New Deal 2.0 Fri 2010-09-03 18:57 EDT

The Real Lesson from the Great Depression: Fiscal Policy Works!

Marshall Auerback

...At the outset of the Great Depression, economic output collapsed, and unemployment rose to 25 per cent. Influenced by his ``liquidationist'' Treasury Secretary, Andrew Mellon, then President Hoover made comparatively minimal attempts to deploy government fiscal policy to stimulate aggregate demand...This all changed under FDR...The government hired about 60 per cent of the unemployed in public works and conservation projects that planted a billion trees, saved the whooping crane, modernized rural America, and built such diverse projects as the Cathedral of Learning in Pittsburgh, the Montana state capitol, much of the Chicago lakefront, New York's Lincoln Tunnel and Triborough Bridge complex, the Tennessee Valley Authority and the aircraft carriers Enterprise and Yorktown...once the Great Depression hit bottom in early 1933, the US economy embarked on four years of expansion that constituted the biggest cyclical boom in U.S. economic history. For four years, real GDP grew at a 12% rate and nominal GDP grew at a 14% rate. There was another shorter and shallower depression in 1937 largely caused by renewed fiscal tightening (and higher Federal Reserve margin requirements)...

0; Fiscal policy worked; Great Depression; new dealing 2; Real Lesson.

Mon 2010-07-19 16:30 EDT

US gripped with offshore economy

Jobs are becoming scarcer and scarcer particularly in the United States. Is it cyclical or is it structural? Is it something that America has completely turned its back on in a way that could potentially be a factor for decades going forward? Max Keiser discusses this issue with Dr. Paul Craig Roberts...Keiser: Andy Grove, the co-founder of Intel has just written an opinion piece for Bloomberg that has totally vindicated your long held argument against outsourcing American jobs...What is left in the arsenal to fight for jobs? Roberts:Nothing, one of the reasons they like offshoring is to destroy the unions so that's one of the reasons free market economists and corporations are so keen on offshoring, it destroys the unions...the only jobs that have been created in the 21st century in America are domestic service jobs like waiters, bartenders, hospital orderlies, construction workers, real estate, they are continuing to lose manufacture jobs, and not creating jobs for scientists and engineers and this has now been going on for a decade...What the US is going through is a process of disdevelopment of becoming an undeveloped economy; it's the opposite of economic development going on in the US...

grip; Offshored Economy.

Satyajit Das's Blog - Fear & Loathing in Financial Products Mon 2010-04-05 15:01 EDT

Mark-to-Make Believe: Living on a Prayer

Satyajit Das

...Recent research indicates that MtM accounting may, in fact, distort the price of assets...The research highlights that MtM accounting is pro-cyclical and creates volatility of asset values through complex positive and negative feedback loops. Under normal market conditions where asset markets are liquid, MtM accounting works benignly. In volatile markets, where behaviour becomes linked by a common factor such as disclosure required by MtM accounting, co-ordinated actions of market participants can easily lead to sharp movements in asset prices. The process distorts market prices and ultimately the firm's financial position and value.

fears; financial products; lively; loath; Make-Believe; marked; prayers; Satyajit Das's Blog.

Credit Writedowns Fri 2009-10-23 09:00 EDT

The next crisis is already under way

Wolfgang Munchau of the Financial Times wrote a very important comment piece in today's Financial Times. In it he said that central banks are targeting asset prices to avoid the brunt of cyclical downturns. This policy is inducing asset bubbles and creating a more volatile real economy with unpredictable negative consequences...Munchau invokes Hyman Minsky's model of financial instability to help explain how this sets us up for a volatile future because traditional macroeconomic theory is inadequate for understanding what got us to this point. In essence, the idyllic state of economic and price stability we know as ``the Great Moderation'' is really just a financialization of the economy. However, a large financial sector leads to excessive dependence on asset prices to fuel growth, which in turn leads to an accumulation of debt...

credit writedowns; Crisis; way.