Financial topics

[Higgenbotham]

From post yesterday:
"Based on what I've read over the years, "the idea of Ben Bernake", which is improved a bit over the idea of Alan Greenspan, but basically the same thing at its core, is:
1. There is a natural cycle of boom and bust that would, in the absence of intervention, result in something similar to the Great Depression.
2. Various mistakes were made leading up to the Great Depression and Ben Bernake is the foremost expert on how to avoid these mistakes and thus prevent another Great Depression. This goes hand in hand with his idea that deflation can be prevented."

To be clear, while depressions are the contraction phase of a deleveraging, deleveragings (e.g. reducing debt burdens) can occur without depressions if they are well managed.

http://www.zerohedge.com/sites/default/ ... /Dalio.pdf

Now I will give my opinion, which is just that. The economy, as we know (and Dalio states), is a complex system and Dalio's quoted belief is probably operative in a system of lower complexity than that current, in terms of the outcome being positive. In other words, had this actually been tried before the Great Depression became the Great Depression, it may have worked. I haven't thought about this a lot because it doesn't matter - in reality, it will never happen. What happened happened, and that is what matters. In terms of where things are now, applying a pre-established solution that may have worked as things were arranged in the 1930s will not work now. The fundamental reason for this is that the solution proposed is a Newtonian or aggregate solution applicable to a largely Newtonian or aggregate economic and monetary system, which describes the pre-Great Depression economy. Having now attempted to apply this solution to a largely quantum economic and monetary system, and as of the Fall of 2011 having gone too far with that application, will result in a complete collapse of the economic and monetary system and will usher in a new dark age. While what Dalio says is true, his apparent belief that this particular systemic problem has been well managed is, in my opinion, 180 degrees incorrect. What it will do is avoid the type of depression that is familiar and result in something much worse. A depression is where part of the existing system is lost; a dark age is where all of it is lost. In stubbornly attempting to save it all by using an inapplicable method, all of it will be eventually lost.

The most likely template:
http://www.scribd.com/doc/63914376/The-Coming-Dark-Age

[Higgenbotham]

As shown below in chart 1, real per capita GDP has increased at an average rate of a shade less than 2% over the last 100 years and didn’t vary a lot from that. (For an explanation for how and why this varies by country and over time, see the accompanying study “Why Countries Succeed and Fail Economically.”) This is because, over time, knowledge increases, which in turn raises productivity and living standards. As shown in this chart, over the very long run, there is relatively little variation from the trend line. Even the Great Depression in the 1930s looks rather small. As a result, we can be relatively confident that, with time, the economy will get back on track.

http://www.zerohedge.com/sites/default/ ... /Dalio.pdf

This is Ray Dalio, the billionaire hedge fund guy, being quoted again.

Anyone care to guess why real GDP has grown at 2% compounded over the past 100 years? It's not because knowledge has increased.

Taking the long view, let's make a conservative estimate that the GDP of the entire world was the equivalent of $1 million in today's dollars in the year zero. At a 2% annual rate of growth, the GDP of the entire world in the year 2012 would be:

201161833320071813191732.

This is 201161833320 trillion dollars.

Furthermore, his numbers are per capita, and I didn't include the population increase in calculating this figure.

[aedens]

Marx’s Reflexivity Theory = what we already know.
Minsky=what we already know.
Beta=naive political economy actors
Mises= three choices of firms as actors
Seven years ago they got wiped out in Communist Bubble
Seven years ago they got wiped out in Tech Bubble
Seven years ago they got wiped out in Housing Bubble
America has to atone for three things and will decline
and the three things above have nothing to do with it.

[Higgenbotham]

"Anyone care to guess why real GDP has grown at 2% compounded over the past 100 years?"

One explanation from Robert Gordon.

The analysis in my paper links periods of slow and rapid growth to the timing of the three industrial revolutions:

•IR #1 (steam, railroads) from 1750 to 1830;
•IR #2 (electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, petroleum) from 1870 to 1900; and
•IR #3 (computers, the web, mobile phones) from 1960 to present.
It provides evidence that IR #2 was more important than the others and was largely responsible for 80 years of relatively rapid productivity growth between 1890 and 1972.

Once the spin-off inventions from IR #2 (airplanes, air conditioning, interstate highways) had run their course, productivity growth during 1972-96 was much slower than before. In contrast, IR #3 created only a short-lived growth revival between 1996 and 2004. Many of the original and spin-off inventions of IR #2 could happen only once – urbanisation, transportation speed, the freedom of women from the drudgery of carrying tons of water per year, and the role of central heating and air conditioning in achieving a year-round constant temperature.

Not a bad explanation. I would highlight the growth in energy supply angle more but he does mention it and the implication is there, as well as listing it as a headwind below.

Then he goes on to explain why 2% growth won't be coming back.

Even if innovation were to continue into the future at the rate of the two decades before 2007, the US faces six headwinds that are in the process of dragging long-term growth to half or less of the 1.9% annual rate experienced between 1860 and 2007. These include demography, education, inequality, globalisation, energy/environment, and the overhang of consumer and government debt. A provocative 'exercise in subtraction' suggests that future growth in consumption per capita for the bottom 99% of the income distribution could fall below 0.5% per year for an extended period of decades.

The exercise in subtraction is shown in Figure 6, but this is just a suggestion. All the numbers could be altered, but the big point is that each of these subtractions is a number, whether 0.05 or 0.1, or 0.2, that reduces the future growth of consumption per capita for the bottom 99% of US households.

This isn't a bad explanation either. His figures assume that all progress can be maintained, but he reasonably leaves it up to the reader to form their own conclusions on that.

http://www.voxeu.org/article/us-economic-growth-over

[aedens]

http://www.zerohedge.com/news/2012-09-2 ... e-go-least

Remember the jaws are closing as we noted backaways.

[aedens]

Then he goes on to explain why 2% growth won't be coming back.
Red or blue, no matter same capture. Russians thing both are nuts
since we spend millions now to them to do what they did to there own people
as we spent beyond billions then in a game of induced avarice to win the so
called domino theory. Taxpayers are idiots. In 21 day you can reprogram any
Human mind for a life time. They do not even pretend to deny it
anymore from numerous perspectives we already linked here on the topic.
Truly how many have believe since you have not done x you are not able
to understand y. It absolutely astounds me the attibutes of the grouping
diciplines.

[Trevor]

For most of history, the amount of wealth in the world was severely limited. It only picked up around the 18th century during the Industrial Revolution and when nations began to abandon the idea of mercantilism. They believed that wealth was fixed and for one nation to get richer, another had to become poorer. Eventually, we started realizing that it wasn't the case, lead by economists such as Adam Smith and David Hume.

[Higgenbotham]

http://www.zerohedge.com/news/2012-09-2 ... e-go-least

I read through this article very carefuly - twice. It's very good. The only comment I would have is: if the shadow banking system continues to delever in a controlled manner, and the Fed continues to load the traditional banking system system with offsetting reserves, his opinion is the end result will be hyperinflation. I disagree with that for a few reasons. Even a hyperinflation is a somewhat gradual and orderly process compared to what will happen in the present case. I believe this, if it does occur this way, will result in a total collapse of the monetary system within just hours or days. He is assuming people will actually be able to buy the tangibles with all those trillions in some orderly fashion. In such a panic they may attempt to get their money into electronic equivalents, but it will all go up in smoke before they can take delivery of any physical. The dealers or the warehouses will shut down and post armed guards. It'll be a complete mess.

[aedens]

Consider the previous contention H
In his reply to Rothbard on Mises’ view of interventionism, G. J. Schuller pointed out a fatal flaw and contradiction in Mises’ reasoning:
“What does ‘interventionist measures logically lead to’ mean? Either Mises believes that interventionism is cumulative and necessarily leads toward socialism and into ‘chaos’ (another undefined term), or he does not. If he does, can he explain how western nations reversed mercantilist intervention and established partially free markets in the 18th and 19th centuries, or how they accomplished partial decontrol after World Wars I and II? Can he explain how the purely free market is ever to be attained? On the other hand, if interventionism need not be cumulative (and Rothbard says it logically leads to the free market as well as to socialism) then is it necessarily incoherent, unstable, and transitory? If interventionism logically points in two opposite directions (toward zero and infinity), does it have to continue in either until it reaches respectively Elysium or chaos?” (Schuller 1951: 190).

We already know the answer they conflate knowledge of the seen to our fact of the intrinsic value of fiat. They say they need 2.58% inflation to break even. From thin air apply to the 99.9 percent who in the grip of Tyrants and ignore the consequences. Freedom and Liberty are two issues even from
Johnson's repeal of the coinage act.

As enacted, the Coinage Act of 1965 is Public Law 89-81 (79 Stat. 254).

[Trevor]

Something else I'm noticing is that even people who know that there's a collapse coming... they're still playing the system, believing that they'll be able to get out in time and thrive while everyone else is suffering. Some of them will, just like in the Depression. However, most of them won't and they'll lose everything right alongside the middle and lower classes.