billy blog Sat 2010-08-07 20:01 EDT

The government is the last borrower left standing

Remember back last year when the predictions were coming in daily that Japan was heading for insolvency and the thirst for Japanese government bonds would soon disappear as the public debt to GDP ratio headed towards 200 per cent? Remember the likes of David Einhorn...who was predicting that Japan was about to collapse -- having probably gone past the point of no return. This has been a common theme wheeled out by the deficit terrorists intent on bullying governments into cutting net spending in the name of fiscal responsibility. Well once again the empirical world is moving against the deficit terrorists as it does with every macroeconomic data release that comes out each day...On July 22, 2010, Richard Koo appeared before the Committee and presented his testimony...his views have resonance with the main perspectives offered by MMT although he does get some things wrong. His recent testimony is one of the better commentaries on the current economic problems but probably fell on deaf (or dumb) ears at the hearing. Koo told the hearing that there are recessions and then there are depressions. The correct policy response must differentiate correctly between these two economic episodes...

Billy Blog; borrower left standing; government.

Wed 2010-06-09 18:39 EDT

billy blog >> Blog Archive >> The comeback of conservative ideology

Bill Mitchell

Today I have been writing about the resurgence of the conservative ideology...Ever hear the term Ruthanasia? You should have because she is still at it berating us about the wrongs of fiscal policy and the need for radical reform. Ruth Richardson was New Zealand's minister of finance from 1990-93...As an historical episode ``Ruthanasia'' followed ``Rogernomics'' as increasingly radical reform programs that were inflicted on the New Zealand population from 1984 onwards -- for the next few decades...Unemployment became a policy tool (for disciplining inflation) rather than a primary policy target. The inflation-first monetary stance (and undemocratic reforms of the central bank) combined with a harsh fiscal policy contraction to drive up unemployment and significantly reduce per capita income...Successive right-wing governments (which not only included the conservatives but also the Lange Labour Party government which started it all) used the concept of a "strategic deficit". David Stockman, the budget director under President Reagan, was the person to coin this term which is taken to mean using a budget deficit as a "political weapon". The strategy was to hand out huge tax cuts to allegedly "incentivise" (the word that was used at the time) private entrepreneurs even though there has never been any convincing research evidence to suggest that there are major losses of activity arising from taxation. The resulting deficits were then paraded as evidence of the need for dramatic public spending cut backs...The experience of New Zealand during those years of being ruthanased by the free market zealots should serve as a warning to all of us...

Billy Blog; blogs Archive; comeback; Conservative ideology.

naked capitalism Thu 2010-05-13 18:21 EDT

An Analysis of the Thursday Meltdown

...Contrast the reports at the Times and the Wall Street Journal, that the officialdom is pouring through the records and is still puzzled after a full three days on the case, versus this analysis produced by a lone sell-side analyst (who sadly must remain anonymous) roughly 24 hours after the implosion...``...it was not a sudden, random surge of volume from a fat finger that overwhelmed the market. It was a steady onslaught of selling that pressured the market lower in order to catch up with the carnage taking place in the credit markets and the currency markets...this episode exposed structural flaws in how a trade is implemented (think orphaned algo orders) and it exposed the danger of leaving market making up to a network of entities with no mandate to ensure the smooth and orderly functioning of the market (think of the electronic market makers and high freqs who can pull bids instantaneously as opposed to a specialist on the floor who has a clearly defined mandate to provide liquidity).''

Analysis; naked capitalism; Thursday Meltdown.

naked capitalism Fri 2010-04-23 20:44 EDT

The Greek Crisis Has Me Thinking About 1931

The news about Greece's bailout has me thinking a lot about Creditanstalt, the Austrian bank which collapsed in 1931. This account bears remembering because we should see the 1929-1933 descent as a two-part episode, with the second part starting in the Spring of 1931 with Creditanstalt. It should be noted that there were a lot of positive economic signs before the Creditanstalt ruined this. The key difference to today is the monetary liquidity and fiscal stimulus, which has buoyed both asset markets and the real economy. But, the situation in Greece makes me think a lot about Creditanstalt...

1931; Greek crisis; naked capitalism; Think.

Jesse's Café Américain Mon 2010-04-19 18:34 EDT

Goldman Sachs: A Pattern of Organized Criminal Behaviour?

Jesse

Chris Whalen provides some excellent commentary on the Goldman Sachs fraud inquiry by the SEC at the beginning of his weekly newsletter, The Institutional Risk Analyst...``hedge funds often times are merely extensions of the dealers with which they interact. It is often difficult if not impossible to tell where the dealer's interests end and those of the hedge fund begin, especially when the dealer and the fund seem to be working in concert to create securities that are being sold to third parties. This episode is a terrible mess and, to us at least, illustrates why the OTC markets for securities and derivatives need to be regulated out of existence -- or at least into compliance with norms of disclosure and fair dealing that would render such strategies impossible.''

Goldman Sachs; Jesse's Café Américain; Organized Criminal Behaviour; pattern.

zero hedge Thu 2009-12-31 11:52 EST

Shadowstats' John Williams: Prepare For The Hyperinflationary Great Depression

John Williams, who runs the popular counter government data manipulation site Shadowstats, has thrown down the gauntlet to deflationists, and in an extensive report concludes that the probability of a hyperinflationary episode in America over the next year has reached critical levels. While the debate between deflationists and (hyper)inflationists has been a long and painful one, numerous events set off in motion by the Bernanke Fed (as a direct legacy of the Greenspan multi-decade period of cheap and boundless credit) may have well cast America as the unwilling protagonist in the sequel of the failed monetary policy economic experiment better known as Zimbabwe.

Hyperinflationary Great Depression; John Williams; prepared; ShadowStats; Zero Hedge.

Mon 2009-12-21 18:24 EST

Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008

Moritz Schularick, Alan M. Taylor

The crisis of 2008-09 has focused attention on money and credit fluctuations, financial crises, and policy responses. In this paper we study the behavior of money, credit, and macroeconomic indicators over the long run based on a newly constructed historical dataset for 12 developed countries over the years 1870-2008, utilizing the data to study rare events associated with financial crisis episodes. We present new evidence that leverage in the financial sector has increased strongly in the second half of the twentieth century as shown by a decoupling of money and credit aggregates, and we also find a decline in safe assets on banks' balance sheets. We also show for the first time how monetary policy responses to financial crises have been more aggressive post-1945, but how despite these policies the output costs of crises have remained large. Importantly, we can also show that credit growth is a powerful predictor of financial crises...

1870-2008; Credit Booms Gone Bust; financial crises; leverage cycle; monetary policy.

Tue 2009-10-27 12:58 EDT

Looting: The Economic Underworld of Bankruptcy for Profit by George Akerlof, Paul Romer

During the 1980s, a number of unusual financial crises occurred. In Chile, for example, the financial sector collapsed, leaving the government with responsibility for extensive foreign debts. In the United States, large numbers of government-insured savings and loans became insolvent - and the government picked up the tab. In Dallas, Texas, real estate prices and construction continued to boom even after vacancies had skyrocketed, and the suffered a dramatic collapse. Also in the United States, the junk bond market, which fueled the takeover wave, had a similar boom and bust. In this paper, we use simple theory and direct evidence to highlight a common thread that runs through these four episodes. The theory suggests that this common thread may be relevant to other cases in which countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust. We describe the evidence, however, only for the cases of financial crisis in Chile, the thrift crisis in the United States, Dallas real estate and thrifts, and junk bonds. Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

bankruptcy; Economic Underworld; George Akerlof; Looting; Paul Romer; profits.

Wed 2008-10-08 00:00 EDT

naked capitalism: Lessons From Modern Economic Crises (Not for the Fainthearted)

``episodes of credit crunches and housing busts are often long and deep''

Fainthearted; Lessons; Modern Economic Crises; naked capitalism.