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Where's the Help When You Need It?

Bruce Krasting's picture




 

 

The fellows who won the Nobel Prize for Economics, Alvin Roth and Lloyd Shapley, are Micro guys. They came up with models/algorithms that make the process of connecting needs to resources better/faster. This appears to be promising stuff that will have broad applications in years to come. The award sure sounds important:

"For the theory of stable allocations and the practice of market design."

The 2012 Nobel for Economics is not unlike the prize that was awarded to Myron Scholes and Bob Merton for their pioneering work back in 1997. The description from the deep thinkers in Stockholm for that award:

"For a new method to determine the value of derivatives"

The Black-Scholes model is the basis upon which 100s of trillions of derivative contracts have been created. We know what an important contribution to growth and prosperity derivatives have proven to be, right?

 

Forget Micro economists. What the world needs is a few Macro guys who can provide some direction for the incredible number of economic problems that are at hand (and the bigger ones that are looming). Damn near every country on earth is staring critical issues in the face.

Where are the economists that have creative and viable solutions? There aren't any. The reason is, there are no creative and viable solutions. There are only two schools of thought:

Austerity - This sounds good, but it has been a miserable failure so far. Look at Spain, Ireland and Greece. Think about what the Fiscal Cliff will do for America. If the US goes down the road of austerity on 1/1/2013, the immediate consequence will be a substantial recession. Unemployment would rise, tax receipts would go down, budget deficits would balloon. Nothing would be accomplished by American austerity, other than more pain and more red ink.

Keynesian Economics - This takes many forms, but ends with the same thing; Governments borrow money in a effort to maintain demand. Keynesian pump priming works for your garden variety economic slowdown. But there is nothing about the past four years that is garden variety. Deficit spending may have blunted the global decline for a few years, but at what cost? In the USA, federal debt has risen from $9.2T to $16.2T in the past four years. It may have "felt good" when the borrowed money was being spent, but it will hurt like hell as the interest and principal has to be paid back for the next twenty years.

 

There are a lot of good economists working at the Central Banks. They have short-term solutions for long-term problems. They have been applying those short-term solutions for four years now. Guys like Bernanke have promised that short-term monetary measures will be continued for at least another two more years. No doubt, oodles of zero cost money can provide a boost to an economy, but at what cost?

If you break your leg, you go to the emergency room, get a cast and begin the process of healing. Monetary policy is not unlike the emergency room. Y0u get patched up, and shortly thereafter you have to start walking on your own. The Fed moved at ambulance speed in 2008/09 to provide much needed emergency treatment. Four years later Bernanke has moved the patient to a hospice. The patient is receiving constant doses of morphine. The palliative care has made the patient comfortable, but death is inevitable and the clock is ticking.

Want proof? Look at Japan. Twenty years of ZIRP has translated to 300% Debt/GDP. Japan is an accident waiting to happen. The USA is (functionally) in year eleven of the Japanese experience.

The fact is, western economies have to adjust to the realities of a rapidly aging population. China has its own set of aging issues as the one-child policy is now creating a shortage of young people to support old. These forces are far more powerful than the puny tools of the the Keynesians and the uber-monetary policy wonks.

We need a few economists to step forward to acknowledge the aging trap. The "deciders" of global monetary and fiscal policy have been constantly sending the same message:

 

Give us another year or two, and we'll have all the problems licked!

 

There is not a chance in hell that they will succeed. It's as if they don't understand the essence of the problem.

A friend sent me some thoughts related to this. Quite dismal, but accurate:

 

The only way to have a soft landing is to accept a global recession as a consequence of the fiscal and monetary consolidation needed to get the world on a sustainable path. It's either that, or blast off and nuke the place from space, it worked in Aliens, maybe that's what we need here.

 

 

 

 

 

 

 

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Mon, 10/22/2012 - 23:05 | 2911660 cgagw
cgagw's picture

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Tue, 10/16/2012 - 15:09 | 2895781 michael_engineer
michael_engineer's picture

Here's an honest economic assessment :

http://www.zerohedge.com/news/observations-engineer

Resource supplies will most likely now dictate outcomes.

Tue, 10/16/2012 - 14:31 | 2895669 Hohum
Hohum's picture

The problems seem more massive when there is an imperative to "grow." Remove that imperative and the discussion to another way can begin.

Tue, 10/16/2012 - 14:28 | 2895646 AnAnonymous
AnAnonymous's picture

What is that song about finding new solutions?

Hey, it is well known that the cure for any ailment of 'americanism' is even more 'americanism'...

Tue, 10/16/2012 - 14:28 | 2895638 AnAnonymous
AnAnonymous's picture

Those two 'american' economists... Good laughters.

Connecting jobs to job seekers, like connecting kidney seekers with kidney donators...

Best is that those 'american' economists put their foot in the door, it is less and less about infinite growth, more and more about finited resources.

Of course, 'americans' wont feel one second ashamed of having started one of the biggest scams in man's history, the infinite growth.

Mind you, very soon, 'americans' will claim that it was the others who were in the bad trip of finited resources.

Cant be 'americans'

Tue, 10/16/2012 - 13:57 | 2895452 Donlast
Donlast's picture

My goodness there is some quality comment here but Variance Doc is truly excellent.  

Once upon time someone - I think it was the man who headed up GM before it became a welfare agency - said the "business of America is business".  That is what has died a death and I cannot imagine anything less than a revolution is going to change it. 

Unless America gets rid of its bureacratic burden and all its hangers on in the private sector, and the self-interested lawyers , the fawning academics like Krugman, America is into the end game.  It might also need to ban the Harvard law school and other Ivy League places of the same ilk who want to create a "living constitution".  This makes anyone who has read the Federalist Papers cringe in disbelief.

 

Tue, 10/16/2012 - 14:13 | 2895521 janus
janus's picture

that quote can be properly attributed to cal coolidge...i'm no nit-picker; just a fan of good ole cool-cal -- who would never-ever be elected in modern america. 

he was also credited with this lil bon mot:

a lady of society, aware of his parsimonious policy concerning words and the usage thereof, once challenged him at his inaguration...to wit:

lady of society, "pres. cal, i bet i can make you say three words before this soriee is complete."

cool cal eyeballs here cynically and tersly responds, "you lose."

but america won.

janus

Tue, 10/16/2012 - 13:55 | 2895442 Donlast
Donlast's picture

My goodness there is some quality comment here but Variance Doc is truly excellent.  

Once upon time someone - I think it was the man who headed up GM before it became a welfare agency - said the "business of America is business".  That is what has died a death and I cannot imagine anything less than a revolution is going to change it. 

Unless America gets rid of its bureacratic burden and all its hangers on in the private sector, and the self-interested lawyers , the fawning academics like Krugman, America is into the end game.  It might also need to ban the Harvard law school and other Ivy League places of the same ilk who want to create a "living constitution".  This makes anyone who has read the Federalist Papers cringe in disbelief.

 

Sat, 10/20/2012 - 04:54 | 2895400 Mediocritas
Mediocritas's picture

Gotta correct you on something Bruce.

There's no such thing as a good economist. If an economist is actually good then he will realize that his entire profession is based on faith rather than fact, that attempts to model the decision making of human populations are futile, (bearing in mind that the world's best scientists can't even model the complete set of molecular orbitals in a protein, let alone be able to accurately model a single eukaryotic cell, of which a human has trillions), and the "good" economist would quit being a practitioner of superstitious mumbo jumbo in favor of something worthwhile.

The economists that remain are the bad ones, doing this: http://www.andyfoulds.co.uk/amusement/economists.htm

 

Tue, 10/16/2012 - 13:03 | 2895204 ebworthen
ebworthen's picture

Hyperbistagflation and 50% capital gains and estate taxes the only way out!

The banks will be defended to the ends of the Earth, the ends of the Earth I tell you!

Tue, 10/16/2012 - 13:01 | 2895199 sangell
sangell's picture

"The Fed moved at ambulance speed in 2008/09 to provide much needed emergency treatment. Four years later Bernanke has moved the patient to a hospice. The patient is receiving constant doses of morphine. The palliative care has made the patient comfortable, but death is inevitable and the clock is ticking"

That's a gem. Can't top that so I'll be quiet and be happy for the 1.7% COLA the US government will offer those receiving SS and hope it helps them cover their 7.1% Medicare premium increase.

Tue, 10/16/2012 - 12:35 | 2895088 trichotil
trichotil's picture

it's all a buncha central bank p.r. bullshiat:

 

http://exiledonline.com/the-nobel-prize-in-economics-there-is-no-nobel-p...

Tue, 10/16/2012 - 12:30 | 2895066 JeffB
JeffB's picture

"Where are the economists that have creative and viable solutions? There aren't any. The reason is, there are no creative and viable solutions. There are only two schools of thought:

Austerity - This sounds good, but it has been a miserable failure so far."

---

I don't think we need the obsession on "creative" solutions. The remedies for our malady are already known and available to us. It's a little like a cancer patient rejecting the idea of surgery to remove the tumor. They want a more "creative", less painful solution.

But if there is none readily available, we really need to suck it up and take the necessary medicine. Putting it off.... forever... until we can't won't make things any easier, or better for us.

The viable solutions are the ones the Austrians put forth many decades ago. No need to "be creative". Just as a football team won't thrive if their focus is on creativity rather than ensuring they have the fundamentals down first, the world economy won't thrive on a creative smoke and mirrors solution either.

Let history be our guide:

http://www.youtube.com/watch?v=czcUmnsprQI&feature=related

Btw, from what I've read, the austerity that has been tried had not really been a shrinking of the government as a percentage of the economy. Despite some attempts at austerity the governments and their spending have grown.

The government beast is what is strangling the economies, along with the massive debts it has engendered and promoted in the private sector.

 

Tue, 10/16/2012 - 13:10 | 2895232 RKDS
RKDS's picture

I modded you down because you, like so very many others, don't understand that private sector dependence on government graft, not the concept government itself, is responsible for the private sector's failure.  If the government is to truly shrink to within sustainable spending or, preferably, Constitutional limits, then the private sector absolutely needs to remove its snout from the trough.  Boy are rich corporations that only survive by looting the public through purchased puppets in government in for a rude awakening when their real "value" is readjusted significantly downward.

Tue, 10/16/2012 - 16:19 | 2896039 anarchitect
anarchitect's picture

There was nothing in his comment that merited a downvote.  You're right, but anyone who adheres to the Austrian school would agree with you.

Tue, 10/16/2012 - 12:20 | 2895025 El Yunque
El Yunque's picture

As long as retail and investment banking exists in the same plane (plain?) with no rules to separate the two and the Fed has members that occupy both worlds, this is an excercise in futility that even a few thousand gawds can't fix.

The rest of us are just along for the ride.

And with a smaller circle of tight fisted super wealthy fighting taxation and redistribution, all you have left is a very large printing press and a shitload of ink.

I notice the ones with all of the electronic zeros attached to their wealth are also the biggest advocates for returning to gold as a backer for all that paper and electronica.

The way I see it, those guys need to stack that shit up to replace the paper when and if the big reset happens.

And if that's truly the case, they'll be the ones that also have the horsepower to set PM prices where ever the hell they wish them to be, thus if you ain't got a shitload of electronic zeros behind your name when the inevitable occurs, then your smaller stacks of gold plummet to levels that make you have to liquidate that shit the day the biggest enchilada on the plate says so.

The one thing that never gets mentioned in all of this shit, is taxing the fuck out of the guys raping and gaming all of this.

Most of the folks on this site don't run in those circles anyway.

So I can sympathize with the Kochs till hell freezes over and be the baddest ass economist in the universe and it won't change a thing about our collective shitty attitudes about wealth preservation, taxes, ZIRP, fuck-it-all.

Until we acknowledge our shitty attitude about it, this is mental masturbation with no happy ending.

Wish all you want to. Wring your hands, and hope the fuck someone realizes that prying the wealth out of the parking places of a few is about the only option we have left, no matter how tall your stack of gold is.

There will always be another asshole with more, and he sets the rules here, the rest be damned.

Tue, 10/16/2012 - 11:57 | 2894926 TPTB_r_TBTF
TPTB_r_TBTF's picture

.

... but it will hurt like hell as the interest and principal has to be paid back for the next twenty years.

So donT pay it back!  Who is it owed to?  To the bankers?  So just donT pay it back already!

 

Tue, 10/16/2012 - 11:47 | 2894899 newworldorder
newworldorder's picture

I think you make an assumption that economics as  planning and policy tools matter and can make a difference in solving our problems. Economomics does not matter as such tools. It has more in common with after the fact accounting than forecasting.

Social anthropology and behavioral  psychology are much more applicable in their application to solving our problems.

 

Tue, 10/16/2012 - 11:57 | 2894888 Variance Doc
Variance Doc's picture

Shitty post BK.

First and foremost, Shapley is not a “micro” economics guy. In fact, he is not even an economist. He is a brilliant mathematician, and of the many topics he delved into was (is) game theory. Just as Nash developed noncooperative game theory (e.g. Nash equilibrium), Shapley developed cooperative game theory, e.g. The Shapley value.

I know Shapley well, and as a matter of fact, he was my undergrad thesis advisor. It is the above work in game theory that he should have won with Nash, and not the topic he won the prize for; that is weak sauce in light of his body of work.

We are in a current state where economists *cannot* help in any way. We are at the event horizon. What is needed ASAP are leaders who actually enforce and prosecute the laws already on the books. These fuckers (bankers and politicians) need to be hung for treason at minimum.

If they continue the way things are, we will have a disaster of epic proportions. If we stop, delever and try to return to sound money and banking, there will still be pain of epic proportions. THERE IS NO WAY TO AVOID THESE TWO OUTCOMES. It is atonement for our sins.

What you also need to grasp is that the growth of the past 100 years was based on cheap energy. Those days are over. We will NOT have the same growth rates in the future, unless there is a revolution in energy. With the current system intact, this revolution is very unlikely since the practical technology will not be had over night.

Lastly, the BSM options pricing is arguably one of the beautiful pieces of applied math. Although, it has its problems, the state of the derivatives markets is solely due to the shifting of risk from the users/pushers of the financial instruments to the government and ultimately the taxpayer (who has been milked dry).

Tue, 10/16/2012 - 13:41 | 2895360 ebworthen
ebworthen's picture

Cheap energy led to the petrochemical boom in agriculture; mechanization, fertilizers, pesticides - all based on oil.

Higher yields per acre on an ever decreasing amount of arable land increasingly dependent on oil for irrigation of an ever tighter water supply and developing a salt pan in the soil as time goes by.

Take a look at this chart of corn yields/acre post 1940 (opens in new window):

http://www.washingtonpost.com/blogs/ezra-klein/files/2012/08/corn-yields-1866-present.png

Yes, the days of cheap energy are over, and we have built a fine house of cards.

Tue, 10/16/2012 - 15:05 | 2895765 Flakmeister
Flakmeister's picture

Does that include the 2012 season, i.e. projected yields? 

Tue, 10/16/2012 - 16:10 | 2896014 ebworthen
ebworthen's picture

I found it here:  http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/08/16/a-brief-history-of-u-s-corn-in-one-chart/

I'm pretty sure it includes USDA predictions for 2012 crop.

Tue, 10/16/2012 - 16:30 | 2896062 Flakmeister
Flakmeister's picture

It ain't pretty....

Tue, 10/16/2012 - 18:07 | 2896282 TheFourthStooge-ing
TheFourthStooge-ing's picture

Flakmeister said:

It ain't pretty....

It'll look even uglier if/when the Ogallala Aquifer taps out.

Tue, 10/16/2012 - 19:18 | 2896401 Flakmeister
Flakmeister's picture

Hey, I figure all we need are back-to-back El Ninos of moderate strength to show what an oxymoron "Drought Resistant Corn" actually is...

Tue, 10/16/2012 - 19:47 | 2896468 ebworthen
ebworthen's picture

And sending corn to a net neutral ethanol "solution" only makes it harder to feed people and enriches the corn lobby.

Tue, 10/16/2012 - 13:14 | 2895256 janus
janus's picture

i don't know if i could possibly agree any more.  well, i'm not terribly interested in who's a micro/macro--quant/quark; but starting with the forth paragraph, you lit into something special.

i say we breached event horizon with two awkward lunges at 'liquidity' (which were part of the same strategy): 1) the pegging of the swiss franc to the euro. 2) the coordinated printing from every major central bank late last year. 

everything must be destroyed; lest it destroy us first.

great job, variance...almost enough to forgive you for that phd -- actually, i forgive you; we all do things in our youth that we later come to regret.  take janus, for example:  i went through this phase with 'democracy'...i can only laugh at my former naivete.

http://www.youtube.com/watch?v=3FUGzwUTN80

i was so much older then/

i'm younger than that now,

janus

 

Tue, 10/16/2012 - 12:58 | 2895185 Clowns on Acid
Clowns on Acid's picture

Variance,

Great comment. I wouild add however that the "vanilla" BSM model assumed a normal distribution. Of course we all know that the normal distribution does not reflect the probaility curve in a world where CB's do not respect the ethical principles hard money / real interest rates.

So, Shapley's work is great stuff, however, it is theorectcial to the extent of the formulation of the distribution model used / assumed....similar to BSM model.

The probability that the politicians and CB'ers stay out of the busines of picking winners and losers thru their short fingered policies and regulations is low. Therefore Shapley's research looks great...on paper.

It's all about who influences shape of the actual distribution curve.

Tue, 10/16/2012 - 13:23 | 2895280 Variance Doc
Variance Doc's picture

CoA, Shapley used game theory to establish matching in markets where swapping and the use of money are constrained or forbidden. He did not contribute anything to the BSM framework.

Tue, 10/16/2012 - 12:25 | 2895045 Bruce Krasting
Bruce Krasting's picture

Thanks for the info on Shapely. He won the Nobel for Economic Science. The area of his work was "micro" versus macro.

I was an early days adherent to Black-Scholes. I used it to price currency options for Citi Bank in 1985, years before the award.

You are right, BSM is a beautiful piece of applied math. I milked the formula for every penny I could, every time I could. It's not so hard to get 98% leverage using derivatives. And of course, that is exactly what has happened on a very big scale.

You say that derivatives have "milked dry" the taxpayers. I say the milking has barely started. The postmortem on BSM is not yet written.

Tue, 10/16/2012 - 12:57 | 2895179 Variance Doc
Variance Doc's picture

No problem! He laid the foundations for the "practical" use in economics, which is why he was awarded the prize.

I have worked on new options pricing models that don't assume Gaussian distributions and can include leverage effects, etc. Of course the math and statistics get very complicated, and in practice, the users/pushers cut corners, which lead me to worry about their numerical results (e.g. pricing these contracts). And of course, that is with equity derivatives. I have also worked on credit derivatives, and the math/stats is harder and REALLY worry about the pricing of these contracts given the slick-ass, fast-food manner in which banks operate today.

I don't think leverage is a problem per se, as long as user/pusher is solely responsible for the downside risks. And that is the problem: the banks in collusion with the government to privatize the profits and socialize the costs. Take that away and see if the banks take on astronomical leverage. I don't think they would knowing that one bad bet could destroy its capital.

Yes, you are right, the milking has just started (at least *they* hope). In my opinion, with some REALISTIC future growth rates, the on-the-book deficit cannot be paid off with real money - the (ever shrinking) productive people of the economy do not have the real income stream necessary.

I do enjoy and read your articles....

Tue, 10/16/2012 - 11:37 | 2894859 Stud Duck
Stud Duck's picture

I was on the recieveing end of Paul Volkers policies, I had land, cattle, semi trucks and oil revenue. My theory was that if one leg of the chair got weak, I could shift the weight to the other legs, when interest went to 18%, cattle prices dropped 50% and land dropped 70%, oil dropped from $40 to $14 or less, that business plan went to the shitter. I watched to lawyers and judges buy the land, banks buy the oil and the trucks brought scrape prices.

Yes Paul Volkers plan helped those with governement cash flows, but the real producer was devistated. The lawyers and bankers, government employed bought up all the land, put it into the CRP program at $50 per acre for 10 years, so basically did nothing and paid the land off, now 40 years later they are selling the land for $3,500 here in western Missouri, building multi million dollar houses on retireing on their govt retirement!

When the SHTF comes, you know who I plan on visiting with my gillotine!

The Volker Plan is just another plan to help the rich bankers pick the bones of the real producers.

Tue, 10/16/2012 - 12:56 | 2895175 Shankopotomus
Shankopotomus's picture

I don't get your reasoning. If one of the legs of the chair's weak it's likely to break and a chair certainly can't stand on three legs. Not for very long anyways, especially if you try to shift the weight that was on the weak leg onto the other three asking them to hold up the weight that was meant for four to start with.

Tue, 10/16/2012 - 16:24 | 2896047 anarchitect
anarchitect's picture

If real interest rates rise, it diminishes the present value of other assets.  And the flip side of this is that ZIRP blows (asset bubbles).

Tue, 10/16/2012 - 12:16 | 2894896 LawsofPhysics
LawsofPhysics's picture

I am similarly positioned now.  The big difference is that interest rates cannot be increased without killing the dollar and the Fed.

I also have over 1,500 employees and I know they will also participate in your "guillotine visit"

Fucking bring it.  Rock meet hard place, and the only fuckers that fear a reset are those who know that the real value of thier labor is fucking zero.

Clear the bad debt and reset or kill yourself, this is the choice before the owners of the Fed.

Tue, 10/16/2012 - 11:34 | 2894827 NEOSERF
NEOSERF's picture

The real schocking thing in Europe as far as I can tell is that no real money has been distributed except for a couple of small countries.  The ECB is functioning like Fannie and Freddie with a "gimme your junk and we will wait it out" mentality.  The ESM can't be started because it would require real taxpayer money to be deposited unless IOUs will continue to rule the day.  Spain's austerity has already doomed it to a Greece-like existence and when I read stories about Italy, it is pretty clear they are only 5 months behind Spain...France numbers should start to plummet like their car-makers any month now and that does leave Germany who you can bet are making serious plans to leave the mess behind before their citizens have to work 16 hours to pay for moldy Greek bread...seriously, when does this finally collapse!!!

Tue, 10/16/2012 - 11:32 | 2894816 Everybodys All ...
Everybodys All American's picture

Federal Government austerity. Cut down the size dramatically. Get rid of entire departments where possible. Start with whatever departments you like and demand a 25% across the board cut in their spending. If that means layoffs so be it. Bruce austerity takes time. A long time and it has worked before in the Warren Harding administration. That's right a US president actually asked the people to live within their means and it worked.

Tue, 10/16/2012 - 13:36 | 2895342 Kayman
Kayman's picture

And devise a measure of productivity in Government, and if they cannot meet the standard, nobody gets paid.

Tue, 10/16/2012 - 12:14 | 2894995 GeezerGeek
GeezerGeek's picture

You've described only part of the solution. Until the reguatory strangulation imposed on businesses is greatly reduced, the productive economy will remain stagnant at best. At the simplest levels, do we really need goverment going after lemonade stands and raw milk producers? I'd suggest that most government agencies should be reduced not by 25% but by 90%-100%.

Tue, 10/16/2012 - 12:28 | 2895057 LawsofPhysics
LawsofPhysics's picture

Oh yeah, banks will certainly love less oversight - FAIL.

Hey dipshit, regulations aren't the problem, regulatory capture is.

Tue, 10/16/2012 - 11:29 | 2894797 barliman
barliman's picture

 

Your friend:

The only way to have a soft landing is to accept a global recession as a consequence of the fiscal and monetary consolidation needed to get the world on a sustainable path. It's either that, or blast off and nuke the place from space, it worked in Aliens, maybe that's what we need here.

... is an optimist. What needs to happen is for the "falsework" supporting the markets to be ripped away. All the QE, all the EU/euro nonsense, all the Chinese "imaginary numbers" ... in short, all the lies have to be exposed and the markets be allowed to crash for fair and then clear through their normal processes.

EVERYTHING else is an exercise in futility & fairytales and only adds to losses.

If we need some distractions to maintain social order - let's start feeding Central Bankers to lions and tigers and bears on live TV.

The ratings would top the Super Bowl easily.

Tue, 10/16/2012 - 12:20 | 2895023 GeezerGeek
GeezerGeek's picture

Anyone remember the claymation series 'Celebrity Death Match'? For a real distraction, put Mitt and Barack in a ring, or Joe Biteme and Paul Ryan. On the other side of the gender divide, consider Michele Bachmann vs. Nancy Pelosi. And in a battle of Secretaries of State, Condi vs. Hillary.

I'd even pay to see some of those matchups.

Tue, 10/16/2012 - 11:30 | 2894796 kaiserhoff
kaiserhoff's picture

Not one of your better efforts, Bruce.

 

1 The problem was never derivatives.  Options and futures worked just fine with standardized, transparent contracts for years.

The problem was and is, insuring uninsurable risks, like the demise of France or Spain.  No insurer or group of re-insurers has the capital or cojones to cover that.  Never has, never will.

2 The third, and correct option for the future is austerity for government and central bankers, so we can, once again, have free markets and a healthy private sector.

 

Tue, 10/16/2012 - 11:14 | 2894744 MillionDollarBoner_
MillionDollarBoner_'s picture

"For a new method to determine the value of derivatives"

Black Scholes...or Black Holes ;o)

Tue, 10/16/2012 - 10:02 | 2894468 bank guy in Brussels
bank guy in Brussels's picture

There actually might be more viable solutions from some economists, but they are so marginalised in terms of the professional and governmental Powers That Be, their voices are being drowned out by the lower-quality stereotypes like BK has in the above article, the stereotypes of brutal 'austerity' or wasteful irresponsible so-called 'Keynesianism'.

The journalism of Ambrose Evans-Pritchard has suggested two important but drowned out voices offering solutions. They don't match each other, but it is possible one or the other would work

One - also featured on ZeroHedge at times - is the sophisticated adaptation of Keynesianism by Japan's great Richard Koo - the private sector should de-leverage, but no brutal austerity, and the government does use fiscal stimulus to maintain momentum up to the maximum level of the domestic savings pool within a country. Koo recommends this while being extremely restrained with monetary tools.

A differing but opposing view of great significance - documented by Evans-Pritchard - is the small cadre of real dyed-in-the-wool 'monetarists' the classic type, of whom there are not very many around. These folks argue for a focus that may sound like the 'QE' attempts but actually are notably different, namely, maintaining certain money-supply parameters at a high level, with more direct transmission mechanisms than QE liquidity to banks and banksters. - Some have proposals like putting enough money supply into spending sectors to keep nominal GDP above the interest rate, till we are out of the hump, a sort of inversion of the greatly successful monetarist policies by Paul Volcker to defeat US inflation in 1979-82

Neither approach is really being tried to the degree their proponents, quite credibly argue would work. As Ambrose Evans Pritchard gamely suggests, it is actually possible that either of them could work.

Yet what is being done, is clearly destructive to the point of insanity. Wasteful and potentially catastrophic QE for banks, austerity that creates national economic death-spirals, propping up the dysfunctional euro currency that actively prevents nations from using tools that could well work ...

Ideas are out there that could be tried ... but it seems the Powers That Be are either so incompetent they are stuck repeating past mistakes and failed practices, or, perhaps even more credibly, the Powers That Be have some agenda of destruction of the Western world ... perhaps with the ultimate goal of 'neo-feudalism', of destroying the era where, especially in north-west Continental Europe, common people could have a comfortable and secure life.

Tue, 10/16/2012 - 17:39 | 2896225 sunkeye
sunkeye's picture

re koo and govt def spending while priv sector de-levs:

at some point doesnt the total debt become too great?

Tue, 10/16/2012 - 13:32 | 2895324 Kayman
Kayman's picture

Until the U.S. goes back to managed trade instead of "free" trade, and until the Fed stops destroying the value of money through ZIRP, this morass will continue.

Stability and certainty are the basis of investment and Bernanke seems to want you to be certain that the future depends solely on the Fed. I have news for you Ben. The Fed is dead.

Tue, 10/16/2012 - 12:22 | 2894900 Mercury
Mercury's picture

BGIB: Ideas are out there that could be tried ... but it seems the Powers That Be are either so incompetent they are stuck repeating past mistakes and failed practices, or, perhaps even more credibly, the Powers That Be have some agenda of destruction of the Western world ...

 

Actually, neither central planning nor cultural masochism will prove to be winning strategies in the end.

First the political banners turn black and red, then the accounting ledgers go from black to red, then reality goes black...and red.

one
 

two...

Tue, 10/16/2012 - 11:40 | 2894825 Ghordius
Ghordius's picture

a viable solution IMHO has to be explainable to the electorate, the political, commercial, industrial and banking interest groups in order to be viable. this was one of the reasons why Volcker was able to "pull it off" - his move was embedded in preceding years of stagflation and a completely different awareness.

throwing money at a problem is usually the quickest, fastest way to solve it - if your purse (pardon, today read credit) allows for it. though at a certain point you have to make sure that it's not structural/endemic/chronic, otherwise the next problem is simply too much.

"reflating" an economy usually works in the way two aspirins and a day in bed work - it's a palliative. and it might have a placebo effect, best seen in bubbles.

as ZH has highlighted, we have both a deleveraging/defaulting wave going on and a reflation, at the same time. this is confusing for everybody. and turbolent

further note that some of the problems are due to the disparate sizes of the actors. to be more clear:

- if the MegaBanks were smaller, they would be easier to "fix". at this very moment it's difficult to even stop them from lying and stealing.

- if the currencies currently embedded in what you call "dysfunctional" euro would not be in the current double-fastened "currency grid called a currency union", several of them would have had very, very strong depreciations and a few others would have had very strong appreciations. Here it's a case of Bastiat's "what is seen and what is not seen". Are you old enough to remember the last currency skirmishes? Soros isn't, that's why he wishes the DM to break up from the EUR. Disfunctional? I note that the Danes and the Swiss have pegged themselves to this "disfunctional" beast. Nope, IMHO the EUR is "working as designed", and size is one key ingredient of it.

I see you have a high opinion of AEP. You seriously don't note that he does not care to use conflicting arguments as long as his "this EUR must die" meme is fed? Should the impossible happen and the British Pound goes the way of the dodo, would you still have this current sets of opinions?

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