussion to this thread. It was an interesting rebuttal, as rebuilding Japan might help not hinder economic recovery, but Keynes lived in a very different age, one where the bulk of resources were still in the ground, while we are reaching the limits of the earth's carrying capacity.

This is why the system is falling apart, it's exciting to watch as the monster we have created descends into farce and chaos, but perhaps more practical to discuss new ways to organise our financial system.

It's nice to see Joe Stigletz quoted, although I find his work on Gross National Happiness more to the point.

 

[ymu]

I think you're right about the wrongness of neo-classical economics - it doesn't have the framework to deal with what's happened here. This article is right at the edges of my understanding, dealing with Krugman's attempts to model debt without stepping out of the neo-classical framework.

The problem is, if you can't even get these morons to accept Keynesian economics, how in hell are you going to get them thinking about post-Keynesian economics? What the money men are insisting happens is known - to the extent that economists can 'test' these things - to be actively harmful. Austerity has been tried many times before in situations like this - in 1929 and dozens of times in lesser recessions since then - and it's failed just as many times.

We have the best part of a century's worth of empirical evidence to demonstrate that they are lying, self-interested, sociopathic cunts. That's a good pressure point to be working with. I'm not sure that trying to win the battle by jumping straight to the end game is going to work.

 

[roryer]

No, I don't accept that Keynesian economics, original or post, offers us a solution. The world does not have the capacity for growth. Every resource is costing more energy to produce with each unit we extract, the world will never produce more than it does now, we are at the peak of consumption.

We need a theory which maintains incentives for innovation and productivity, while focusing on mankind's survival and progress, and levelling out global inequalities.

In some ways the neo-classical approach, by causing economic contraction, is better than Keynes.

This theory is hampered by the totally illegitimate way the principles are practised, firstly by favouring strong interest groups such as bankers, and crucially by ignoring economic inequalities, globally, nationally, regionally. The only logical conclusion for this approach is either repression or revolution, and by giving to those who have too much at the expense of those who have too little, this will certainly not lead to any benefits in terms of general well being.

We have never been here before. All the political and economic theories that shaped the 20th century were developed in the 19th century, when we were just entering the industrial age.

The discussions over on Zero Hedge about the definitions of capitalism, free marketeers, socialism and their relative merits are interesting, certainly when compared to the Corporatist (pseudo fascist) powers that lead us today.

However, what makes it funny is not the solutions offered, for there appear to be few, but the sick humour of a collection of individuals who know we are headed for a bad place. It seems we are all looking out to the future and seeing the high possibility of total collapse, and nobody has any other answer but to make a joke. When faced with a flock of brainwashed sheeple, addicted to reality TV, soaps and house prices, when we know what happens to the messenger there are few options but to laugh.

You might have the solution though, so tell me, how will Keynesian policies be implemented to stimulate economic activity without increasing demand or consumption?

 

[ymu]

In some ways the neo-classical approach, by causing economic contraction, is better than Keynes.

Keynes is neo-classical economics.

We have never been here before. All the political and economic theories that shaped the 20th century were developed in the 19th century, when we were just entering the industrial age.

Keynes (1883-1946) was 20th century and Friedman (1912-2006) came after him, as did Hayek (1899-1992).

You might have the solution though, so tell me, how will Keynesian policies be implemented to stimulate economic activity without increasing demand or consumption?

It can't. It's all about maintaining demand and consumption through the ups and downs of capitalism. The best it can do is return us to the post-war consensus which produced higher growth and more equal incomes.

Keynesianism is a defence of capitalism - it's a theory designed to save capitalism from itself. I don't think it can ultimately achieve that - but if you can't get the polity to accept that Keynesianism 'works' (in its own terms) and that Friedman was a moron, good luck challenging the entire neo-classical framework.

The money men have the global economy in a death grip, and the first thing to do is break that grip IMO. People are not going to vote for primitivism - not the people who enjoy consumerism now, nor the people who expect to be able to enjoy it in the future now that the current consumers have pissed all their wealth up the wall and left them to become the new consumers in the not so emerging economies.

Not that I'm arguing primitivism is an inevitable consequence of sustainability - I don't think it is. Dense urban populations are more sustainable than scattered rural ones, and transporting food over great distances can be more sustainable than trying to grow locally on small, inefficient plots of land. But until there's a convincing road map to a sustainable non-primitive future (primitivism isn't sustainable anyway), it sounds like a lot of pie in the sky compared to the confident pronouncements from those who are filling their boots on the back of our powerlessness.

I think Keynesian stimulus directed at investment in sustainable technologies and energy efficient housing is one plausible route to a new economics and a new polity. I don't think it's a step we can just skip because we know it's not the whole answer.

 

[camouflage]

It's interesting that the Black Swan event that could spell the end of the Corporatist financial plutocracy which rules the world, happened in Japan, as it is a country with some fascinating lessons to share.



The reason that this economic system must either implode, explode or change is summed up by the above quote, especially when contrasted with the reality of events in recent months.

How can a generation who try to live lightly on the earth be seen by 'economists' as a 'problem'?

Because of their warped sort of Keynsianism?

(Japan imports most food, and all of it's oil, accounting for over half of all energy needs. Nuclear powers the energy hungry lifestyle of modern Japanese).

It is clear therefore that an economic system that preaches excess is fatally flawed.

The discussion here on this board is missing the point, since the OP began posting the end of the system, what is the point discussing the current economic gospel?

I'm a late-comer, but I don't see the relevance of the Keynesian or Monetarism discussion to this thread. It was an interesting rebuttal, as rebuilding Japan might help not hinder economic recovery, but Keynes lived in a very different age, one where the bulk of resources were still in the ground, while we are reaching the limits of the earth's carrying capacity.

I actually don't buy this last bit, I know that most of our population on Earth right now is only alive because of petrochemicals, but the prevailing economic system means for instance that food is produced with maximal profit in mind, not maximal feeding of people. Besides, what counts as a "resource" is a product of technology and culture. Bits of flint were once resources, and uranium ore was once just a colourant for nice clay pots. The ruling form of capitalism may be swaying wildly but we shouldn't beleive that the world ends or something just because the current system might not be up to lasting.

 

[camouflage]

This article is right at the edges of my understanding, dealing with Krugman's attempts to model debt without stepping out of the neo-classical framework.

I can't help reading this article in an Austroylien Exccent.

Fency a barby?

 

[love detective]

most incisive part of that article imo is this:-

methodological individualism is part of the problem

something that permeates and rots all kinds of 'economic' analysis from vulgar political economy through analytical marxism to neoclassical economics

 

[free spirit]

You might have the solution though, so tell me, how will Keynesian policies be implemented to stimulate economic activity without increasing demand or consumption?

in this generation we have to move from our current fossil fuel based economy to a much less energy intensive, much more renewable energy based economy. If we don't do this then we are fucked for the long term as once the fossil fuel reserves are gone, they're gone for the long term, and it takes serious amounts of energy to actually make this transition happen, so we have to do it now before the energy crunch really bites.

now would be the stupidest time in history to attempt to solve our problems via austerity, and would mean we'd potentially miss the golden opportunity to transition the global energy infrastructure to a sustainable long term basis that enables the world to at least maintain, and hopefully go on improving standards of living in the post fossil fuel* future. Massive global investment in renewable energy & energy efficiency measures is the logical keynsian driver for global economic growth via public investment, and we really need to stop pissing about and get on with it.



*ok, so there will still be oil and gas for the next century or so, but nowhere near enough to meet current levels of demand, and the amounts available will drop rapidly from the peak. Coal would still be available, but if we burn it all we condemn the planet to run away global warming beyond anything the IPPC has been talking about - same with oil and to a lesser gas as well if we burn all of it.

 

[ymu]

Behind the S&P Warning on the Deficit

Standard & Poor’s announced on Monday that its credit rating for the United States was affirmed at AAA (the highest level possible) but that it was revising the outlook for this rating to “negative.”

In this context, that was a warning “that we could lower our long-term rating on the U.S. within two years” (see Page 5 of the report). This news temporarily roiled equity markets around the world, although the bond markets largely shrugged it off.

While S.&P.’s statement generated considerable attention, the economics behind its thinking is highly questionable. Still, given the quirky nature of American politics, this intervention may or may not end up having a constructive impact on the thinking of both the right and the left.

It is commendable that S.&P. now wants to talk about the United States fiscal deficit –- one wonders where it was, for example last year, during the debate about extending the Bush-era tax cuts.

Continues...

 

[Jessiedog]

Love and Blessings to all.

Woof

 

[yield]

Love and Blessings to all.

Woof

Hi Jessiedog. How are you?

The US dollar was once so special. But no longer...
Independent Wednesday, 27 April 2011

The moment when China passes the US in economic size is getting closer, at least according to the International Monetary Fund. It has just predicted that this tipping point will be reached in 2016, much sooner than all other predictions, which range from 2020 through to the 2040s.

He seems to think there'll be a gradual rebalancing. I've a feeling there may be a few more shocks.

 

[laptop]

It has just predicted that this tipping point will be reached in 2016

It might turn out to be a tipping-point: that is, a condition that causes the entire sytem to switch from one state to another. That depends on the state of the rest of the system.

Example: blowing on a pencil in general does not cause a tipping-point. Blowing on a pencil that turns out to be balanced on its end may.

The piece is headed "Economic Studies": so it's another example of the theoretical illiteracy of economists. (McRea is not just a hack: he is principal economic commentator for The Independent, a visiting professor at Lancaster University and a council member of the Royal Economic Society.)

 

[deke t lefel]

maybe the tipping point is when the debtor's and the creditor's roles are perceived to be reversed

 

[toblerone3]

Maybe the whole premise of this thread is wrong there is no global financial implosion now and none in the future. The FTSE is now higher than it was before the crash of 2008.

 

[teqniq]

Global capitalism and 21st century fascism

Somewhat depressing, but worth a read imo.

 

[iROBOT]

Maybe the whole premise of this thread is wrong there is no global financial implosion now and none in the future. The FTSE is now higher than it was before the crash of 2008.

That's a bold statement, the future's a very long time.

 

[London_Calling]

The FTSE didn't bail out the banks, the nation state did; a debt of over $1 trillion - on which the UK pays interest equiv. to one new primary school every 20 minutes - suggests there has been a crisis and indicates who's paying for it.

 

[roryer]

Global capitalism and 21st century fascism

Somewhat depressing, but worth a read imo.

The counterweight to 21st century fascism must be a coordinated fight-back by the global working class. The only real solution to the crisis of global capitalism is a massive redistribution of wealth and power - downward towards the poor majority of humanity. And the only way such redistribution can come about is through mass transnational struggle from below.

I don't find that a depressing idea, but I think we need to define poor as broadly as possible.

As the article expressed, what is lacking for a whole-scale movement towards fascism in America is a viable leader. This is why I love Sarah Palin.

The counter revolution of the non-elite classes also needs a leader, but I can't think of any candidates.

Was on an overnight train in China the other day, and started chatting to the chefs in the dinning coach while smoking cigarettes. They were expressing their dissatisfaction with the ruling elites here, how becoming an official means a license to print money, and the lack of a strong anti-corruption leader to crack down. They asked me about the USA and Europe, and how they thought our systems are better.

I told them we have problems too, but more with corrupt bankers than government.

What I should have told them is that 90% of people all over the world are being screwed by a tiny 2%, comrades, it is a global struggle of us against TPTB.

So do we need a Che Guevara for the 21st C?

 

[two sheds]

Maybe the whole premise of this thread is wrong there is no global financial implosion now and none in the future. The FTSE is now higher than it was before the crash of 2008.

Or it's all an implosion with the money flowing from us on the outside in towards the bankers, hedge funders and pals at the centre of the vortex.

 

[toblerone3]

Or it's all an implosion with the money flowing from us on the outside in towards the bankers, hedge funders and pals at the centre of the vortex.

At the end of the day stock prices are surely connected to expectations of profit and profitable companies eventually start paying taxes and hiring people which helps address the twin problems of sovereign debt and the economic hardship of unemployment.

Without reading more of this very thread I can't really judge what this implosion you talk about as a possibility is and how it might develop or alternatively lead to a steady state of massively increased income inequality. Hedge funds are clearly parasites on the system, but more plain vanilla listed companies have a stronger link into more broadly healthy and socially equitable economy and society.

 

[toblerone3]

I'm not trolling by the way, just gently playing devil's advocate here.

 

[Pickman's model]

I'm not trolling by the way, just gently playing devil's advocate here.

you're not playing devil's advocate. you're posting up drivel. sorry - but it's true.