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But what do you do when that applies to the majority of lenders, enterprises, and households?Capitalism works by enabling the liquidation of insolvent lenders, enterprises, and households
I don't know whether to laugh or cry
But what do you do when that applies to the majority of lenders, enterprises, and households?Capitalism works by enabling the liquidation of insolvent lenders, enterprises, and households
That was a good read WH, although I do wish they'd have recommended an alternative as to what they think we should do.
Seems like we've tried everything on the "near zero" interest rates side of the equation with underwhelming "success" to say the least. What happens if we raise interest rates rates? If we're worried about banks having adequate capitalization, does giving people an incentive to put their money into savings accomplish that? Do higher interest rates give banks an incentive to loan out that money instead of parking it in treasuries?
I know this idea is counterintuitive to the conventional thinking that higher interest rates will slow consumer spending. And, I concede that I don't have a strong enough background in economics to offer a solid retort to that. But nothing "conventional" seems to be working. Maybe it's time to grab our balls and go contrarian?
Those who have, buy even more at a steep discount. Basically anyone who saved money and didn't overborrow or invest imprudently (or unluckily) has the opportunity of a lifetime
For the rest, there's far worse fates than bankruptcy.
Cover your bases, do both.
They'll figure something out.
Three years ago when the govt was in a position to provide some sort of safety net I agreed with the overall sentiment and maybe 2-3 years from now when people and ins utions have had enough time to better right their wrongs I'll agree with it again, but for now I think it's a bad idea to suddenly pretend we didn't take the course we took and allow the market to efficiently clean up the mess.
It seems so to me too, on both counts. There should be more incentives for savers and lenders, but one must be wary of injecting too much reason into economics; human beings stand at the center of it. Confidence and trust in ins utions has been greatly damaged since the last time we ratcheted rates up in the 1980's. There's no telling what would happen this time.
Maybe so, but yikes.
He's more often right than not
Killing the Euro
Can the euro be saved? Not long ago we were told that the worst possible outcome was a Greek default. Now a much wider disaster seems all too likely.
True, market pressure lifted a bit on Wednesday after central banks made a splashy announcement about expanded credit lines (which will, in fact, make hardly any real difference). But even optimists now see Europe as headed for recession, while pessimists warn that the euro may become the epicenter of another global financial crisis.
How did things go so wrong? The answer you hear all the time is that the euro crisis was caused by fiscal irresponsibility. Turn on your TV and you’re very likely to find some pundit declaring that if America doesn’t slash spending we’ll end up like Greece. Greeeeeece!
But the truth is nearly the opposite. Although Europe’s leaders continue to insist that the problem is too much spending in debtor nations, the real problem is too little spending in Europe as a whole. And their efforts to fix matters by demanding ever harsher austerity have played a major role in making the situation worse.
The story so far: In the years leading up to the 2008 crisis, Europe, like America, had a runaway banking system and a rapid buildup of debt. In Europe’s case, however, much of the lending was across borders, as funds from Germany flowed into southern Europe. This lending was perceived as low risk. Hey, the recipients were all on the euro, so what could go wrong?
For the most part, by the way, this lending went to the private sector, not to governments. Only Greece ran large budget deficits during the good years; Spain actually had a surplus on the eve of the crisis.
Then the bubble burst. Private spending in the debtor nations fell sharply. And the question European leaders should have been asking was how to keep those spending cuts from causing a Europe-wide downturn.
Instead, however, they responded to the inevitable, recession-driven rise in deficits by demanding that all governments — not just those of the debtor nations — slash spending and raise taxes. Warnings that this would deepen the slump were waved away. “The idea that austerity measures could trigger stagnation is incorrect,” declared Jean-Claude Trichet, then the president of the European Central Bank. Why? Because “confidence-inspiring policies will foster and not hamper economic recovery.”
But the confidence fairy was a no-show.
Wait, there’s more. During the years of easy money, wages and prices in southern Europe rose substantially faster than in northern Europe. This divergence now needs to be reversed, either through falling prices in the south or through rising prices in the north. And it matters which: If southern Europe is forced to deflate its way to compe iveness, it will both pay a heavy price in employment and worsen its debt problems. The chances of success would be much greater if the gap were closed via rising prices in the north.
But to close the gap through rising prices in the north, policy makers would have to accept temporarily higher inflation for the euro area as a whole. And they’ve made it clear that they won’t. Last April, in fact, the European Central Bank began raising interest rates, even though it was obvious to most observers that underlying inflation was, if anything, too low.
And it’s probably no coincidence that April was also when the euro crisis entered its new, dire phase. Never mind Greece, whose economy is to Europe roughly as greater Miami is to the United States. At this point, markets have lost faith in the euro as a whole, driving up interest rates even for countries like Austria and Finland, hardly known for profligacy. And it’s not hard to see why.
The combination of austerity-for-all and a central bank morbidly obsessed with inflation makes it essentially impossible for indebted countries to escape from their debt trap and is, therefore, a recipe for widespread debt defaults, bank runs and general financial collapse.
I hope, for our sake as well as theirs, that the Europeans will change course before it’s too late. But, to be honest, I don’t believe they will. In fact, what’s much more likely is that we will follow them down the path to ruin.
For in America, as in Europe, the economy is being dragged down by troubled debtors — in our case, mainly homeowners. And here, too, we desperately need expansionary fiscal and monetary policies to support the economy as these debtors struggle back to financial health. Yet, as in Europe, public discourse is dominated by deficit scolds and inflation obsessives.
So the next time you hear someone claiming that if we don’t slash spending we’ll turn into Greece, your answer should be that if we do slash spending while the economy is still in a depression, we’ll turn into Europe. In fact, we’re well on our way.
http://www.nytimes.com/2011/12/02/op...gewanted=print
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Yes, in USA, the Repugs are screaming "inflation!" and "cut spending", when demand-push inflation is totally absent and "cut spending" is pro-cyclical, exactly how to make the Banksters' Great Depression much worse, which is specifially what the 1% Repugs/VRWC want as a political strategy to defeat Obama.
Last edited by boutons_deux; 12-03-2011 at 11:38 AM.
http://www.nakedcapitalism.com/2011/...d-minutes.htmlWhile Bernanke et al have been bungling through with hapless and ineffective quan ative easing policies and ‘operation twists’, commentators like Krugman – who cut his teeth getting Japan wrong for years – have come out in support of negative interest rate policies, which essentially means trying to provoke inflation that will cause real interest rates to be effectively negative. These are two sides of the same bad economic model, I’m afraid. They are both based on the same crappy engineering-diagram- -economic-model and they both steadfastly refuse to recognise the key lesson Keynes tried to teach us about capitalist economies: namely, that the whole thing is subject to an overarching indeterminacy that cannot be accounted for in a childish toy-model based on equilibrium analysis.
In fact, interest rate policy in the present environment is not simply worthless – it actually worsens the state of the economy to some degree. Why? Because of interest income channels. When the central bank lowers interest rates they assume that people will borrow more. And when Krugman says that we should have inflation outpace the interest rate, he is thinking along the same lines. What these folks never consider is the fact that low interest rates actually act as a net drain on new financial assets entering the economy.
If I’m a saver – and there are a LOT of savers out there these days – and the central bank lowers the interest rate or targets a negative real interest rate, I lose interest on my savings. This ‘interest income’ would have added to aggregate demand – that is, total spending power – as it would mean new net financial assets flowing into my bank account and encouraging me to consume more. Instead, my savings sit around idly earning nothing and so I have even less of an incentive to purchase goods and services.
The MMTers – especially Warren Mosler – have been pointing this out for years, but to no avail. But now the idea is starting to get play among the VSPs (Very Serious Persons). While most analysts focused on yawn-inducing speculation about the possibility of the Fed running a pointless QE3 program, some more nuanced analysts noticed something of actual interest in the recently leaked Fed minutes. Per the minutes:It was noted that very low interest rates were negatively affecting pension funds and the profitability of the life insurance industry.That is not much, of course, but at least it is something. It is, at the very least, a jumping-off point for those of us who are sceptical about the efficacy of monetary policy to get a foot in the door.
Savers who realize interest gains from higher rates go out and spend it or, or do they leave it in savings to compound?
the low US interest rates and various bad news hasn't hit the US bond markets, where the T-bill demand remains solid (unlike Germany's auction in November).
Some will have money to invest, or for a rainy day. Saving is the traditional cradle of capital.
Great article. Discipline is the key key.
I put some thought into this statement because having a group of people I respect on here all point out how bad it came off was something I took to heart. I do not want to ever be close minded and I want to be able to take criticism from others regarding my viewpoint appropriately.
Revisiting it just a few days later and I can see completely why people came at me for it. I definitely think what I said was close minded and wrong. I get very frustrated with the handling of the financial crisis because nothing makes me feel as powerless as feeling as though our country is in the hands of the people who run these corporations and how much influence they have over our political system. Aside from completely collapsing the system, I don't see how much clearer this can be made to the people of this country and thats just really sad.
That being said, there is a huge difference between acknowledging there is a problem wanting others to do the same and saying there is only ONE way to fix it. There are different ways to skin a cat, and many people I consider intelligent here think differently than I do on what the best way to proceed is.
been there
"nothing makes me feel as powerless as feeling as though our country is in the hands of the people who run these corporations and how much influence they have over our political system"
We are powerless in the sense we'll never be able to vote in, even be presented with, OWS/99% candidates. Without those seats in Congress, the UCA/VRWC will continue to outvote disenfranchised/powerless Human-Americans.
And that's without even considering how the SCOTUS has been packed with extreme right-wing activists who stare decisis and Human-Americans with almost every decision, and will for decades.
A question comes to mind then. Do you think the bailouts for banks and corporations were right or wrong?
I think the best thing to do is have runoff elections. Make changes state by state to require a political win requires a 50%+1 minimum vote. If votes are split like 46%, 37%, and 10% among the top three candidates, the person with 46% does not win. This would allow meaningful challenges by third party candidates.
LOL ITALY, why she crying...fkn living it up with taxpayers money...http://www.theage.com.au/business/wo...205-1odxe.html
Italian minister in tears over spending cuts
Prime Minister Mario Monti unveiled a 30-billion-euro ($40.3 billion) package of austerity measures on Sunday, raising taxes and increasing the pension age in a drive to shore up Italy's strained finances and stave off a crisis that threatens to overwhelm the euro zone.
Seems to me that is an irrelevent question at this point. What should be done now and in the future is the only relevant question.
never prevented wheel spinning, regardless, and won't.
(broadly agrees)
That's a GREAT analogy. I am SO going to steal that line.
I want royalties.
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