anyone else read ej's twits?

[gwynedd1]

Re: anyone else read ej's twits?

Problem is that, as in the depression, beggar thy neighbor export strategy is creating a global savings glut. This is why currencies have complete immunity. People are reading the wrong Malthus with this idea of population causing scarcity. Its the opposite. Try his glut theory. Since we went global we vastly increased productive capacity while creating so much wage competition that there is no buying power to buy the output. Even the stock market bubble and subsequent housing bubble is mis-characterized as US spending binge. That was merely the result Americans completely dissociated with investment. However psychology behind both were as savings vehicles. That means the US is not a consumer monster waiting to get out especially with the wealth gap growing because as that grows the wealthy will cause us to net save. Even with our stock of spenders they are losing buying power while savers are increasing it.

That is the now. Unfortunately this could drag on for a very long time. The only real possibility is China consumption but that regime is not going to be very comfortable with a well financed middle class. Energy is the only potential scarcity I see.

That is what the chart is saying to me. We have a global savings glut.

[Southernguy]

Re: anyone else read ej's twits?

Problem is that, as in the depression, beggar thy neighbor export strategy is creating a global savings glut. This is why currencies have complete immunity. People are reading the wrong Malthus with this idea of population causing scarcity. Its the opposite. Try his glut theory. Since we went global we vastly increased productive capacity while creating so much wage competition that there is no buying power to buy the output. Even the stock market bubble and subsequent housing bubble is mis-characterized as US spending binge. That was merely the result Americans completely dissociated with investment. However psychology behind both were as savings vehicles. That means the US is not a consumer monster waiting to get out especially with the wealth gap growing because as that grows the wealthy will cause us to net save. Even with our stock of spenders they are losing buying power while savers are increasing it.

That is the now. Unfortunately this could drag on for a very long time. The only real possibility is China consumption but that regime is not going to be very comfortable with a well financed middle class. Energy is the only potential scarcity I see.

That is what the chart is saying to me. We have a global savings glut.

What you are saying is very much alike Marxist theory of economic crises.
Contradiction between social production versus individual apropiation. Net result=overproduction=economic crises. As the wealthy do not consume all they earn, a lack of demand is created.
That is exactly against Say´s law: every production creates it´s own demand.
History is again proving Marx right.

[gwynedd1]

Re: anyone else read ej's twits?

What you are saying is very much alike Marxist theory of economic crises.
Contradiction between social production versus individual apropiation. Net result=overproduction=economic crises. As the wealthy do not consume all they earn, a lack of demand is created.
That is exactly against Say´s law: every production creates it´s own demand.
History is again proving Marx right.

Marx was right in his descriptions. The fundamental problem with the West is the boogie man they have created in what appears to be the common mistake of mixing economic explanations with Marx's more questionable economic apothecary. Marx was the first critic of capitalism. How could anyone deny that working 12 year old children 16 hours a day until an early death just couldn't go on? Darwin was wrong in many ways too. However he was the first critic of magical thinking in biology that was completely wrong.


Keynes of course declared Say's law to be entirely defunct as well. How could it not be in a world of debtors and creditors? Prices are not so easily liquidated. Its also worth pointing out Friedman's floating currency concept looks much different when a third world country is a debtor country. It does not result in an equilibrium when this is violated:

Deuteronomy 24

⁶ “No man shall take the lower or the upper millstone in pledge, for he takes one’s living in pledge.


So instead of demanding less currency they demand more hard currency in the form of more loans since the mill stones now back the hard currency.

Can't just let prices float downward to be rescued by St Say and his angelic army of buyers in a world of debtors and creditors. I believe the word is overhead.

[DSpencer]

Re: anyone else read ej's twits?

What you are saying is very much alike Marxist theory of economic crises.
Contradiction between social production versus individual apropiation. Net result=overproduction=economic crises. As the wealthy do not consume all they earn, a lack of demand is created.
That is exactly against Say´s law: every production creates it´s own demand.
History is again proving Marx right.

What has been overproduced? Housing? I think it's pretty clear that the housing bubble was in large part caused by government/central bank intervention through the manipulation of interest rates and other means. Sounds like a classic misallocation of capital.

[gwynedd1]

Re: anyone else read ej's twits?

What has been overproduced? Housing? I think it's pretty clear that the housing bubble was in large part caused by government/central bank intervention through the manipulation of interest rates and other means. Sounds like a classic misallocation of capital.

I think its a complex cause situation. Home buyers were in on it as well but failed to realize that savings based upon accumulating obligations is not saving macro economically. Housing more or less depends on someone else's buying power. Its not a root cellar full of goods which is real saving. Its not industrial capital. So I dispute the usual psychological claim that it was "a spending binge" which I think is important. There is much less consumer binge mentality than is claimed. If the dollar is traumatized it will only get worse. Its just a matter of what will be the savings vehicle. The more credit oriented it is the worse and that is to say saving debts is not a virtuous cycle. I don't think its a public vs private issue. Its a total failure of our combined economic culture. The entire economic paradigm is faulty everywhere you look.

[seobook]

Re: anyone else read ej's twits?

I think its a complex cause situation. Home buyers were in on it as well but failed to realize that savings based upon accumulating obligations is not saving macro economically. Housing more or less depends on someone else's buying power. Its not a root cellar full of goods which is real saving. Its not industrial capital. So I dispute the usual psychological claim that it was "a spending binge" which I think is important. There is much less consumer binge mentality than is claimed. If the dollar is traumatized it will only get worse. Its just a matter of what will be the savings vehicle. The more credit oriented it is the worse and that is to say saving debts is not a virtuous cycle. I don't think its a public vs private issue. Its a total failure of our combined economic culture. The entire economic paradigm is faulty everywhere you look.

I saw a nearby foreclosure where they were about $1.25 million in debt on a house that was "purchased" about a decade ago for less than a third that amount. Home buyers were generally not as guilty and fraudulent as the banking organizations that had over 80% of their loans dirty, but whoever managed to spend nearly a million in HELOC on a home that cost 1/3 that much was certainly on a spending binge. They may have thought their behavior was rational because "housing always goes up" but even if they lost that house getting a decade of lower rent and double the house's value in HELOC for "buying" the house doesn't make them a loser in the transaction. Of course there are loads of other people who were put on adjustable rates and soaked simply because they trusted people too much & don't fully appreciate the nature of compounding interest.

[Southernguy]

Re: anyone else read ej's twits?

No, housing overproduction is not in the cause of things. The cause is the need, another consequence of contradiction between social production and private apropiation, to keep the rate of profit. As fixed capital grows in relation to variable capital, that is; work, rate of profit tends to go down. Value is only created by work, that is of course the cornerstone of classic (not only Marxist) theory of value.
Then, capital must expand to lower wages places (happened in last 3 decades with outsourcing to China, for example).
But at the same time they needed not to let buying power of the masses to fall, so as to keep someone to buy production from China.
That´s the origin of the bubble creation. Lower real salaries necessary to keep rate of profit. Outsourcing to be able to lower salaries. Credit to keep buying power.
Then the circle closes.
The "little" problem is that, after few years debts grow so big that no further indebtment is possible. And then, the classical capitalistic crisis is inevitable.
The new factor to take account of (as EJ correctly discovered) is that, not existing (as in Marx´s time) gold based money, the otherwise inevitable deflationist depression can be avoided. Further, system managers have learnt from previous history (it´s not by chance that Bernanke is a specialist in 1930´s depression) and they have now much more and much better statistic and computing instruments. Imagine such fenomena being dealt with XIX century tools.
Instead we get the nowadays letarghic course of the world economy.
Matters are further complicated with another new matter: limits set by finite natural resources, fossil energy being the first and most important of them.
Ask for forgivnes for long post, but it helps clear my own ideas and connect modern economic thesis with classic economy.
By the way, reading "primitive accumulation of capital" by Marx I found this:
"
At their birth the great banks, decorated with national titles, were only associations of private speculators, who placed themselves by the side of governments, and, thanks to the privileges they received, were in a position to advance money to the State. Hence the accumulation of the national debt has no more infallible measure than the successive rise in the stock of these banks, whose full development dates from the founding of the Bank of England in 1694. The Bank of England began with lending its money to the Government at 8%; at the same time it was empowered by Parliament to coin money out of the same capital, by lending it again to the public in the form of banknotes. It was allowed to use these notes for discounting bills, making advances on commodities, and for buying the precious metals. It was not long ere this credit-money, made by the bank itself, became. the coin in which the Bank of England made its loans to the State, and paid, on account of the State, the interest on the public debt. It was not enough that the bank gave with one hand and took back more with the other; it remained, even whilst receiving, the eternal creditor of the nation down to the last shilling advanced. Gradually it became inevitably the receptacle of the metallic hoard of the country, and the centre of gravity of all commercial credit. What effect was produced on their contemporaries by the sudden uprising of this brood of bankocrats, financiers, rentiers, brokers, stock-jobbers, &c., is proved by the writings of that time, e.g., by Bolingbroke’s. ^[8]

With the national debt arose an international credit system, which often conceals one of the sources of primitive accumulation in this or that people. Thus the villainies of the Venetian thieving system formed one of the secret bases of the capital-wealth of Holland to whom Venice in her decadence lent large sums of money. So also was it with Holland and England. By the beginning of the 18th century the Dutch manufactures were far outstripped. Holland had ceased to be the nation preponderant in commerce and industry. One of its main lines of business, therefore, from 1701-1776, is the lending out of enormous amounts of capital, especially to its great rival England. The same thing is going on today between England and the United States. A great deal of capital, which appears today in the United States without any certificate of birth, was yesterday, in England, the capitalised blood of children.
As the national debt finds its support in the public revenue, which must cover the yearly payments for interest, &c., the modern system of taxation was the necessary complement of the system of national loans. The loans enable the government to meet extraordinary expenses, without the tax-payers feeling it immediately, but they necessitate, as a consequence, increased taxes. On the other hand, the raising of taxation caused by the accumulation of debts contracted one after another, compels the government always to have recourse to new loans for new extraordinary expenses. Modern fiscality, whose pivot is formed by taxes on the most necessary means of subsistence (thereby increasing their price), thus contains within itself the germ of automatic progression. Overtaxation is not an incident, but rather a principle. In Holland, therefore, where this system was first inaugurated, the great patriot, DeWitt, has in his “Maxims” extolled it as the best system for making the wage labourer submissive, frugal, industrious, and overburdened with labour. The destructive influence that it exercises on the condition of the wage labourer concerns us less however, here, than the forcible expropriation, resulting from it, of peasants, artisans, and in a word, all elements of the lower middle class. On this there are not two opinions, even among the bourgeois economists. Its expropriating efficacy is still further heightened by the system of protection, which forms one of its integral parts.
Incredibly accurate description (second half of XIX century) of many things that happen today.
Well, nothing new, I think Hudson is more or less saying the same, much better than me, of course. Please note the term BANKOCRATS. Geithner et al. ?

[seobook]

Re: anyone else read ej's twits?

I read David Graeber's book Debt: the first 5,000 years & in it was a quite memorable quote that is certainly inline with the above thesis: "It is the secret scandal of capitalism that at no point has it been organized primarily around free labor."

A bunch of other quotes here http://en.wikiquote.org/wiki/David_Graeber

[gwynedd1]

Re: anyone else read ej's twits?

I saw a nearby foreclosure where they were about $1.25 million in debt on a house that was "purchased" about a decade ago for less than a third that amount. Home buyers were generally not as guilty and fraudulent as the banking organizations that had over 80% of their loans dirty, but whoever managed to spend nearly a million in HELOC on a home that cost 1/3 that much was certainly on a spending binge. They may have thought their behavior was rational because "housing always goes up" but even if they lost that house getting a decade of lower rent and double the house's value in HELOC for "buying" the house doesn't make them a loser in the transaction. Of course there are loads of other people who were put on adjustable rates and soaked simply because they trusted people too much & don't fully appreciate the nature of compounding interest.

I can't tell you how many people I have run into with the idea that one should pay what they agreed to pay as if any of it was purely legitimate. I think they agreed to out bid real buyers with real credit. Flooding the market with fictitious buyers bloated all values. I'd like to follow them to an auction and bid against them with monopoly money. They act as if its just on a case by case basis. A few percentage points in supply constraints when there are already shortages can cause prices to sky rocket. Water in the desert that will serve 100 when there are 90 people moving to 95 people could double and triple prices. At a demand of 105 people will give all they have for a $1 bottle of water.

To add insult to injury they have seen to it to create artificial slack in the labor market to do the exact opposite to wages.

[mooncliff]

Re: anyone else read ej's twits?

Or as Q said, laughing at Captain Picard (and humans): You kill each other over how to distribute resources in society!

Spoiler alert if you havent seen Prometheus. And if we really piss off the Architects, they may just come to weed the garden.

[NCR85]

Re: anyone else read ej's twits?

which begs the question: why can't it go on "forever"?

I think it is the MMT claim that it can and will go on "forever". At a certain point people would notice that the treasuries on the Fed's balance sheet will never be unloaded and their interest forever recycled to the treasury, meaning that these bonds may as well be thought of as "ripped up" already. And that's when the govt decides it has the leeway to the kind of public works program it takes to rein in the output gap.

EJ's last comment confuses me slightly. I thought the short answer would be "inflation", but there the mechanism still isn't always clear to me.

[vinoveri]

Re: anyone else read ej's twits?

I think it is the MMT claim that it can and will go on "forever". At a certain point people would notice that the treasuries on the Fed's balance sheet will never be unloaded and their interest forever recycled to the treasury, meaning that these bonds may as well be thought of as "ripped up" already. And that's when the govt decides it has the leeway to the kind of public works program it takes to rein in the output gap.

EJ's last comment confuses me slightly. I thought the short answer would be "inflation", but there the mechanism still isn't always clear to me.[/COLOR]

I took EJ's answer to be "tongue-in-cheek" read between the lines response:

1. Q: Why hasn't the bond market crashed yet? A: Because the Fed's balance sheet in "infinite" and everybody knows "don't fight the fed"
2. Q: Then why can't it go on forever? A: B/c the Fed's balance sheet isn't really infinite

This is circular of course and the implication is that it will go on until it doesn't, at which point there will be a currency crisis/soverign debt run.

The appropriate follow up question would have been: At what point do the limits of the FED and other CB balance sheets manifest themselves? As far as I'm aware, no one has put forth any predictions that have not been continually time-shifted into the future as the crisis never seems to arrive.

2013, 2015, 2018, 2038, who knows?

On a separate question, say the Fed announces next year that it's raising rates by 25 bps, and intends to raise rates very very slowly over the coming decade; what happens to Au? Wouldn't surprise me to see gold drop 20% immediately, and then further. Gold is indeed insurance and continues to climb, but as soon as a whisper of tightening is heard, look out. This is the contingency I'm not sure how to handle/avoid.

[DSpencer]

Re: anyone else read ej's twits?

Value is only created by work, that is of course the cornerstone of classic (not only Marxist) theory of value.

Except it's wrong.

[gwynedd1]

Re: anyone else read ej's twits?

Except it's wrong.

No it isn't. The labor theory of value is based upon the point of view of value that is actionable, not circumstantial. Its the point of view. The marginal utility perspective you are implying only has to do with the consumption point of view. B. F Skinner from the behavioral school of psychology would want to skin people down to their bones who would conduct policy based merely upon the utility of consumption. Who should get it more? The one who values it more or the one who creates value? Ironically this blind spot in the Austrian school defines value by consumer buying power and not the reward to the producer. Rewarding a producer $50 is worth more than giving $500 in value to a slug. According to marginal utility theory thats a $450 loss. The implication is which value should be subject to taxation.
Every swindle in economics ignores one side of the equation.

[raja]

Re: anyone else read ej's twits?

On a separate question, say the Fed announces next year that it's raising rates by 25 bps, and intends to raise rates very very slowly over the coming decade; what happens to Au? Wouldn't surprise me to see gold drop 20% immediately, and then further. Gold is indeed insurance and continues to climb, but as soon as a whisper of tightening is heard, look out. This is the contingency I'm not sure how to handle/avoid.

Aside from it's value as end-of-the-world insurance, gold derives its value as money, which is why gold goes up when fiat money goes down as the result of inflation.

So, if the Fed started a program to slow inflation by raising interest rates, why wouldn't gold just maintain it's value, and continue to rise, albeit much more slowly, in step with whatever inflation rate was achieved by the Fed?

BTW, perhaps this time the Fed will not be able to raise rates, because it would raise the cost of borrowing -- not a good thing to do in a global slowdown. Volker got away with it because the debt to GDP ratio was a lot smaller.