Financial topics

[John]

Dear Higgie,

> John or anybody, any comments on this from a generational dynamics
> perspective?

After World War II, IBM was heavily criticized because the German
division of IBM kept doing business during the war, supporting the
Nazis.

Also, the Catholic Church was heavily criticized for a similar reason.

This decision by General Electric will be deeply regretted, and may be
disastrous to the United States. And to think that Ronald Reagan used
to be their spokesman.

John

[aedens]

G. Swope, GE pres., presents industrial stabilization plan in which industries would cooperatively control production and other matters through trade associations under Federal supervision. Plan would also provide for various worker protections to be adopted by participating cos.

Sen. Glass (D, Virginia) believes tax increase at next Congress inevitable; impossible to cut spending enough to "justify maintaining present policy of meeting deficits by short and long-term loans."

Conservative observers continue to recommend the sidelines.

Short interest has reportedly increased substantially in recent sessions, as bears are encouraged by lack of seasonal business improvement.

September 1931 Nothing new under the Sun but attitudes and hot air issues.

[Higgenbotham]

Condensed repeat from his January 17, 2011 speech in Chile. The speech continues to draw little notice.

Attempts to stabilize the economy will, more likely than not, end up providing stimulus when none is needed, or vice versa. It also risks distorting price signals and thus resource allocations, adding to instability. So asking monetary policy to do what it cannot do with aggressive attempts at stabilization can actually increase economic instability rather than reduce it.

Therefore, in most cases the effects of shocks to the economy simply have to play out over time as markets adjust to a new equilibrium. Monetary policy is likely to have little ability to hasten that adjustment. In fact, policy actions could actually make things worse over time.

And they have. Thanks Ben! Thanks Janet!

[OLD1953]

Every waitress and every mechanic had a plan to save the world, by putting themselves on top and everyone else underneath. That's a semi quote from something I read years ago, Heinlein I think. But it was certainly true during the great depression and it is certainly true today.

That we see a lot of "preserve the last fifty years" and "put me on top" seems like the way it logically would be during a growing crisis of this nature.

GE will be regarded as a traitor that sold out the USA in a few years, not a good thing for them.

And these bad boys are being found in increasing numbers.

http://news.yahoo.com/blogs/lookout/one ... 41479.html

One of the world's "most feared" pests was discovered on American soil. The Khapra beetle, in larva stage, was identified by customs officials last week in a 10-pound bag of rice that came from India.

[Higgenbotham]

Robert J. Gordon
Stanley G. Harris Professor in the Social Sciences and Professor of Economics at Northwestern University; CEPR Research Fellow
22 August 2011

The spending decomposition shows that fiscal policy has failed in that the government spending sector has made the output gap shortfall worse, not better.

The double hangover theory helps to explain why monetary policy is impotent, no matter how much “Quantitative Easing” is attempted.

http://www.voxeu.org/index.php?q=node/6896

[Carl Lieberman]

I am getting a strong vibe that all hell is going to break loose in September/October. Higgy postulated that August 25th would commence the crash. That day came and went. There have been many mathematical parallels presented for predicting the collapse. Real life is much messier than that and fundamentally more unpredictable. I resonate with the observation that the pace of prior collapses has been altered and delayed by the scale of the interventions that are now being administered. The larger context for the coming collapse is spot on. The German Constitutional Court will rule on the ECB bailouts in early September. There are also a handful of German State elections in September. I believe both of these events will be decisive in triggering the collapse. The German populace is overwhelmingly against additional substantial German bailouts. I believe that their Court will follow the lead of its citizens, and will find the ECB purchases of sovereign debt to have been unconstitutional. The entire European banking system is poised to explode. Hold onto your hats, It's gonna get bumpy.

[Higgenbotham]

Very profound article on the origins and role of money.

http://www.nakedcapitalism.com/2011/08/ ... aeber.html

PP: Let’s move onto economic theory then. Economics has some pretty specific theories about what money is. There’s the mainstream approach that we discussed briefly above; this is the commodity theory of money in which specific commodities come to serve as a medium of exchange to replace crude barter economies. But there’s also alternative theories that are becoming increasingly popular at the moment. One is the Circuitist theory of money in which all money is seen as a debt incurred by some economic agent. The other – which actually integrates the Circuitist approach – is the Chartalist theory of money in which all money is seen as a medium of exchange issued by the Sovereign and backed by the enforcement of tax claims. Maybe you could say something about these theories?

DG: One of my inspirations for ‘Debt: The First 5,000 Years’ was Keith Hart’s essay ‘Two Sides of the Coin’. In that essay Hart points out that not only do different schools of economics have different theories on the nature of money, but there is also reason to believe that both are right. Money has, for most of its history, been a strange hybrid entity that takes on aspects of both commodity (object) and credit (social relation.) What I think I’ve managed to add to that is the historical realization that while money has always been both, it swings back and forth – there are periods where credit is primary, and everyone adopts more or less Chartalist theories of money and others where cash tends to predominate and commodity theories of money instead come to the fore. We tend to forget that in, say, the Middle Ages, from France to China, Chartalism was just common sense: money was just a social convention; in practice, it was whatever the king was willing to accept in taxes.

PP: You say that history swings between periods of commodity money and periods of virtual money. Do you not think that we’ve reached a point in history where due to technological and cultural evolution we may have seen the end of commodity money forever?

DG: Well, the cycles are getting a bit tighter as time goes by. But I think we’ll still have to wait at least 400 years to really find out. It is possible that this era is coming to an end but what I’m more concerned with now is the period of transition.

The last time we saw a broad shift from commodity money to credit money it wasn’t a very pretty sight. To name a few we had the fall of the Roman Empire, the Kali Age in India and the breakdown of the Han dynasty… There was a lot of death, catastrophe and mayhem. The final outcome was in many ways profoundly libratory for the bulk of those who lived through it – chattel slavery, for example, was largely eliminated from the great civilizations. This was a remarkable historical achievement. The decline of cities actually meant most people worked far less. But still, one does rather hope the dislocation won’t be quite so epic in its scale this time around. Especially since the actual means of destruction are so much greater this time around.

PP: Which do you see as playing a more important role in human history: money or debt?

DG: Well, it depends on your definitions. If you define money in the broadest sense, as any unit of account whereby you can say 10 of these are worth 7 of those, then you can’t have debt without money. Debt is just a promise that can be quantified by means of money (and therefore, becomes impersonal, and therefore, transferable.) But if you are asking which has been the more important form of money, credit or coin, then probably I would have to say credit.

[John]

> I am getting a strong vibe that all hell is going to break loose
> in September/October. Higgy postulated that August 25th would
> commence the crash. That day came and went. There have been many
> mathematical parallels presented for predicting the collapse.
> Real life is much messier than that and fundamentally more
> unpredictable. I resonate with the observation that the pace of
> prior collapses has been altered and delayed by the scale of the
> interventions that are now being administered. The larger context
> for the coming collapse is spot on. The German Constitutional
> Court will rule on the ECB bailouts in early September. There are
> also a handful of German State elections in September. I believe
> both of these events will be decisive in triggering the collapse.
> The German populace is overwhelmingly against additional
> substantial German bailouts. I believe that their Court will
> follow the lead of its citizens, and will find the ECB purchases
> of sovereign debt to have been unconstitutional. The entire
> European banking system is poised to explode. Hold onto your
> hats, It's gonna get bumpy.

I've been thinking about how "quiet" things have been these last
few hot summer weeks, despite experiencing an earthquake and
a hurricane on the U.S. east coast.

And I've also been thinking about how quickly these things are
going to change in September.

Carl Lieberman makes the point that the German Constitutional Court is
very likely to rule the ECB bailouts unconstitutional. Even without
that, Greece is unable to implement the bond swap necessary for its
bailout, and so, as Carl points out, "The entire European banking
system is poised to explode" anyway.

Another major event is the Palestinian application to the United
Nations to recognize a Palestinian state. The Israelis are in a total
panic about this, and the results are unpredictable. Also, the Libya
situation could break into tribal war at any time.

And then of course we have approaching civil war in Yemen, and
increasing Chinese aggression in the Pacific. We have a
deteriorating situation in Afghanistan, with the coalition troops
leaving. We always have the possibility of war between India
and Pakistan.

Here's a theory: Awakening era crises begin in summer ("long hot
summers"), while Crisis era crises begin in fall and winter.

John

[Higgenbotham]

> I am getting a strong vibe that all hell is going to break loose
> in September/October. Higgy postulated that August 25th would
> commence the crash.

Here's a theory: Awakening era crises begin in summer ("long hot
summers"), while Crisis era crises begin in fall and winter.

John

Yes, it was my best guess the market would drift sideways to higher toward the end of August, then recommence panic late last week with silver possibly getting hit especially hard.

The Panic of 1857 broke out on August 24 and lasted until October 14.

After the Credit Anstalt bankruptcy of May 1931, the market moved sideways through August, then suffered a horrific loss in September.

http://generationaldynamics.com/forum/v ... talt#p9304

http://www.futurecasts.com/Depression_d ... d-'31.html

Values on the Big Board tumbled a fantastic 27 1/3% in September -- down $12 1/4 billion to a new total of just under $32 1/3 billion.-- a bigger monthly point decline than even October or November of 1929 and more than double the percentage decline of those months.

On October 8, the U.S. Federal Reserve Bank admitted that its cheap money policy had failed to end the Depression.

I'll repost that chart when I find it.

http://oi53.tinypic.com/2mi57wk.jpg

[Carl Lieberman]

Speaking of the Panic of 1857. Someone on this list recommended "The Emergence of Lincoln" by Allan Nevins. Was it Higgy? I read much of it yesterday. High level history. Aside from the obvious interest in the panic, the author makes the point that the South was misled by this event. It effected the North much more than the South. This led the South to believe that they and their agricultural slave economy were much stronger than they turned out to be. Who knows how TPTB will distort and misinterpret the impending collapse?