By my methods, the giddiness in New York has even slightly overshot the extremes of the Tulip Mania. This now appears to me to be the most extreme bubble of all time.
I'm still short.
By my methods, the giddiness in New York has even slightly overshot the extremes of the Tulip Mania. This now appears to me to be the most extreme bubble of all time.
I'm inclined to agree. I can barely believe what I'm hearing.Higgenbotham wrote: > By my methods, the giddiness in New York has even slightly
> overshot the extremes of the Tulip Mania. This now appears to me
> to be the most extreme bubble of all time.
The best one I heard this week was along these lines: "Because most economists are expecting the recovery to be weak, and because most of the time economists turn out to be wrong, we believe that the recovery will be even stronger and are forecasting 6% GDP growth for 2010"John wrote:Dear Higgie,
I'm inclined to agree. I can barely believe what I'm hearing.Higgenbotham wrote: > By my methods, the giddiness in New York has even slightly
> overshot the extremes of the Tulip Mania. This now appears to me
> to be the most extreme bubble of all time.
The same people who, two months ago, were saying that the recession
would not end until well into 2010 are now saying that the recession
is already over. Were they right then, or are they right now?
There's nothing even remotely resembling common sense going on. It's
mind-boggling.
I noticed one interesting angle listening to the pundits on CNBC this
morning. Back in March, people were saying emphatically that the
stimulus has to continue for a long time, and that the biggest
mistake that Roosevelt made and Japan made was to end the stimulus
spending too early.
However, this morning I was hearing, at least by implication, that
the stimulus was no longer necessary, because the recession was over.
This is interesting because it shows how the craziness spewing out of
pundits mouths works against what others believe is correct stimulus
policy.
All of this makes me sick to my stomach, but I know I have nothing
to worry about, since the new health care package means that if I'm
sick to my stomach, the government will take good care of me.
Sincerely,
John
His hypothesis is flawed.zabrisk1 wrote:"Audience question: Where would the stimulus money best be spent? Answer: Historically, the best way is military spending, because it creates demand, without creating supply. That's why economies recover quickly. But if you increase both demand and supply, then they start chasing each other. If you want the smallest budget deficit, and largest bang for money, that's the best way."
I have tried to get my head round this extraordinary idea, but to no avail. Maybe you can enlighten me. Whilst I can understand that military expenditure causes economic activity, people building tanks, guns etc, I cannot see how this differs from say, building a bridge to nowhere in the middle of a desert. Yes the state pays the manufacturers for the hardware they supply, and the manufacturers in turn pay their employees for the work they have done. So effectively the state has injected funds into the economy. So far, no different from giving everybody a tax credit.
Those employees now have funds to spend on cars, televisions whatever. But the productive capacity that might well have been used to make those items is now diverted to armaments. So presumably in a closed economy, the price of the cars and televisions would rise - less supply more demand. How does this solve anything?
I, obviously mistakenly, thought that excessive military expenditure had been the downfall of most empires, the Romans, Phillp II of Spain, Great Britain, the Soviet Union to name but a few.
I should be grateful if you could explain Mr Koo's hypothesis in a little more detail.
This gets into the whole concept behind a deflationary spiral, orzabrisk1 wrote: > I have tried to get my head round this extraordinary idea, but to
> no avail. Maybe you can enlighten me. Whilst I can understand that
> military expenditure causes economic activity, people building
> tanks, guns etc, I cannot see how this differs from say, building
> a bridge to nowhere in the middle of a desert. Yes the state pays
> the manufacturers for the hardware they supply, and the
> manufacturers in turn pay their employees for the work they have
> done. So effectively the state has injected funds into the
> economy. So far, no different from giving everybody a tax credit.
> Those employees now have funds to spend on cars, televisions
> whatever. But the productive capacity that might well have been
> used to make those items is now diverted to armaments. So
> presumably in a closed economy, the price of the cars and
> televisions would rise - less supply more demand. How does this
> solve anything?
Once again, you're describing concepts that are true in "normal"StilesBC wrote: > His hypothesis is flawed. It can probably be explained by a simple
> causation/correlation misinterpretation. Economic growth comes
> from savings being invested in a lengthening of the structure of
> production. Oftentimes, when there is a sharp increase in the rate
> of savings, consumption falls and the economy deleverages the
> previous malinvestments. This part of the process is politically
> unpopular, so alternatives are often looked for to "stimulate" the
> economy. War is often the last resort after everything has been
> tried and the savings rate is still stubbornly high. Because a
> recovery often ensues, it is taken for granted that it was the war
> that caused the recovery, rather than a delayed reaction in the
> savings being employed. Politicians, always the opportunists, make
> sure that it was their deft management that takes the credit, not
> something totally out of their control like a rise in the rate of
> savings.
John,Once again, you're describing concepts that are true in "normal"
times, but which fall apart in deflationary spirals. As you point
out, the high rate of savings means that money will not be invested
in production. Military spending may be a last resort for political
reasons, but for theoretical reasons it's the most effective way to
spend stimulus money during a deflationary spiral. But, as Koo
points out, in a dictatorship like China or Nazi Germany, there are
no political problems, and government officials can freely spend on
the military and prepare for war, without having to deal with a
recalcitrant Congress.
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