This page has been archived and commenting is disabled.
Macroeconomics Is The Root Of All Error
Submitted by Bill Frezza via The Daily Caller,
Will Fed chief Janet Yellen pull the trigger to raise interest rates in September or not? Only the soothsayers at Jackson Hole know for sure. But while the world awaits the decision, ponder this. What do the following have in common?
- Asset bubbles fueled by monetary policy.
- Unsustainable sovereign debts threatening government bankruptcies.
- Government economic “cures” worse than the diseases they are supposed to treat.
- Questionable GDP statistics.
- Recurring bank bailouts.
Figured it out yet? They are all driven by an overweening state religion called macroeconomics.
Friedrich Hayek said it best. “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
A pity this simple, yet profound insight remains at the fringes of a field that continues to wreak havoc in the hands of those who imagine they can design economic outcomes.
Think about it. We are currently watching global stock markets gyrate toward breakdown trying to anticipate the whims of a cloistered professor who never launched a business, never met a payroll, never shipped a product, and never won an election, yet has been empowered to determine the price of money. What’s even stranger is that people consider this normal. Ask yourself: Why do we wait on pins and needles for Janet Yellen to set interest rates yet laugh at the idea that kings once set the “just price” for a loaf of bread?
That’s where Hayek’s curious task comes in.
The human inclination to seek order in a seemingly chaotic world has long been exploited by generations of pundits, professors, and politicians eager to convince us they can impart certainty to the unknowable.
Note that I say the unknowable, not the unknown. Science has proven quite adept at exploring the unknown. That’s because as science progresses, falsifiable hypotheses that fail to make accurate predictions get discarded in favor of alternatives that do. No so in macroeconomics, whose prognostications bear an uncanny resemblance to predicting the nature of the afterlife. Rather than make continuous progress, the same discredited macroeconomic theories tend to cycle in and out of fashion depending on which court economists have the upper hand at any given time.
One cannot perform controlled macroeconomic experiments because “the economy” is not a measurable thing, like the weight of a stone or the strength of an electric field. It is merely the name we give to billions of transactions that take place across the planet, each driven by decisions made by independent actors optimizing their own well being according to their own criteria. These criteria cannot even be articulated by many of the players themselves, much less known to a third party pretending omniscience. Undeterred, practitioners of the black arts conjure up aggregates like “GDP” or “CPI,” but any honest examination of these metrics quickly leads to the conclusion that they are nothing more than political fictions that can be manipulated to suit the policy proclivities of the moment.
Macroeconomists use GDP to characterize billions of economic transactions, supposedly like a physicist uses temperature to characterize the average kinetic energy of gas molecules as they bump into each other in the atmosphere. They come up with equations linking the velocity and quantity of money to the inflation rate, or the inflation rate to the unemployment rate, designed to look like the ideal gas law PV = nRT. This fools many people into believing these soothsayers are doing science.
But gas molecules are not willful. They don’t have hopes and fears, friends and enemies, retirement savings and mortgage payments. Gas molecules don’t change their behavior when you tell them what their temperature is. The idea that you can write equations to accurately capture complex human behaviors, and then develop policies based on these equations aimed at controlling those behaviors, is what Hayek called the Fatal Conceit.
Macroeconomics reigns in the realm of the unknowable promising that which cannot be delivered to the eager to be deceived, benefitting an entrenched priesthood and the potentates they serve. Its cloaking in mathematics, rather than music and incense, gives it the requisite air of mystery to discourage questioning the guidance of its anointed sages and prophets. Unless and until we acknowledge that what these people are practicing is a religion and not a science, we will remain in its obscurantist thrall.
When scientific laws consistently fail to make accurate predictions, we throw the laws away. What happens when predictions about the impact of macroeconomic interventions fail, such as the inability of quantitative easing to deliver anything like the results promised? There is always a macroeconomist standing by to claim “we didn’t do enough.” And so the answer to every policy failure is: “Give Us Moar!”
Thus, the goal of reformists cannot be to simply replace one set of grandees with another, but to throw the Church of Macroeconomics out of the Overton Window, so it can pass into history alongside phrenology, phlogiston, and luminiferous aether.
»
- 21658 reads
- Printer-friendly version
- Send to friend
- advertisements -
What the world needs is moar central planning!
Macroeconomics is not the problem. It is just a tool in the hands of the kleptocrats.
I have a degree in micro. If macro economists knew anything they would be managing hedge funds, they would be CEOs.
They never are. They divine chicken guts... on a good day.
Half the book is garbage propaganda. Printing money is good, cheap money is good, inflation stimulates employment. Pretty useless and dangerous shit for naive students who believe the crap. Then again that pretty much describes most of the college curriculum these days. One big dictator worship session.
this article is right, though
economic theories are like grasping an eel, then telling everyone your fist is the eel. It isnt, it only holds the eel long enough to slither out of your grasp, or otherwise bite you on the wrist.
the Kruggybear approves of this comment.
If the Gubmint only got involved, they'd fix everything!
From day one it was clear that the priesthood used the mysterious term "Quantitative Easing" to intimidate the bulk of the population who needed to be convinced that the geniuses on the Fed knew what they were doing and would rescue us all. Why would we stupid little people want to look under the hood when the great and all-knowing Fed had our back? Well, they sure as shit knew what they were doing, but rescuing US wasn't part of their game.
Macroeconomics is the capitalist name for the same concept used by the Soviet and Eadtern Block to plan economical growth in 5 years cycles. Does somebody wonder results are the same?!
When the resources go out - the system collapses, there is no such thing like infinite growth, but there is Ponzi for suckers and it seems that resource is nver ending indeed :)
"Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation of debt by the non-government sector. He identified three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculativeborrowers, and Ponzi borrowers.
The "hedge borrower" can make debt payments (covering interest and principal) from current cash flows from investments. For the "speculative borrower", the cash flow from investments can service the debt, i.e., cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal. The "Ponzi borrower" (named for Charles Ponzi, see also Ponzi scheme) borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat."
Now, how familiar does this sound?!
https://en.wikipedia.org/wiki/Hyman_Minsky
Macroeconomics is the problem. Here Mencius Moldbug brilliantly explains why macroeconomics not only does not work but cannot work:
http://unqualified-reservations.blogspot.com/2008/08/de-gustibus-non-com...
Most professionals, if they behaved like bureaurocrats and economists, would find themselves in front of a jury for malpractice.
Watched the Nightly Business Report tonight.
WOW, totally clueless.
A totally one sided view, with almost palatable sense of fear of both the "journalists" and the "analysts". Each competing with the other to try and outdo each other in Positiveness.
My neighbor was over for dinner and after we watched a "business report" on TV tonight. He's a regional manger for a retail store and was flabbergasted by their attitude. He asked, "How can they be so clueless to the plight of the average consumer?"
He mentioned the number of credit cards turned down at the counter at their stores now is at an all-time high, and that's for fairly small amounts. So we wondered if these "analysts" are paid [in bonuses or job security] to knowingly lie, or are they really clueless?
USSA - *In the bliss of ignorance we trust!*
Pewblik Radio. The same people who approve the food and drug supply, edewkayte da chitlins, Police the streets, and occupy the Armed Forces.
What do you expect? The 'markets' are such a convoluted and abstract monstrosity that it makes lawyer speak look like ebonics. It's merely the new priestly class that pretend they have knowledge that is above the masses. Why is it exactly that anyone needs or wants a green tulip? The only result will be the one that has invariably happened from the begining of history, since agriculture. The end result will be a smack down and people returning to wealth being the surplus of your productivity. In otherwords, getting off your lazy ass and working for a living.
For the last few years it has been very simple.
QE equals growth
Free money equals growth.
Remove the pump and the economy stops.
It was not really there.
I disagree. The cartoon is of the Emperor naked. This country is the Emperor. The imperial. We do nothing for anyone else other than consume, hand out painted paper or send in troops or sanctions. You can not get around the fundamental of the common denominator. How useful to others are you? That alone determines your wealth. It's just a case of the rest of the world re-evaluating how useful everyone else is.
And that is called a market.
If it isn't macroeconomics, it'll be something else. Ruling elites will use any excuse to justify themselves to the credulous public. Divine Rights. Social Contract. etc etc.
Religion follows the same pattern. In its own way, the first chapter of the Bible says God created order out of disorder.
“'Do not meddle in the affairs of wizards, for they are subtle and quick to anger.’” - Gildor in Three is Company
Academics fuck up everything they touch. This is a hoot watching these pompous ass holes squirm while trying to figure out if they can raise the interest rate a shitty quarter point without dropping the whole pile of financial Jenga sticks.
She thinks "She's Buying The Stairway To Heaven" and leading us all to hell.
Those whom the gods would destory they first make mad.
Academics are never challenged and have no concept they could be wrong ever. To ever admit mistakes would challenge everything about who they believe they are.
What kind of people have we become that we would sit on the edge of our seats to hear this disgusting woman – Janet Yellen -- tell us what the bankers have decided we can endure for their benefit?
What kind of king is this disgusting women that we should let her rule us?
What kind of media, what kind of congress and what kind of president do we have that they run for cover like cockroaches when the cartel threatens them?
How long will we be forced to listen to her?
Money is power and they intend for you to have none.
None of this criminal activity by Janet is possible, of course, without the express intent and direction of the private owners of the Federal Reserve.
The owners of the Federal Reserve control the currency, which means they control most every major financial operation in the world, down to whether this company is to go or that company is not; whether this sovereign is on go or that sovereign is not; whether you and your savings and your future are to go rapidly or slowly.
Without the economies of Germany and the U.S., the Fed would be powerless. The taxpayers need to go for the lynchpins at the core of the real money power—the families behind the Fed, not the lieutenants, not the field staff of the mob – be it by hook or crook or bazooka.
How does one identify the Fed’s legal plunder?
Wrote Bastiat in The Law: “Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.
“Then abolish this law without delay, for it is not only an evil itself, but also it is a fertile source for further evils because it invites reprisals. If such a law… is not abolished immediately, it will spread, multiply, and develop into a system.”
Hand clap for the Bastiat quote. Nice.
The Fed Govenors are totally NUTS, but what is more depressing is that they have successfully and totally FOOLED the American/World populous into palpating a 1/4% increase as the beginning or end of the new world.
Can anyone out here remember when interests rates were going up 1/4% PER WEEK in the midle 1970's when residential mortagage rates were 18%, commercial 23% and AA-AAA muni bonds 12/14%?
You are being brain washed into believing what thes folks WANT you to believe!
Caveat Emptor in the highest degree and you are definitely falling for it hook line and sinker!
My first home: 10% 30 year (fixed). First bonds: Washington Public Power Supply System (WPPSS) 15% (tax free) fixed rate for 30 years (of course the were refunded (called)). Aaaah, the good old days.
Same for the first house. The bonds were Chyrsler 9 1/4 bought for 42 cents on the dollar and Dupont 8 1/2 bought for 62 to 64 cents on the dollar. All called in the 90's.
The Fed Govenors are totally NUTS, but what is more depressing is that they have successfully and totally FOOLED the American/World populous into palpating a 1/4% increase as the beginning or end of the new world.
Can anyone out here remember when interests rates were going up 1/4% PER WEEK in the midle 1970's when residential mortagage rates were 18%, commercial 23% and AA-AAA muni bonds 12/14%?
You are being brain washed into believing what thes folks WANT you to believe!
Caveat Emptor in the highest degree and you are definitely falling for it hook line and sinker!
no the FED governors get paid $100k a speech to the crooks on Wall Street. No FED or ex-FED governor should ever receive one dime from those they regulate!
The Fed Govenors are totally NUTS, but what is more depressing is that they have successfully and totally FOOLED the American/World populous into palpating a 1/4% increase as the beginning or end of the new world.
Can anyone out here remember when interests rates were going up 1/4% PER WEEK in the midle 1970's wen residential mortagage rates were 18%, commercial 23% and AA-AAA muni bonds 12/14%?
You are being brain washed into believing what thes folks WANT you to believe!
Caveat Emptor in the highest degree!
Amen bro. Not only that, buyer beware.
Going to an economics 'Expert' is akin to going to a Catholic priest, a fellow who has never married or had children, for marital advice.
If you haven't ever dirtied your hands with the nuts and bolts running a business or investing then you have no business being an 'expert' in it either, no matter how many letters there are behind your name.
That is the problem with socialism, a place where America is headed, the government 'experts' tell mom and pop businesses what they can handle. This is being a big problem for main street.
And why do you call a system solely based on the private ownership of the means of production (and the creation of ‘money’/fiat) socialism? What is your definition of socialism?
First the original poser never said America is Socialist, he said it is heading there. Secondly American is not solely based on private ownership of the means of production. Most major industries are very heavily regulated and the major corporations and the state are married and incestually intertwined. The money supply production is also based on a monopoly and is not free market. By definition if the money supply is not free market you cannot have free market Capitalism. America is Corpratist, not Capitalist. Corpratism is far closer to Socialism than it is to Capitalism. Do't confuse the facade for the reality. This is a centrally managed economy a thte macro level and thus doomed to failure to due to the error and inefficiency inherit in that approach.
Guillotine the Fed. Audit the heads.
Zion is a scheme, not an ethnicity.
"Will Fed chief Janet Yellen pull the trigger to raise interest rates in September or not?"
lol...no.
Even .25% of twenty trillion (and climbing like a rocket) is a lot of money. But but but baby panda's will die, austerity is evil, we can have our cake and eat it too.
Skittle shitting unicorns and fluffy kittens forever!
Oh...and as a special message to Kanye Northwest (whatever the fuck) don't scroll down to the unfunded liabilities ;-)
http://www.usdebtclock.org/current-rates.html
The leftist mind is one that has been essentially disabled, and therefore reality has become anathema according to all tentacles of leviathan.
So far removed from classical 'Liberalism' as to cause immediate and severe cognitive dissonance to any healthy mind/psyche.
We truly do already exist in a quasi 'zombie' society.
The majority of the population has now been reduced to "useful idiot" status ( of either the dumb/dumber party, or the double dumb/even dumber party).
Statism is ALWAYS terminal.
Monopoly is the wrong, not [any-]economics.
Dear Author, ZH, nice post. God's work will not be done by mortals. It is apt for me to publish the "General Theory of Inflation". The theory is so simple that I will not bore you with more then few sentences. Whether your doubts will be dispelled or not will not only depend on the correctness of the theory, but also on your ability to believe.
http://just-a-thought-from-thinair.blogspot.com/
Wtf?
Inflation is created by scam banksters and solely exists to keep their currency ponzi alive.
That is it.
Period!
Two thumbs up Bill. Brilliant analysis.
The closer the money decision is to you the more honest it necessarily becomes. Micro is sustainable. Macro not so much.
Chipped Ham
Chipped ham, meet DEEZ NUTS!
"When scientific laws consistently fail to make accurate predictions, we throw the laws away."
Why does the author undercut his own thesis?
People still listen to weathermen everyday.
Actual scientists have undertaken the largest and most expensive bias confirmation exercise in human history and run with it, despite it failing to ever make an accurate prediction.
There are limits of the ability of science, mathematics and even the Dismal Science to answer specific questions. The failure is not of the discipline, but rather of the practitioners to understand, to construct models, or to honestly convey the applicability of the model to real world.
When Keynes invented his Macroeconomics and supplanted true economics, it was a propaganda coup. The control freaks were given a patina of science to cover their meddling.
They're engineering a Kinder, Gentler crash.
With Deez Nuts in charge, i'll kick the jooze out of the FED and end it once and for all!
Vote Deez Nuts 2016!
i'll kick the jooze out of the FED and end it once and for all!
What is with the Jew obsession? They are just the front men designed to gather your hate.You think Warren Buffett is Jewish? Or a thousand others?
You know what the Dark Side says. "Give in to your hate." Orwell warned against the daily two minutes of hate.
Just end the FED.
Any 11 year old kid who's owned a paper route can tell you more about economics than any professor can.
It's all there. Credit, debit, cap ex, deficit spending, wages, prices, investment, write-offs, etc. etc.
Losing out of pocket money really flattens the learning curve and sharpens the wits unlike postulating theoretical scenarios tailored to fit preconceived concepts.
One thing is constant as the North Star...
If you spend more than you make...
You're broke.
No matter what else economics professors may want to call it.
What the article ignores is the fact that destruction is metaphysically/inherently vastly more powerful and potent than production/creation.
Which means, if the goal of the predators-that-be is destruction, any old fundamentally bogus theory/rationalization "works" just fine. Where "works" means "gives them justification to dominate and confiscate through destruction".
Almost every modern rationalization involves at least one indirection, which apparently is too indirect for sheeple to figure out. Which is why human predators rule the planet, and shall soon enslave and/or destroy the vast majority of the sheeple.
What sociopaths do is tip their hand in advance so they can say,"See, I warned you, so it's your fault that you got caught in my trap!" For some reason, they have a need to exculpate themselves and blame the victim. Why they can't just admit they are evil is a mystery.
How have they tipped their hand this time? I believe Cyprus and Greece provide the answer. It's just the economic hitman model being applied to so-called first world countries. Same modus operandi, clear as day. Coming to a theatre near you.
I agree. They know they're total evil, the brag between each other how they are predators. That's why a huge portion of them proudly and openly chose an owl as their symbol --- the wise, crafty predator.
Everything you say is true, and important for people to understand.
Sounds to me like the fed people are about as stupid as your vaunted markets: a match made in the depths of hell.
I have sent a memo that contains the following to all the presidential candidates, not that it will do any good, but so I can die with a clean conscience:
"The economic and political collapse of the Soviet Union having occurred within our lifetimes, it is difficult to comprehend how the tenets of central planning can dominate the policies of the supposedly free-market economists, from Greenspan to Yellen, who have been given the responsibility since Reagan of regulating the money supply of the supposedly capitalist United States.
"Chairman Yellen’s talk about the “data points” that the Fed is looking at to determine when to end more than seven years of ZIRP is, in fact, reminiscent of nothing so much as the ditherings of the Soviet Gosplan about one of its doomed-to-failure five-year plans. As if a room full of “brains” were smarter than the decision – backed by hundreds of thousands, if not millions, or in some cases hundreds of millions of people – that is represented by the market price of a given item.
"And is there any more important price in an economy than the price of money?
"The Fed has proven itself exactly as competent at determining what interest rates ought to be in the U.S. as the Gosplan was at determining what steel production should have been in the U.S.S.R. The Fed’s incompetence can be seen beyond doubt by an examination of the liquidity trap into which it has led us by its artificial suppression of interest rates over the last thirty-plus years.
"This liquidity trap can be described in terms anyone who has ever had a mortgage or a car loan can grasp.
"If in 1980 I was able to secure a loan of $1 million at a 10 percent interest, my expense to carry that amount would be $100,000 per annum. Now if in 1990 I could get an interest rate of 5 percent, I had a choice. I could either roll the million over, and lower my expense to $50,000 a year. Or for the same annual carry, I could up my indebtedness $2 million. Most governments and firms chose the latter. Similarly if in 2010 I could get an interest rate of 1 percent, I could up my indebtedness to $10 million dollars for the original carrying charge of $100,000 a year.
"At this point, however, what if my interest rate goes to 2 percent, a mere 1 percent rise? My expense to carry that $10 million immediately doubles to $200,000. To keep my annual outlay the same, I would have to pay off half my debt to the tune of $5 million. Even if my interest rate only goes up a quarter point to 1.25 percent, it still raises my carrying charge by a whopping 25 percent.
"The above numbers have been simplified for sake of the example. The prime rate, which is calculated at 300 basis points above the FOMC’s target rate, has actually gone from a high of 21.5 percent in December of 1980 to a low of 3.25 percent in December of 2008, where it remains today.[1] But the underlying dynamic is not arguable.
"Changes in interest expenses are determined, not by the change of the interest rate in absolute terms, where a quarter point seems small. They are determined by the change relative to the interest rate’s current level. Thus, the difference in effect when the prime rate at 21.25 percent was raised a quarter point, compared to the effect when the prime rate at 3.25 percent will be raised a quarter point – as soon as this September – will probably have to be measured by an order of magnitude.
"Thus the Fed has led our economy into a liquidity trap, in which the prospect of a quarter point rise in interest rates has made the financial markets begin to totter.
"What makes any trap a trap is the difficulty of escaping from it, and this liquidity trap is far from being an exception. If the country’s over-leveraged governments and firms are allowed to default, we will risk a depression. But if we inflate directly by printing money – which is exactly where the political pressure will be – we will risk a collapse of the dollar accompanied by a hyperinflation that could bring the nation to the point of political instability, while at best merely papering over the underlying problems.
"I haven’t the foggiest notion, this far down the road, of what third option may exist...
"Unfortunately, by now, it is much easier to describe the root problems than it is to formulate any good solutions. But at least it’s a first step."
[1] Source: http://www.fedprimerate.com/wall_street_journal_prime_rate_history.htm
Very clear-headed analysis. Thanks for that.
It's all e^x when push comes to shove. As for a solution to this, the only possibility is total destruction of the economy and writing off the debt. In other words, war.
When it comes to CB actions, less is more. If they werent lying weasels, they would admit to being as clueless as everybody else as to the economy and what their actions should be.
More ZH's BS. ZH is just anothr useless Libertarian web site always blaming the Socialsism, Liberals, everyone they want to go after but NEVER the real culpits. and the tuth is oh so simple: Capitalsms have been pillaging and using and getting fat off the systme for such a long time there is nobody left to exploit; of course the system isnt working anymore for the average pleb. But it is workign wonderfully well for people like Soros, Cheiney and their lot, who are getting richer and richer every day grabbing from everyone.
The system you hate is Crony Socialism. It has nothing to do with honest buying and selling.
+1 Pretty close to the truth here. Capitalism ie private ownership, inclusive of inheritance leads ultimately to similar positions inside cultures whether bankster driven or not. Sure the fractional reserve ponzi has it's own particular evils - no arguing that. But heavily intrenched monopoly/oligarchy in any needed field will bring similar results to the people.
Look at Rome. This is precisely why the Republican era ended. The Senate were a bunch of oligarchic self interested pricks at the time of the fall. There was no longer any "Populusque" in the SPQR. The inalbility of the culture - and the Senate - to deal with this fact set the stage for the coming dictator/imperators.
Like all systems, they degrade over time. Capitalism works great...until it doesn't.
Is there a way out? Not that I can see. A reset in capitalism is what is needed - but who are you going to trust to instigate that? A dictator? History says this is what comes next.
"My greatest flaw. I surround myself with idiots."
- Victor von Doom
This guy lost me when he cited an article from the Mises Institute which was critical of the Just Price.
Who will be setting the Just Price?
Well OK. Tell me what is the Just Price for Picasso's Guernica?
While the bubble is inflating people get the true joy of Capitalism.
Making money while doing nothing.
Markets are irrational and have been since Tulip Mania in 1600's Holland.
Do not look for rational explanations, the prospect of easy money turns human beings into gibbering idiots.
Stocks, house prices, <yet another asset type> are going up in value.
I have heard of someone who has made lots of money, I want in.
I am making money, I need to borrow money to carry on investing and make more money.
Gibber, gibber, gibber ....................................
The bubbles burst; I am going to be ruined.
No more gibbering, till next time.
Tulip bulbs ..... gibber
South sea company .... gibber
UK Railways (1800s) .... gibber
The new internet (pre 1999) .... gibber
Sub-prime ..... gibber
Property .... gibber
BTL ... gibber
Apple .... gibber
Social media .... gibber
Emerging markets ... gibber
Easy money ..... gibber, gibber, gibber
It's about proportions. When markets work there's not that much incentive to go in if you don't know shit. Sure, there will be idiots caught up with greed. Especially when some new very profitable enterprise is found. But beneath relatively small fluctuation there's a price-discovery machine. People mostly buy the stock to own a company, with a small amount of mostly knowledgeable speculators. Booms happen with some real growth, they go over this and get corrected - no big problems here.
Now everything is herded into financial markets. There's tsunami wave of fluctuation and barely and real price discovery. Almost everybody buys stocks to sell them to a greater idiot, they don't care at all about the company but only about a short-term perception of this company. Booms start to happen with no real discovery at all, being completely inflated by fiat. And it is all supported on the backs of taxpayers. It's not that when casino goes busts idiots loose their money, but everybody is on the hook for the gamblers.
It would be very hard to place all the blame on Central Bankers when bankers are so good at messing things up all by themselves.
Bankers don't understand their product, debt.
“What is wrong with lending more money into the Chinese stock market?” Chinese banker before last month
“What is wrong with lending more money into real estate?” Chinese banker last year
"What is wrong with lending more money to Greece?" European banker pre-2010
"What is wrong with a NINA (no income no asset) mortgage?" US banker pre-2008
“What is wrong with lending more money into real estate?” US banker pre-2008
"What is wrong with lending more money into real estate?" Irish banker pre-2008
"What is wrong with lending more money into real estate?" Spanish banker pre-2008
"What is wrong with lending more money into real estate?" Japanese banker pre-1989
"What is wrong with lending more money into real estate?" UK banker pre-1989
“What is wrong with lending more money into the US stock market?” US banker pre-1929
We need to teach bankers the lost art of prudent lending and the importance of fundamentals, eg. ratio of mortgage size to income; ratio of national debt to GDP and age old metrics for valuing companies based on performance.
They'd learn it very well on their own in less(non?)regulated financial sector. If you have to have 1:1 deposits in the medium prefered by the clients it's a different ball game than fractional reserve in legal tender, with a ton of bank-run protections. It's not who can catch super-short-term opportunities of funny money, it's more about stability and long-term prudence. You need literally decades to establish yourself and can ruin this (very profitable) reputation in a day. Old time banking prectices would be useless today. Idiots keeping to the long-game for generations would be barely making money, while the new bloods rake in billions grabbing funny money with no back stops whatsoever. Who cares about fundamentals? Get your stock price up NOW, live large and screw the risk. After all everybody does it and when it all goes down, there's going to be a rescue waiting.
It has very little to do with the bankers, and a lot to do with guys with guns on the top giving money creation over to the FED and giving privileges and protections to all banks.
What is "wrong" is to think money is "lent" into existence. That's a capitalist contrived myth designed to give them control of trade ... and to collect a duty on every trade. It's absolutely necessary for their enormously profitable farming operation known as the business cycle.
In actuality, money is created by traders making trading promises. It is destroyed when they deliver on those promises. If they fail to deliver, the default is recovered and destroyed with equal interest collections. This guarantees zero inflation.
For any given trading promise, no money exists before the promise is certified or after it is delivered upon (or defaulted and recovered by equal interest collections).
And it's absolutely crucial to know that rollovers are defaults. This makes it obvious that all governments are the most irresponsible traders of all (they never deliver on their trading promises).
When you "never" deliver on your trading promises, the interest you pay is equal to your propensity to default ... i.e. 100%. The marketplace automatically ostracizes you ... not give you the lowest interest rate of all traders claiming "full faith and credit" nonsense.
For a very long time governments have been financing themselves by counterfeiting money. Install a proper MOE management process and "all" governments immediately become orphans. They must resort to financing themselves by stealing directly (rather than indirectly through inflation.)
Think about it. We are currently watching global stock markets gyrate toward breakdown trying to anticipate the whims of a cloistered professor who never launched a business, never met a payroll, never shipped a product, and never won an election, yet has been empowered to determine the price of money.
Traders set prices. They always have and they always will. It's the "negotiation" stage of any trade.
The task is made very difficult by money changers diddling the marketplace by arbitrarily applying trade restrictions and interest collections ... and counterfeiting money to finance governments.
When the people dictating our process of MOE management think 2% is the right level of inflation (and deliver 4%), when obviously 0% is the correct level, Houston, we've got a problem. They don't even know that money is simply "a promise to complete a trade" and is created by traders. Money is an efficient invention that enables simple barter trade over time and space.
The purveyors of capitalism have people in this world (even the communists) thinking capitalists create, and thus are privileged to control, money.
If they ever get a clue, they will come to realize that the process of managing any MOE has no concern with prices, the economy, employment, the level of savings, the availability of capital, or anything else.
It is only concerned with certifying trading promises; recovering those certificates and destroying them on delivery; monitoring for defaults (and rollovers are defaults); and collecting interest equal to defaults.
Before a trade, there is no money in circulation representing that trade. After delivery (or default and interest collection), there is also no money in circulation that represents that trade. This guarantees zero inflation.
The governing relation is: INFLATION = DEFAULT - INTEREST = zero
Get a clue people. But be warned, when all these financial types finally get a clue and institute a proper MOE management process, they are out of work.
How tough is it to calculate a DCF when interest is zero?
How tough is it to figure the value of money when inflation is guaranteed to be zero?
Good article and true. Market prices are information representing supply and demand from the aggregate of individual actors in said market. Trying to centrally manage that is as foolish as trying to dictate to people if they should prefer vanilla or chocolate. It is in fact the exact same magical thinking fallacy, but dressed up in jargon so the obvious stupidity is obscured.