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Lost In Extrapolation - The Tedious Drivel Of Larry Summers
Submitted by MN Gordon via EconomicPrism.com,
In the late 1970s the impossible happened. Inflation and unemployment simultaneously went vertical. The leading economists of the day were flummoxed.
The Phillips curve said there’s an inverse relationship between inflation and unemployment. When unemployment goes down, inflation goes up. Conversely, when unemployment goes up, inflation goes down.
How could it be that both were going up at once? Weren’t they mutually exclusive? Indeed, it took years of heavy handed government intervention to pull off such a feat.
When unemployment began creeping up in the 1970’s the U.S. Treasury, with backing from the Federal Reserve, did what Keynes had told them to do. They spent money to stimulate the economy and spur jobs creation. According to the Phillips curve, with rising unemployment the planners could have their cake and eat it too. They could run large deficits without inflation.
Unfortunately, something unexpected happened. Instead of jobs they got inflation. Then, when they tried it again, they still didn’t get jobs. Astonishingly, they got more inflation.
Almost Predictable
This little episode illustrates the point that the economy is hardly predictable. One decade people borrow money and spend it. The next they save and pay down debt. No graphical curve can predict what way people’s behavior will swing from one period to the next.
Obviously, when the unemployment rate goes the economy sinks. But then when the unemployment rate goes down shouldn’t the economy go back up. One would think so?
But the experience of the last five years of declining unemployment has not been an economic boom. It has been economic lethargy. Perhaps this has something to do with the fact that the unemployment rate and the labor participation rate declined in tandem.
That may be a good theory. It would be entirely correct…until the very instance that the economy boomed in the face of a declining labor participation rate. Then it would be incorrect.
The fascinating thing about the economy is not that it’s predictable. Or, for that matter, that it’s not predictable. It’s that it is almost predictable…or at least it seems it should be.
Even more fascinating are the abundance of academic quacks and hucksters that explain the economy like they’re explaining how to calculate the area of a circle. Some even win the Nobel Prize for their adventures into nonsense. Armed with line graphs, curves, and dot plot charts, they attempt to elucidate how the great big economic machine works. What’s more, they espouse ways to improve it.
Lost in Extrapolation
One of the more tedious drivellers of popular economic thought is former Treasury Secretary Larry Summers. He’s smarter than you and he’ll make sure you know it. There’s hardly a questions he doesn’t know the answer to. So, too, there’s hardly an answer he doesn’t know the question to.
Larry Summers, if you recall, is the man Janet Yellen beat out for the top job at the Fed. Perhaps he felt slighted or underappreciated because of this. Who knows?
But now, with regular frequency, he publicly tells Yellen how to do her job. On Wednesday, for example, he took to the press to enlighten Yellen on what Fed interest rate policy should be…
“You should kick up interest rates, as has been true forever, when you have an inflation problem,” explained Summers to CNBC, after confirming that inflation wouldn’t go much over 1 percent for the next 10 years. “In the face of a ‘low-flation problem,’ [there’s] no reason to raise rates.”
Obviously, Summers has it all figured out. He even knows what the inflation rate will be 10 years from now. For he can predict the future because he has charts that extrapolate the past and project it into the future. Naturally, Summers proposes his solution.
“The key is you got to have demand if you want companies to invest. Otherwise, they’re investing in capacity they don’t need.”
Apparently, Summers hasn’t considered what happens when artificial demand is created by people borrowing money with cheap financing stimulated by years of low interest rates. In short, the economy becomes so larded over with debt it becomes impossible to stimulate demand by pushing more cheap credit. That’s why, after seven years of ZIRP, the economy’s prone as a dead man.
Summers solution has failed to compel the economy back to life. No doubt, Larry could use a new chart.
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Not to mention a lesson in what misogyny is.
Nothing worst than an educated idiot who really knows nothing. Cue in your typical libtard professor.
So, uhm, BTFATH?
Nigga could use a new hair cut.
When the unemployment rate is a big lie, how can you predict anything?
I think I am on par with larry summers for tedious drivel. I'll repeat it here. Get some Zero Hedge Coin 0 happening, by visiting http://zhc0.com and voting on the poll page. Or get it canned by doing the same, and voting negative. Check out the pic of the opal, and buy it for a pretty girl. No misogyny here on Zero Hedge.
15horses1donkey.
IF ZERO HEDGE HAD A FUCKING CURRENCY OF IT'S OWN, IT WOULD BE MINTED IN INCORRUPTABLE NON HYPOTHECATED NON DERIVATIVE NON MARGIN ABLE SILVER OR GOLD.
Jesus, fucking kids these days. You all think technology is a miracle. All it is is electrons that can be made to go poof any fucking minute now.
Crypto currency is just a fancy name for digital fractional reserve banking - without the reserve, or the bank.
If I blew up your phone right now, you would look like a cow at the slaughterhouse just at the moment the bolt gun goes off - " How could you do this to me ? What'll I do now ? "
Improvise. Adapt. Overcome. Triumph over adversity.
And, transform your idea into minting a fucking physical coin out of noble metals, with Tyler's permission before he copyright lawyers your ass into bankruptcy.
“The key is you got to have demand if you want companies to invest. Otherwise, they’re investing in capacity they don’t need.”
Ergo the helicopter method currently being bandied about. Infuse cash directly into the citizenry, "creating" demand. This is seriously being considered, straight face and everything.
Larry Summers:
Supposition + drivel, times non sequitur = economic fact, ergo economic policy.
But he does provide obfuscation (cover) while our monetary/fiscal overlords steal from lesser beings.
K
The underlying simplifying assumptions behind any econometric model are so ridiculous that they would be laughed out of any engineering design review or scientific meeting. Econotards like Summers use them because they can't do the math otherwise. If weather forcasters did this, they'd be predicting hail in August.
Isn't this the guy who lost a billion or so dollars for Harvard's endowment through dodgy and toxic "investments"?
Isn't this the guy who got kicked out as president of Harvard?
No, he got kicked out cause he pissed off a bunch of femo-nazi libtards when he said girls can't do maff.
It's OK to lose money, they're all anti-capitalist anyway, but don't you dare micro-aggress against any gender studies professors.
Companies aren't going to invest in 'Plant & Equipment' or 'R&D' (if there even are such things any more). We should reclassify stock buy-backs are R&D because that's all you're going to get until people have money to start buying things again. And I wouldn't hold your breath, it's going to be a generational wait for that to happen.
Lookit, I have controlled the Economy of the entire world since March 10th 2008. Lawrence Samuelson Summers, Robert Rubin, and Alan Greenspan, had their chance, and they fucked it up because they are stupid bastards that are borderline functional retards. Frankly, I would be a better individual to advise Old Yeller than these twits.
Summers, Greenspan, & Rubin, are my footstool.
This ignores that the author of Gibson's Paradox know full well how they suppress gold, suppress interest rates, so they can print, print, print. Larry Summers and Bob Rubin have destroyed America with Gibson's Paradox which is on full display this morning.
Well, it would be a good question to pose to Summers. Gibson's Paradox states that Gold should rise in price as interest rates go down. Clearly with interest rates bumping along at 0%, one would think that Gold would be soaring. I'd love to hear Summers explanation for why it's not? I'm sure he'd come up with some sort of idiotic explanation but it would be fun to put him on the spot. The manipulation continues until it can't. Sooner rather than later is my guess.
The summers twist on "Gibson's Paradox" is that you keep a lid on gold to allow you to print unlimited money.
The currency is based on debt's face value.
To cover the interest new debts must be created, which will allow new currency to cover the interest of the old debts.
This means that debt must eternally increase so long as that monetary system persists.
This means that the monetary base - and hence price inflation - must eternally increase so long as that monetary system persists.
But interest compounds.
This means that the percentage of the debt that is accumulated interest is eternally growing, while that which is the original principal....the real collateral...must eternally shrink.
So long as that monetary system persists.
And THAT means that an ever-shrinking amount of real capital must continue to service an ever-growing debt-service cost.
This system has been sold as a perpetual one, with no necessity of an end point.
Yet simple logic reveals that at some point the real economy won't be able to service that debt.
And when the debt can't be serviced, it will default.
And in defaulting, the currency based upon it disappears.
And in the currency based upon defaulted debt disappearing, it becomes harder to service the other debts backing other currency (which already couldn't be serviced).
And it is obvious that they can increase the amount of currency (QE), with the hope of lightening the debt burden...only by creating even more debt.
And that means that while today's debt service may happen courtesy of monetary inflation, that same monetary inflation makes tomorrow's debt service even more impossible to make.
And since the currency and the bad banking debt equally lack real collateral, there is no reason for debt deflation to stop. Because deflation ends when the inflated credit has shrunken to the size of the real collateral...and there isn't any real collateral in the debt-based monetary system.
It will not stop because the lack of collateral means the end of deflation is not based on human discretion, but mathematics.
And it is mathematically impossible to pay.
Their attempts to alleviate indebtedness via monetary policy are childish and based upon an unacknowledged and untrue assumption...the assumption that there is real collateral to serve as denominator.
So, in creating more money they simultaneously increase both the numerator and denominator of the monetary base, while thinking that their denominator (the collateral) remained stable, and changes in the numerator either devalued or supported the value of the currency. It didn't.
Because they have no collateral, no real denominator, no numeraire.
Got Collateral?
"If it ain't broke, don't fix it eh Larry?" The banksters and the boyz now have goverment treasuries by the balls. Time to pull out the hangmans noose for these clowns.
"Otherwise, they’re investing in capacity they don’t need"
Ahh, in the good ole days, they would go find new markets; might even come up with new products .....
Old Empire, time to sleep, time to die.
time to be re-born.
O, we have no inflation. Only, when you buy anything, you get half of it for the same price as before. Houses are cheap ( eah, so cheap that upstart families no longer can afford them ), people have to loan subprime for buying a new car, wages are dropping, ..... so we need to shovel boatloads of money direction big banks - certainly not direction mainstreet.
He can't speak more than 5 minutes without invoking Harvard because his academic pedigree and fancy network are all he has. Thus heavily insulated from reality he DOES.NOT.GIVE.A.DAMN., and will bloviate for hours given the chance, where every fifth word is 'Harvard'. Humanity has tried numerous times to rid itself of elites and we have consistently failed. The shit always rises to the top......
Hubris walking shit talking.
Too bad for you, little people.
OK. First, "ceteris paribus", boys and girls. More X means more Y all other things being equal. When all other things are NOT equal, it's hard to assert any simple scientific or mathematical relationships.
>"In the face of a 'low-flation problem,' [there's] no reason
>to raise rates," Summers said,
Ceteris paribus, Larry boy, but things are not "paribus" right now, they are ZIRP, which has a number of evil effects that need to be cut IF WE CAN STAND IT, this is NOT a normal case of "raise rates only if XYZ".
>"We're caught in a vicious cycle. Incomes are too low, therefore
>investments are too low. ... We need to get out of that cycle,"
>he said. He called for smart tax reform and rules to discourage
>the kind of activism that strips cash out of companies.
Non-sequitur.
>Summers, currently professor and president emeritus at Harvard
>University, acknowledged that near-zero percent rates hurt savers.
>But he argued they help short-term borrowers, evidenced by
>record auto sales.
Then it hurts savings, while (see above, ceteris paribus) with low incomes it CAN'T really spur sales, except to further deplete savings, and that can't go on forever, and in fact stopped working within months, it's long gone.
Summers is just running on fumes anymore. Once upon a time, he was a smart guy, fwiw.
DIDN'T THIS MOTHERF*CKER AND ROBERT RUBIN DO ENOUGH DAMAGE WITHOUT OPENING HIS TRAP AGAIN?
“The key is you got to have demand if you want companies to invest. Otherwise, they’re investing in capacity they don’t need.”
Taken by itself this statement is very true. Unfortunately the FED is using it's resources to satisfy the 'Demand' of the few and not the 'Demand' of the many...
Well done MN Gordon.
The reason the Philips curve stopped working in the seventies is because the economy changed so much between the thirties and seventies.
When the private sector was 90% of the economy and the public sector was 10% and there was no unemployment insurance or welfare a sharp increase in interest rates could stop economic expansion and even reverse it.
But in the seventies the public sector was 50% of the economy and it was not cut back at all. They had to put the squeeze on the private sector and the effect was only half what it used to be, because it was only half the size in comparison.
Then there was unemployment. All the laid off workers got 75% of their pay but stopped producing anything. When you issue money not backed by anything that is inflationary, not deflationary.
So, the old rules no longer held water the way they used to but the professors who knew only theories, and had no experience of business, and were not capable of looking at evidence and reasoning things out to a conclusion, those guys were stymied.
In the end they had to raise interest rates to nearly 20% and practically crash the economy to get the results their theories predicted.
Now we don't even have factories, employment or a working class. They sent all that overseas in the seventies and eighties. So the theories work even less than they used to.
Maybe they will figure it out before the whole country is a smoking burned out ruin *cough Detroit cough* but don't count on it.
Watch Summers, Greenspan, Levitt, and Rubin in action, watching out for the little guy.
Gets good at 8:00 in
http://video.pbs.org/video/1302794657/