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138 Years of Economic History Show that It's Excessive PRIVATE Debt Which Causes Depressions

George Washington's picture




 

Preface:  We like to debunk myths held by both the left and the right.

For example, we have repeatedly argued that government debt and deficits do matter. Over a certain level, they form a large drag on the economy. That pisses off our liberal readers.

But we keep pointing out that – instead of imposing draconian austerity – it would be much better for the economy to stop handouts to the big banks, stop getting into imperial military adventures and stop incurring unnecessary interest costs (and see this). That infuriates our conservative readers.

This post, however, focuses on private rather than public debt.  Prepare to be offended … and lock up your sacred cows before we find and slaughter them.

The National Bureau of Economic Research has published a new paper analyzing 138 years of economic history in 14 advanced economies, which proves that high levels of private debt cause severe recessions.

As summarized by Business Insider:

Through a series of tests run on a sample of 14 advanced economies between 1870 and 2008, Mr Taylor establishes a link between the growth of private sector credit and the likelihood of financial crisis. The link between crisis and credit [i.e. private debt] is stronger than between crises and growth in the broad money supply, the current account deficit, or an increase in public debt.

 

Over the 138-year timeframe Mr Taylor finds crisis preceded by the development of excess credit, as in Ireland and Spain today, are more common than crisis underpinned by excessive government borrowing, like in Greece. Fiscal strains in themselves do not tend to result in financial crisis.

The study shows that excessive private debt is a much more accurate and consistent predictor of financial crisis than the amount of public debt. (However, high levels of public debt exacerbate the problems caused by massive private debt, since governments which are already “in the red” have little ammunition left with which to help out the economy.)

The NBER study validates what Steve Keen has been saying for years: excess private sector debt is the main driver of deep recessions and depressions. And yet Ben Bernanke and all other mainstream economists literally believe that the amount of private debt doesn’t matter and isn’t even important to quantify.

As Michael Clark notes, high levels of public debt are detrimental … but it is high levels of public debt which initiate depressions:

American Private Debt [was] 310% of Gross Domestic Product in 2008, the highest since 1929, the last Great Depression, when Private Debt was 240% of GDP.

 

***

 

Government debt in 1929 was a paltry 40% of GDP. In 1945, when America was financing its participation in World War II, government debt exploded to 120% of GDP. That is the highest government debt has been in America, making the 85% of GDP in 2011 seem almost insignificant.

 

***

 

Government debt vis-a-vis Gross Domestic Product is not astronomical, according to this chart. It was not high in 1929 either, the last time the global economy had a heart attack and died. Public Debt is, in fact, at the time of this chart at least, lower than in 1945, when the public financed American involvement in World War II.

 

***

 

There WAS a Real Estate/Housing Bubble and subsequent banking crisis in the 1920′s. In fact, the asset bubble that began in 1921 helped to cause the massive PRIVATE DEBT BUBBLE that destroyed the global economy then also. The web site below examines the housing bubble of 1921-1926.

 

www.library.hbs.edu/hc/crises/forgotten.html

 

The famous stock market bubble of 1925-1929 has been closely analyzed. Less well known, and far less well documented, is the nationwide real estate bubble that began around 1921 and deflated around 1926. In the midst of our current subprime mortgage collapse, economists and historians interested in the role of real estate markets in past financial crises are reexamining the relationship of the first asset-price bubble of the 1920s with the later stock market bubble and the Great Depression that followed….

 

What this all suggests is that American Big Business (Wall Street and Wall Street’s political lackeys in Washington) is refusing to take the blame for the Global Collapse it helped to create through the same mechanism it used in the 1920s, Private Greed, pursuing recklessly their own economic empires — asset price inflation fueled by lower and lower interest rates – and has attempted to shift the blame on to the governments of the world ….

The debt that must be destroyed before the global economy can reach a state of organic growth again is, primarily, Private Debt — private enterprise debt and private consumer debt….

 

Of course, Big Business has now found a convenient method for unloading toxic debt: by selling it at face value or even at future inflated value to the governments of the world. The governments are willing to buy worthless private debt in the hope of keeping themselves in power, of keeping their societies from unraveling into civil war and revolution. Why would Big Business ever concern itself with risk if there will always be a buyer of last resort willing to absorb the crimes and failures of the Free Market in pursuing the demon of Unlimited Wealth?

 

Then, of course, this forced ingestion of toxic (criminal?) debt by the governments in question — in hopes of avoiding civil war — has been followed by the political gambit of Big Business and the political supporters of Big Business screaming and shaking of fists at the government for taking on too much debt. Well, the ‘too much debt’ the public was taking on was the Disaster Debt of unregulated Big Business which made careless business decisions without considering risk or even to crimes in many cases (organized crime almost certainly, organized crimes in white shirts on Wall Street).

Clark notes that the same is true in Europe:

428250 13366500010968645 Michael Clark 138 Years of Economic History Show that Its Excessive PRIVATE Debt Which Causes Depressions

***

 

According to Paul De Grauwe, writing in the web-page below, only Greece, Italy and Belgium have government debt over 100% of GDP.

 

www.voxeu.org/index.php?q=node/5062

 

In fact, Spain and Ireland had very little government debt when the global economy sank in 2008. But they had huge levels of Private Debt, all connected to the Housing Bubbles out of which they were just emerging. Spanish government debt was less than 40% of GDP until the Titanic struck the ice. Ireland’s Public Debt was a fraction over 20%.

 

France (socialist France) had Public Debt that was only 45% of GDP.

 

***

 

Those who say that it is government profligacy that is the source of the debt crisis are mistaken. They also fail to see the inevitable connection between private and public debt. This connection is particularly strong in countries like Spain and Ireland that have been hit badly by the debt crisis.

 

***

 

Spain and Ireland were spectacularly successful in reducing their government debt to GDP ratios prior to the financial crisis, i.e. Spain from 60% to 40% and Ireland from 43% to 23%. These were the two countries, which followed the rules of the Stability and Growth Pact better than any other country – certainly better than Germany that allowed its government debt ratio to increase before 2007. Yet the two countries, which followed the fire code regulations most scrupulously, were hit by the fire, because they failed to contain domestic private debt.

 

So, what happened to us? Why did we crash? We crashed because businesses and individual consumers (Wall Street and Main Street) over-leveraged in an attempt to reap dream-like profits on the Housing Bubble, both as credits and as debtors. This feeding frenzy — encouraged by the Fed and the banks — it is an illusion that the Fed Chairman is not the pet figurehead of the banking establishment — destroyed our economy and is sending us into decades of pain.

 

***

 

Now — as Japan did — we are attempting to pare down Private Debt by handouts and bailouts and by the government buying toxic assets of the guilty parties — that is, to turn Private Debt into Public Debt [background], while we try to preserve the status quo, keep Old Money in Power, and avoid civil war — i.e., spending billions to try to keep asset prices elevated [background], and voters/citizens soporific.

 

There is a moral element that we should not miss: giving public money to the fools and crooks that destroyed the economy through greed and self-interest so they can try to do it again — the idea that Ben Bernanke would squat on interest rates so that he could feed money to reckless billionaires at the expense of retirees and savers is appalling.

(Indeed … see this, this and this.)

Financial Sector Debt Is a Bigger Problem than Consumer Debt

As Anthony Randazza notes, Americans started to reduce their debt and deleverage at the start of the financial crisis … but have slid backwards again in the last couple of years:

America had started the process of household balance sheet deleveraging after the bubble burst. Mortgage debt levels have fallen sharply. And consumer credit—all debt other than mortgage debt—was declining as well. But in the summer of 2010, as the post-recession faux-recovery created false hope that the good times were back and as savings decimated by the bursting bubble began to hit zero in the midst of a weak economy, consumer credit levels (led by credit card purchases) began to rise again.

 

The figure below shows that consumer credit fell 7.1 percent from June 2008 to June 2010, but since then has grown 6.9 percent to June 2012 (according to data released this month by the Fed).

 

 138 Years of Economic History Show that Its Excessive PRIVATE Debt Which Causes Depressions

 

This is indeed troubling.

But as we’ve previously documented, it is financial company debt – i.e. leverage – which is the main problem (and see this and this).

As Keen notes:

Figure 5: Separating out private sector and public sector debt in the USA

121911 0526 Movementatt5 138 Years of Economic History Show that Its Excessive PRIVATE Debt Which Causes Depressions

 

This is more apparent when we look just at the change in debt: private and public debt move in opposite directions.

Figure 6: Private and public debt move in opposite directions

121911 0526 Movementatt6 138 Years of Economic History Show that Its Excessive PRIVATE Debt Which Causes Depressions

Finance sector debt matters

 

Ignoring finance sector debt is a mistake. Firstly, it’s huge: by far the largest component of debt, private or public, in the USA (see Figure 7).

Figure 7

121911 0526 Movementatt7 138 Years of Economic History Show that Its Excessive PRIVATE Debt Which Causes Depressions

 

Secondly, finance sector debt is not a “zero sum game”. Though lending by a non-bank financial company to another entity doesn’t create money, it does create debt; and the initial lending by a bank to a non-bank creates both credit money and debt. Since the finance sector was the source of most of the speculative debt that fuelled the bubble, and it is by far the major force in deleveraging now, leaving it out of the analysis exempts a major causal factor in both the pre-2008 boom and the post-2008 debacle.

Angry Bear writes:

[Consumers certainly rang up too much debt.] But that ignores the really massive runup: financial corporations’ debts. Starting at a little over 10% of GDP in 1970, they hit almost 80% by 2000, and when the crash hit they were over 120% of GDP — a 10x, order-of-magnitude increase over 40 years.

 

***

 

The basic story is very simple. It goes like this (in my words):

 

• Banks (and shadow banks) make money by lending. Bankers have every incentive to increase their loan books, even by extending questionable loans, because bankers don’t personally bear the eventual, down-the-road losses from loan defaults — they’ve gotten their money already.

 

• When banks run out of real, productive enterprises to lend to — enterprises that can pay back loans and interest from the production and sale of real goods that humans can consume — they start lending to speculators (gamblers) who are buying financial assets in hopes that their prices will rise.

 

• That lending — extra money being pumped into the system — does indeed drive up the price of financial assets, far beyond the value of the real assets that (according to most economists you listen to) supposedly underpin those financial assets’ value.

 

• Eventually people realize that the value of financial assets far exceeds the value of real assets — and far exceeds the capacity of the real economy to service the loans that drove up those financial asset prices. Prices of financial assets plummet, borrowers default because there just ain’t enough real income to service the loans, financial-asset prices plummet some more, all in a downward spiral — with all sorts of collateral damage to the real economy.

 

There’s your (economy-wide) Ponzi scheme. Households and nonfinancial businesses definitely participate (the financial industry makes it almost irresistible not to), but it’s driven by the financial industry, and a huge proportion of the takings go to players in the financial industry.

And Michael Clark notes:

428250 13366513448321958 Michael Clark 138 Years of Economic History Show that Its Excessive PRIVATE Debt Which Causes Depressions***

 

While the government debt ratio in the Eurozone declined from 72% in 1999 to 67% in 2007) the household debt increased from 52% to 70% of GDP during the same period. Financial institutions increased their debt from less than 200% of GDP to more than 250%.

What’s the Solution?

We are in a bit of a pickle.

As Keen warns:

[We’re going into] a never-ending depression unless we repudiate the debt, which never should have been extended in the first place.

What’s the solution?

To remember history.

Specifically, we’ve known for over 4,000 years that debts need to be periodically written down, or the entire economy will collapse.

The ancient Sumerians and Babylonians, the early Jews and Christians, the Founding Fathers of the United States and others throughout history knew that private debts had to be periodically forgiven.

Debt jubilees are a vital part of the Christian and Jewish faiths. And the first recorded word for “freedom” anywhere in the world meant “debt-freedom”.

As some of the leading modern economists argue, forcing big banks, bondholders and other creditors to write down some of their bad debts is the only way out of our economic malaise.

Note:  If you want to know learn about Minsky’s economics, read Steve Keen, not faux Minskyians.

 

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Sun, 09/09/2012 - 17:53 | 2776825 Red Heeler
Red Heeler's picture

"On the morning of May 30 [1774], after three-fourths of the burgesses had gone home, dispatches arrived in Williamsburg for the Committee of Correspondence from Boston, Philadelphia, and Annapolis. Committee Chairman Peyton Randolph called an emergency meeting of the twenty-five burgesses left in town. As the crisis worsened, Boston Radicals called for a general boycott of colonial trade with Britain and the British West Indies until Parliament repealed the Port Act. Philadelphia patriots echoed the call for economic countermeasures. Maryland seconded Boston's proposals and proposed cancellation of all debts owed Bitish merchants and, further, asked for a trade boycott of any colony that refused to join in the resistance movement." - Thomas Jefferson, A Life, by Willard Sterne Randall, page 187 (brackets and bold italics mine)

Sun, 09/09/2012 - 17:13 | 2776771 OutLookingIn
OutLookingIn's picture

Both Iceland and Ecuador have shown the way.

Kick out the international bankers.

Repudiate the debt and force a haircut on the bond holders. Some as much as 95%

Prosecute the financial criminals and incarcerate them.

Set tough new rules/laws and gude lines with severe penalties.

Set in place a 'peoples' over sight committee, with razor sharp teeth to nip wrong doing in the bud.

Return the political process to the people, who will be the final decision.

Mon, 09/10/2012 - 13:47 | 2779067 e-recep
e-recep's picture

the average voter is an ignorant idiot. that's why we are here today.

Sun, 09/09/2012 - 18:35 | 2776894 Tippoo Sultan
Tippoo Sultan's picture

"Return the political process to the people, who will be the final decision."

Be forewarned:

When the people find they can vote themselves money, that will herald the end of the republic.

-- Benjamin Franklin.

Sun, 09/09/2012 - 23:24 | 2777483 All Risk No Reward
All Risk No Reward's picture

Puhlease!  The people's only vote that counts is how they spend their money - but they haven't figured that out yet.

Canddiates are Big Finance Capital operatives because it takes $30 million to win in Congress every few years and $500 million to win the Presidency.

Big Finance Capital runs this mofo and the average workign stiff has NO SAY.

Welfare is only given such that it suits the agenda of Big Finance Capital, not that it was somehow railroaded by the voting power of the poor.

We have to be more cophiosticated here.

Tragedy and Hope

http://archive.org/details/TragedyAndHope

The Ultimate History Lesson

https://www.tragedyandhope.com/th-films/the-ultimate-history-lesson/

The Ultimate History Lessonwith Commentary

https://www.tragedyandhope.com/th-films/the-ultimate-history-lesson/comm...

The Underground History of American Education

http://www.unwelcomeguests.net/The_Underground_History_of_American_Educa...

Disciplined Minds

http://www.unwelcomeguests.net/Disciplined_Minds

 

Sun, 09/09/2012 - 16:52 | 2776737 tony bonn
tony bonn's picture

very well said george - especially the dire need for debt liquidation.

Mon, 09/10/2012 - 09:01 | 2778021 AynRandFan
AynRandFan's picture

Hmm.  What happens when you repudiate debt?  No credit.  If enough debt is written off?  Massive deflation.  So, before applauding a "bold" solution offered by someone who is obviously unconcerned about sovereign debt levels and calls the war in Afghanistan following 9/11 an "imperian military adventure", think.

Sun, 09/09/2012 - 16:24 | 2776694 unirealist
unirealist's picture

Generally speaking, there's only one rational justification for debt.  That is when you borrow money to invest in a project or enterprise that will generate enough cost savings to allow repayment of principle, plus interest, and (ideally) some profit.

Such as a new factory, or more efficient technology--i.e. an improvement in means of production.

Whether the borrowing is by government, corporation, or individual, that is the standard which should apply to borrowers (and hence to lenders).

Infrastructural maintenance should be financed out of cash flow, NOT bond sales.  Likewise our kids' educations, which are just infrastructural maintenance, no different than keeping up a highway or bridge.

If you're borrowing for some other reason, you need to take a long hard look at what you're doing. 

Sun, 09/09/2012 - 18:30 | 2776883 Tippoo Sultan
Tippoo Sultan's picture

Fundamental fiscal purity.

+1

Sun, 09/09/2012 - 16:18 | 2776686 Jus7tme
Jus7tme's picture

>>138 Years of Economic History Show that It's Excessive PRIVATE Debt Which Causes Depressio

+1000

Completely true. Excellent article. The public debt has been a much lesser problem but does rapidly become one once the private loan losses are socialized by bailouts, zero-interest rate policy and tax losses.

 

THE GREAT RECESSION WAS CUASED BY EXCESSIVE PRIVATE DEBT.

Sun, 09/09/2012 - 18:43 | 2776910 sun tzu
sun tzu's picture

Guess what excessive public debt causes? Hyperinflation and collapse of currencies. The $16 trillion public debt wasn't socialized debt. It was pure government spending. 

Sun, 09/09/2012 - 17:26 | 2776788 Sean7k
Sean7k's picture

138 years of economic history show NO SUCH THING. When you have central banks that control interest rates and money supply, you have intervention that creates and awards misallocation that can then be rewarded by governmental intervention. This makes the main thrust of this essay one more common lie supported by cherry picking statistics.

For all the benefits of a debt jubilee, it should be remembered that jubilees were used to MAINTAIN THE ESTABLISHED ORDER, knowing that the same people would create a new debt overhang. Worse, Keen's solution is a hyperinflationary jubilee that bails out the banks. 

Before you declare the slaughter of sacred cows, you might want to look at a picture of a goat, because you are the goat in this argument GW.

Sun, 09/09/2012 - 16:11 | 2776674 Element
Element's picture

Ah, now we see what the BS in Iran at the non-aligned conference was about ...

--

RT - Just in News:

17:11
 
Egypt to ask for $4.8bln loan from IMF
 
­Egypt is seeking a US$4.8 billion IMF loan and additional budget support worth about $1 billion from the World Bank and the African Development Bank (AfDB), the country’s Prime Minister Hisham Kandil said. The IMF loan deal is expected to be stricken within “a couple of months”.  The funds from the World Bank and AfDM, half a billion from each, are planned to be received after the agreement with IMF. Egypt has been negotiating with the IMF since last year.
 
http://rt.com/news/line/2012-09-09/#id37087

--

So much for Egyptian independent foreign policy and sovereignty. 

Bankster jerks chain, Pavlovian dog salivates.

It's good to see things are getting back to normal.

Sun, 09/09/2012 - 15:45 | 2776638 EscapingProgress
EscapingProgress's picture

This may also interest you Mr. Washington. An excerpt from The Real Effects of Debt: "Our results support the view that, beyond a certain level, debt is bad for growth. For government debt, the number is about 85% of GDP. For corporate debt, the threshold is closer to 90%. And for household debt, we report a threshold of around 85% of GDP..."

 

Sun, 09/09/2012 - 15:40 | 2776631 bankruptcylawyer
bankruptcylawyer's picture

the kulaks---landed peasantry---have a modern day equivalent of just above upper middle class people who own between 100k-300k worth of income producing property as their retirement. 

 

the price structure of real estate will no longer support someone who plans to retire by selling his primary or secondary real estate. however there are many people out there that have a nice retirement based on income producing property , without being so wealthy that they are insulated from a recession that will accompany any significant political changes to the 'system'. 

 

the people who collect small but substantial rent as their only retirment income will fight tooth and nail against anything that would hurt the banks----because anything that does this, crashes the economy and will drive down RENTS. 

housing prices are already trashed. that story is old. the rent story is not old. soon enough rents may start coming down substantially in many places, particularly if any 'changes' are pushed through rents could crash by 20-30%. that would be a big hit to many people who plan to retire comfortably on rental income. these are the modern kulaks. 

 

 

 

Sun, 09/09/2012 - 22:44 | 2777404 Imminent Crucible
Imminent Crucible's picture

That is a very astute observation. Since bonds no longer produce significant income and equities are already grossly overpriced in real terms (that is, realistic forward earnings), there isn't much left to choose from except income-producing real estate. Thus, you must choose your properties very carefully, and be very careful how much you pay and how you finance them.

The best route is not to finance them at all, but if you must, buy the most distressed properties in the better areas and make them habitable through your own sweat.

Sun, 09/09/2012 - 14:53 | 2776527 spinone
spinone's picture

Its central bank intervention causing the distortion in the interest rates, plus cronyism that prevents the rule of law that causes depressions.

Sun, 09/09/2012 - 14:32 | 2776470 Snakeeyes
Snakeeyes's picture

And Clinton helped grow off balance sheet agency and GSE debt which eventially was larger than the Federal Debt!

http://confoundedinterest.wordpress.com/2012/09/09/clinton-miracle-was-really-spending-slowdown-gingrich-revolution-and-tax-cuts-of-1997/

Sun, 09/09/2012 - 14:26 | 2776454 Pool Shark
Pool Shark's picture

 

 

"But we keep pointing out that – instead of imposing draconian austerity – it would be much better for the economy to stop handouts to the big banks, stop getting into imperial military adventures and stop incurring unnecessary interest costs (and see this). That infuriates our conservative readers."

Actually, true conservatives don't believe in handouts to ANYONE...

 

Sun, 09/09/2012 - 14:17 | 2776420 GernB
GernB's picture

I have never heard the theory that public debt caused the debt crisis, making this a straw man article. What I have heard is public policy encouraging private debt worsens the crisis. Such as the "ownership society" leading to relaxed lending requirements & bundling mortgages Fanny & Freddie couldnt buy into MBS & foisting them on wall street. This led to a crash of the housing market and blaming wall street and banks for the deals we twisted thier arms to take.

I have also heard the argument that substituting public debt for private debt, as we did in the 1930s prevents necessary deleveraging and prolongs the crisis. Without it deeper recessions rebound more quickly. But, to prove that you'd have to go beyond 1929 and compare times when government stood back to times when it prevented deleveraging.

Sun, 09/09/2012 - 18:14 | 2776855 AnAnonymous
AnAnonymous's picture

I have never heard the theory that public debt caused the debt crisis

___________________

I have never heard the theory that debt caused depressions. Period.

Signed: an American.

Sun, 09/09/2012 - 19:10 | 2776948 TheFourthStooge-ing
TheFourthStooge-ing's picture

I have never heard the theory that my crapping on their roadsides caused the French to want me to leave their country.

Signed: AnAnonymous

Mon, 09/10/2012 - 03:28 | 2777737 AnAnonymous
AnAnonymous's picture

The fantasy has grown quite straightforward now...

Signing under the handle of another poster...

Plain forgery.

'Americans' know no shame.

Once a thief... One could wonder what your typical 'American' reproaches their elite with.

Sun, 09/09/2012 - 19:48 | 2777034 SafelyGraze
SafelyGraze's picture

mon chemin est votre chemin, mon copain

Sun, 09/09/2012 - 14:58 | 2776443 THE DORK OF CORK
THE DORK OF CORK's picture

@Gern B

One must ask who or what pays the interest on so called "sovergin" debt ?

If the sov holders are external to the nation then you must create credit bubbles to service this debt as tax is really deducted from your credit deposit account.

If you cannot create a credit bubble and yet still want the interest paid then you must slowly or not so slowly wipe out the population or at least its wealth.

There is now a massive crisis of domestic demand withen these eurozone countries because they don't own the money.....demand is thus exported to the financial centres where it is generally wasted on high quality Grot.

Looking at Irish national accounts....

 Y2006 : National debt interest paid to

residents : 826 million

Rest of the world :990 million

 

Y2011 : national debt interest paid to

residents :1,101 million

rest of the world : 4,067 million........

 

 One of the great switches for this crisis was the so called "Big Bang" of 1986...

www.tradingeconomics.com/united-kingdom/current-account

 

The UK went into a huge current account defecit after this ,only stopped for a short time by the EMU crisis of 1992 /3 ....the last time Ireland printed was in Jan 1994 I think to reduce the imbalances withen the then mini me Euro structure.

When oil was cheap the banks could run international energy / credit through these now fully non - national entities once known as Nations thus driving them into trade defecits but when oil was not so cheap they must drive them into current account surplus so that their base of operations can remain in real goods defecit.

 www.tradingeconomics.com/ireland/current-account

 However because of the post 1986/7 credit malinvestments in ireland its capital account is in very heavy depreciation......this seems to be the only way to drive these former countries into current account surplus....destroy their capital assets

For example the Irish car fleet is getting very much older.

Mon, 09/10/2012 - 08:35 | 2777953 OneTinSoldier66
OneTinSoldier66's picture

Just curious, what is 'Grot'?

Sun, 09/09/2012 - 18:59 | 2776938 Tippoo Sultan
Tippoo Sultan's picture

Thorough, factual response.

+1

Sun, 09/09/2012 - 14:10 | 2776406 nickels
nickels's picture

While Communism was our "nemesis" Capitalism had to exhibit relatively good behavior. Without a foil to play against Capitalism demonstrates the proverb about absolute power.

Sun, 09/09/2012 - 15:03 | 2776536 vast-dom
vast-dom's picture

wanna talk Keynesian demand? QE to the populace direct infusions (above and beyond foodstamps) will get Demand up. Nothing else will in current central planning banking model. Will that correct the fundamental structural issues? Not one bit. But it will stagger and delay out the unsustainable and inevitable. Hell with enough fake I mean fiat money the retail investor may even take another stab more at gamble with that free disposable income on the ponzi casino aka stock market.

(Note: the word disposable [income] in today's context -- when you treat fiat as disposable you essentially get what you call it -- a clever econ101 naming tactic and/or merely ironic.)

Sun, 09/09/2012 - 14:42 | 2776496 GernB
GernB's picture

The purpose of Capitalism is to give the individual power to influence what is produced so thier actual needs drive the economy. Power to the individual cannot be absolute because power is distributed across to many individuals. You have to pervert it then sell the perversion as Capitalism to create absolute power.

Sun, 09/09/2012 - 18:12 | 2776853 AnAnonymous
AnAnonymous's picture

Nah, all you need is aggregate demand and an 'american' middle class...

Sun, 09/09/2012 - 19:05 | 2776943 TheFourthStooge-ing
TheFourthStooge-ing's picture

.

Nah, all you need is aggregate demand

You've got rocks in your head (specifically, small stones, sand, and gravel).

Demand for aggregate only matters to people who mix concrete.

Sun, 09/09/2012 - 22:32 | 2777378 Imminent Crucible
Imminent Crucible's picture

Nanny-mouse speaks as if "aggregate demand" is something you can pick up at Wal-Mart or order off the internet. No, dude. You think and talk like a boneheaded Chinese central planner. "Aggregate demand" is a meaningless term for people like Bernanke and Mr. Magoo Greenspan and Wen Jiabao to bandy about, to keep the sheep confused and dazzled by their arcanery.

The feckless Bernanke imagines that he can conjure up Aggregate Demand by printing another trillion Benny Bux. He can't. Printing money does nothing to increase purchasing power for the public. It simply dilutes existing purchasing power, since it does not add a single potato or Bic pen to the economy. When Ben prints out Fed credit and hands it over to the money center banks, he's just transferring purchasing power away from people who worked for the right to consume goods and services to people who didn't. Shifting value away from producers and into the hands of thieves is not a viable way to sustain an economy. Which is why we keep tanking.

In the final analysis, ALL debt is private debt, just as corporations don't really pay taxes. Taxes are a cost of doing business, and they get passed on to the end consumer of corporate goods and services. Public sector debt ends up being some private person's tax bill. So the distinction between public debt and private debt is ultimately a false one. Unless, of course, you can figure out a way to get government to do something with its own money. Which it doesn't have.

Mon, 09/10/2012 - 03:33 | 2777744 AnAnonymous
AnAnonymous's picture

Nanny-mouse speaks as if "aggregate demand" is something you can pick up at Wal-Mart or order off the internet.

______________________

Made me laugh. Two 'Americans' at their poor game of obscuration once again.

If indeed I wrote about aggregate demand as something you can pick up at Wal-mart or order off the internet, why did I add as another condition an 'American' middle class?

Quite funnily enough, in the lengthy, verbose, childish attempt at sidetracking, the necessary 'american' middle class condition is eluded.

Guess what, 'American' elite are struggling to maintain the 'american' middle class in all of its entitlements cause Earth is running out of resources to support the 'american' middle class.

Mon, 09/10/2012 - 04:03 | 2777765 Kickaha
Kickaha's picture

Typed with the dung hand.

Sun, 09/09/2012 - 14:16 | 2776399 THE DORK OF CORK
THE DORK OF CORK's picture

Ireland had Pension "savings" also which ment our effective Goverment debt was near zero.

This crisis goes far beyond the concept of debt itself.

The EU is a very very very strange organisation.

The Elite have sought to attack the very concept of the nation state for some time now.....the Euro countries are what is now known as the most extreme of Market states.

They are effectivally non places ...conduits for capital movements ....in many respects they do not truely exist.

They are not true political entities.

The Central bank & civil service in Brussels has become the only political force.

The Eurozone lies withen the centre of this crisis - indeed its the heart of this darkness.

This is really a crisis of National sovereignty under full scale attack now from the free banking system.

Sun, 09/09/2012 - 14:58 | 2776533 falak pema
falak pema's picture

Ireland is the prime example of a country that ate at both troughs; the Eu trough as the Oligarchy trough of low fiscal incentive service corporations. Who swarmed in knowing that Ireland was being given the royal treatment by Euro structural investment programs, just like Portugal and Spain. They were getting fiscal advantage if they chose Ireland as Euro base.

It was shot down by the RE bonanza going sour and the private banksta scam that ruined country's finance, just like Spain and Portugal. Private malinvestment killed the country; and all those other fiscal advantage corporates then ran away in the 2008/2010 down turn, leaving the public accounts in shambles.

No wonder you feel the country has been double penetrated and lost its national integrity. It was the naive small guy who gets trampled when the market turns. POrtugal and Spain are in similar shape, although IMO Ireland will come out of this chastening experience first; a whole generation sacrificed.

 

 

Sun, 09/09/2012 - 15:16 | 2776580 THE DORK OF CORK
THE DORK OF CORK's picture

@Falek

Ireland never really had a monetary sov system (we were linked to Sterling until 1979)

However we had a few token national structures that kept capital inside the country - but at least the trade with the UK was rational from a geographical economy perspective.

We were given a Central bank only in the 80s so that we could integrate with the core of Europe and their Great Euro experiment.

The financial powers inside the country created a massive recession so that we could integrate with the euro core in the early and mid 1980s - this destroyed much internal commerce although they did finally print in 1986 I think.

Because of the Euro aversion to printing the country could not compete with the core of Europe on any level .... so thay had to get the revenue from somewhere.... - so they gamed the system  and got the scraps from the free banks and multinationals to pay for social services.

This distorted the entire domestic economy until there was soon no longer a rational domestic economy - we became the most extreme  market state on the planet.

If you want to look at what happened to Ireland  , look no further then its trade balance surplus growth - this wealth was going somewhere else...........

www.tradingeconomics.com/ireland/balance-of-trade      (turn the clock back as far as 1972 when it was in effective balance and somewhat rational)

Sun, 09/09/2012 - 15:50 | 2776648 fourchan
fourchan's picture

this is right on point. the queston to me is who is the person that created this? and why did they truely?

Sun, 09/09/2012 - 15:53 | 2776653 El Oregonian
El Oregonian's picture

Since the Federal Reserve IS a private entity then this headline is true.

Sun, 09/09/2012 - 16:16 | 2776683 Element
Element's picture

I'm pretty sure that if you transfer it all on to the public balance sheet the whole problem just goes away or something - give it a go.

 

2c ... hope it helps.

Sun, 09/09/2012 - 18:06 | 2776839 Zero Govt
Zero Govt's picture

The Dork - on this occasion I have to disagree with you 100% on the premise the decontruction of State boundaries is a problem, or that the re-erection of these false fantasies will solve anything

We are individuals, there is no collective, there is no national boundaries. National boundaries are erected as a false construct simply to control and tax the sheeple within, they have no other worth, indeed they are worthless for anything other than corrupt purposes

the flow of capital and humanity across nation States is uncontrollable and not worth controlling. All Govt intervention is destructive, not contructive, that includes pissing on peoples freedom to move themselves and their assets around the global village

those who seek to control capital (or humanity) will destroy what they seek

Mon, 09/10/2012 - 14:26 | 2779238 THE DORK OF CORK
THE DORK OF CORK's picture

In the market state  -they control the capital also...but it is hidden because politics is now absent - its now simply a less messy system for them.

The banks created the concept of the nation state during the 1600s & 1700s - I agree with you .

But the modern market state is probally not what you think it is - its simply the banking system remoulding people minds to increase its profitability.

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