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Did Greece Crush Keynesianism?

Tyler Durden's picture




 

In an excellent treatise on sovereign subtleties, Morgan Stanley's Arnaud Mares (the same analyst who nailed the Greek situation long before most others) once again lays out the increasingly bifurcated path that a broken European 'union' may and must take. Most interesting, and highly prescient in our view, is his consideration that the 'private sector involvement' in the restructuring of Greek debt was not only a major policy error but opens the door for the peasantry to finally comprehend that when sovereign debt is not 'risk-free' then fiscal (and monetary) policy can become pro-cyclical.

With the entire Keynesian dogma resting on this very tenet, we think it well worth a read and as he writes:

Pandora’s Box has been opened. Only fiscal integration accompanied by centralized financing of governments can bring about full stabilization of the market in Europe, in our view. The alternative could eventually be a resumption of the run on governments and a wave of public and private defaults.

Bottom line, in attempting to do things half-assed, Europe may have just destroyed the entire credibility of the one primary voodoo economic theory driving global "growth" (or stated better, borrowing from the future) since the beginning of the 20th century.

Which if you ask us, is long overdue.

Some notable quotables:

Why does it matter that government debt is viewed as risk-free:

What matters is not so much that government debt is risk-free as that it is seen as a safe haven. In our view, this is a precondition for governments to be able to use fiscal policy as a macroeconomic stabilisation tool. Indeed, what allows governments to deploy their balance sheet defensively at a time of recession is two properties of public debt, both of which derive from this safe haven status:

The first is practically unlimited access to finance. This is the property that allowed, for instance, governments to support their banking systems in the winter of 2008/09 by guaranteeing bank deposits and bank debt. In essence, what governments were doing in that instance was to lend their superior access to funding to the banks.

The second property, perhaps even more important, is that in a recession or crisis, flight-to-quality flows towards the safe haven lower the relative cost of funding of the governments. As long as this holds true, governments can cost-effectively deploy their balance sheet, borrowing more to supplement a fall in private sector consumption and investment.

And on the bifurcation:

In our view, this means that we are getting ever closer to a bifurcation point, where either of two outcomes must unfold. Either the aforementioned run must resume and eventually lead to a wave of defaults for (even solvent) governments and banks – a scenario we labelled in the past a ‘debt jubilee’; or, governments must reverse the effects of the use of private sector involvement in Greece by ensuring that they – and banks – benefit again from unimpaired access to funding at affordable costs. Intermediate scenarios (such as the ECB buying time by acting as a de facto lender of last resort) are in our view both transitional and costly.

In this context, we do not believe that the implementation of all the measures agreed by European governments on July 21, 2011, in particular as regards the enhanced capability of EFSF, will be fully stabilising.

As we have time and again noted, the EFSF is not enough. In fact, it will never be enough - because it has to be open ended.

The main issue here is the size of EFSF. As mentioned above, its lending capacity is sufficient to provide a fully credible liquidity backstop – effectively a function of lender of last resort – to Greece, Ireland and Portugal. Its current size provides ample reassurance that these three governments can remain funded ad vitam aeternam, providing of course they continue to fully comply with the conditions of their respective adjustment programmes. It does not have the capacity to act as a credible lender of last resort for Spain and Italy and other governments. To the extent that the problem generated by the use of PSI in Greece has been a broadening of contagion towards governments outside the periphery strictly speaking, and a material risk of a run on these governments, then EFSF as it currently stands is effectively obsolete.

 

The Economic Consequences of Greece

 

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Fri, 09/02/2011 - 11:31 | 1626668 BaBaBouy
BaBaBouy's picture

Throw Da Bums Out !!!

Fri, 09/02/2011 - 11:39 | 1626684 MillionDollarBonus_
MillionDollarBonus_'s picture

One of the reasons that we are in this predicament is that there is a serious lack funding for economic education in public schools. Because Americans are not exposed to enough authentic economic education at a young age, they are increasingly turning to the internet in an attempt to understand the global financial system. I am the first one to admit that Keynesian economists have failed to reach out to the younger community. The internet is alive with arrogant libertarians who believe that they have a better understanding of economics than their superiors, and while Keynesian economists are busy advising world leaders from top academic institutions, they forget that many people have not been exposed to the same level of elite education.

Fri, 09/02/2011 - 11:43 | 1626702 whisperin
whisperin's picture

Horseshit!!!!

 

Fri, 09/02/2011 - 11:45 | 1626711 BaBaBouy
BaBaBouy's picture

... A Buffet Worshipper ...

Fri, 09/02/2011 - 11:47 | 1626721 john39
john39's picture

has to be a form of dry humor.  can't believe that anyone would believe this, or believe that anyone else might believe it.

Fri, 09/02/2011 - 11:50 | 1626730 BaBaBouy
BaBaBouy's picture

He's Fishing ... for negative votes...

Fri, 09/02/2011 - 11:53 | 1626749 TruthInSunshine
TruthInSunshine's picture

Milliondollarbonus is Hammy Wanger or someone with a similar sense of humor.

I approve of his incredibly thick sarcasm, and always take time out to give him a +1, even if the fractional reserve bankers will ensure that it ultimately becomes a +31 with leverage, and the derivative crowd will ensure that it ends up a +1,311.

Fri, 09/02/2011 - 11:57 | 1626768 spiral_eyes
spiral_eyes's picture

I find it very hard to believe that anyone downvotes him. He's funny.

Fri, 09/02/2011 - 12:05 | 1626796 Thomas
Thomas's picture

It was a kneejerk reaction. I am guilty and now must repent. It was funny.

Fri, 09/02/2011 - 12:11 | 1626816 Buckaroo Banzai
Buckaroo Banzai's picture

It was a first-class, grade-A troll. Plus the handle is quite troll-worthy as well.

Kudos!

Fri, 09/02/2011 - 22:47 | 1628811 Fedophile
Fedophile's picture

Great rant, though most seem to have missed the /sarc.

 

Given the outcome it appears that the ZH audience IQ distribution is back-loaded.

Fri, 09/02/2011 - 12:10 | 1626811 smlbizman
smlbizman's picture

you guys do understand that this guy is the new harry,meth man etc...nobody in their right mind could spout this and believe it...

Fri, 09/02/2011 - 11:44 | 1626707 Iriestx
Iriestx's picture

This is the funniest shit I've read in months.  How much is the White House paying you to post this tripe?

Fri, 09/02/2011 - 11:50 | 1626725 Gene Parmesan
Gene Parmesan's picture

Am I the only one who's seeing half-a-million dollar bonus' (after taxes) posts for what (I think) they are? I mean, their "superiors"? Come on...

Fri, 09/02/2011 - 11:49 | 1626728 Ricky Bobby
Ricky Bobby's picture

Million...   - Latest iteration of the misinformation puppet. Johnny Bravo we miss you.

Fri, 09/02/2011 - 11:49 | 1626733 tekhneek
tekhneek's picture

Shit's pretty boring honestly. Anyone who read Mises or Rothbard knows all they need to know.

This ship's sinking and no amount of education will fix the foundationally broken keynesian theory that fuck faces love so much.

Fri, 09/02/2011 - 12:04 | 1626791 Oh regional Indian
Oh regional Indian's picture

Actually all this shit is pretty boring Tekh. ALl of this intellectual mast your bastion, hold your position, academic non-sense.

All you really need is a well developed enough awareness to know what you want vs. what you need, know how much is enough, do simple math and percentage calculations, know that seasons turn.... that kind of stuff. Like you learn at Walden Pond.

The rest of this is horsepoop. 

V

http://aadivaahan.wordpress.com/2011/08/30/humor-me/

Fri, 09/02/2011 - 12:48 | 1626938 slewie the pi-rat
slewie the pi-rat's picture

tyler putting up so many pieces you afraid you earlier advertising  won't be noticed?  other than that, great post, zHead!

as for as the "unimportant stuff"  goes i think if people try to focus on the rockefeller international combine,  the rothschild international combine, and let's just throw in the Catholic international combine, too, since some zeroHeads whom i respect have so advised me, are trying to do, we will find that "economists and economics" are just a part of what we may or may not see happening there, depending on whether one's "awareness" has increased since school

in the US, these interest, or parts of them run their puppets via the Council on Foreign Relations, it seems, which has just set up the Super Congo and will now go abt extracting more net worth and wealth from americans for the cfr's designs for the "nation" (corporate + military fascism)

how do these international combines control india?  and what are they trying to do, there?  who are the fascists and how powerful are they? 

Fri, 09/02/2011 - 20:16 | 1628576 slewie the pi-rat
slewie the pi-rat's picture

too busy placing new ads to answer, prob

Fri, 09/02/2011 - 22:50 | 1628818 Fedophile
Fedophile's picture

Slewie has no wit or friends.

Fri, 09/02/2011 - 22:54 | 1628823 knukles
knukles's picture

Ah, clarity.

Fri, 09/02/2011 - 11:56 | 1626764 mendigo
mendigo's picture

leaving aside this guy - who i think should be valued for the levity he brings

is it fair to equate whats happening in the global financial system with Keynesian theory or is it simply a case of greed, corruption and incompetence

? keynsian = krugman = bernanke ?

Fri, 09/02/2011 - 12:02 | 1626783 spiral_eyes
spiral_eyes's picture

bernanke is far more dangerous than krugman. krugman is an old-school keynes/hicks devotee. bernanke is a central-bank-as-a-hedge-fund tentacles-in-every-pie pseudo-keynesian. every bernankean "innovation" brings us one step closer to the edge. krugman might come out with some lunatic alien invasion nonsense, but at bernanke's hedge fund games are way more dangerous than blue beam.

Fri, 09/02/2011 - 12:23 | 1626852 Breaker
Breaker's picture

"is it fair to equate whats happening in the global financial system with Keynesian theory or is it simply a case of greed, corruption and incompetence. . . . ? keynsian = krugman = bernanke ?"

The later. Our politicians become Keynesian whenever Keynes would recommend lots of spending and large deficits (during bad times). During good times (when Keynes recommends running surpluses), the same politicians spend lots of money and run large deficits.

The conclusion is spending lots of money and running large deficits is the real goal. They are therefore, not Keynesian. They trot out Keynes only when his theories are convenient.

Krugman likewise is not a real Keynesian because he is not out waving his arms and hyperventilating that the government should temper spending and run surpluses during good times. Like the politicians, he approves of lots of spending and deficits all the time.

Fri, 09/02/2011 - 13:19 | 1627044 mendigo
mendigo's picture

i think your on target there

there's no economic philosophy behind it - they just use references to dead people to confuse the issue

i wish tyler could ven diagram the situation: i.e. you have noble prize winners and you have ivy league graduates (puportedly) and you have criminals and you have bankers and there are alumns of GS and there are leaders in the treasury who can't do their taxes. also it would make a great off-broadway comedy if it weren't so upsetting

Fri, 09/02/2011 - 11:56 | 1626766 Invisible Hand
Invisible Hand's picture

Isn't this our Fearless Leader's lament? 

"If only you were smart enough to understand me, then you could grasp the essential wonderfulness of my oneness."

The problem is not our understanding of the Keynesians' brillant ideas, the problem is that Keynesian ideas are STUPID.

(Sorry for shouting!)

Fri, 09/02/2011 - 11:57 | 1626770 caerus
caerus's picture

hilarious as usual

Fri, 09/02/2011 - 12:37 | 1626901 Koffieshop
Koffieshop's picture

What is even more hilarious is that most people (looking at the votes) seem to think he is for real no matter how obvious the sarcasm is.

Fri, 09/02/2011 - 13:54 | 1627173 LowProfile
LowProfile's picture

Running about 5:1, although a few are admitting knee-jerking.

Fri, 09/02/2011 - 22:51 | 1628820 Fedophile
Fedophile's picture

Leson: Most are stupid; even amongst the ZHers

Fri, 09/02/2011 - 12:08 | 1626805 fonestar
fonestar's picture

"Ignorant Libertarians" and erudite Austrians DO have a better understanding of global economics!!  The more the talking heads on tv try and bash us and reinforce their failed theories the more they just damn themselves in a self reinforcing death-spiral of loss of confidence, dumping & fleeing followed by more propaganda.

Fri, 09/02/2011 - 12:13 | 1626823 AnAnonymous
AnAnonymous's picture

Best comment so far. Comparing the validity of economic knowledge between Keynesianists, Austrians, libertarians and the rest is like wondering which angel has the thickest/longest penis.

Very funny indeed.

Fri, 09/02/2011 - 12:14 | 1626830 Sneeze
Sneeze's picture

Thats all I need... some socialist ball sucker teacher teaching my kids about money and entitlements.  While they are there they minus well learn all about Al Gore the Climate Messiah and the best way to go about collecting Obama bucks.

Not to mention your whole argument is flawed when you realize how much debt young American's carry on their exorbitant student loans going to con-job universities and buying Che Guevara shirts.

 

Fri, 09/02/2011 - 19:45 | 1628493 StychoKiller
StychoKiller's picture

One of the best books on personal finance (for children of all ages!):

"Uncommon Cents - Benjamin Franklin's Secrets to Achieving Personal Financial Success", ISBN: 0-939817-06-3, by Lynn G. Robbins

Fri, 09/02/2011 - 12:27 | 1626861 mess nonster
mess nonster's picture

oh, please!

Fri, 09/02/2011 - 12:53 | 1626957 Byte Me
Byte Me's picture

@MillionDollarDoofus

You sir, give the term "Professional Twat" a bad name. Twats actually perform a useful function.

The problem with Keynesian economics is simple -- the deficits never get paid down because it's always expedient to kick the can. Thereby, Keynesianism ain't really Keynesianism in it's currently referred to context.

Out of interest, just when is the happy day for you and your girlfriend Krugman??

Fri, 09/02/2011 - 11:33 | 1626674 LawsofPhysics
LawsofPhysics's picture

"Labor day jubilee" - ahh, wouldn't that be nice?

Fri, 09/02/2011 - 12:25 | 1626853 tekhneek
tekhneek's picture

Given the employment numbers, we might just call it "Day" soon.

Fri, 09/02/2011 - 11:39 | 1626680 TruthInSunshine
TruthInSunshine's picture

I'm more of a Hayek kind of guy, but in fairness to Keynes, his assertions have been so bastardized by the likes of the Paul 'Let's Have An Alien Invasion' Krugmans of the world, that Keynes often gets static from things he would never have endorsed, and I think Keynes himself wouldn't recognize much of the economic theory that he's been posthumously "credited" with.

As just one example, I give you Exhibit A (Krugman is endorsing a window where higher than FOMC targeted inflation levels should be tolerated; here's what Keynes had to say as to inflation's pernicious effects):

 

J.M. Keynes on inflation in The Economic Consequences of the Peace (p. 235-6):

“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.”

 

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Fri, 09/02/2011 - 11:48 | 1626720 Dr. Engali
Dr. Engali's picture

I'm cerainly no Keynesian but he does get distorted. Keyneseins seem to forget that according to Keynes governments should cut back and conserve,save during boom times so that they have the mean to spend during the lean times. The Keynesians of today believe that governments should grow and spend during boom and bust times.

Fri, 09/02/2011 - 11:52 | 1626745 Ricky Bobby
Ricky Bobby's picture

When has a government ever cut back voluntarily?

Fri, 09/02/2011 - 12:09 | 1626803 flacon
flacon's picture

 

Keynes had a truly warped demented mind because he understood the damage that his ideas would cause: . .Why Governements try to control prices, by Keynes . "A sentiment of trust in the legal money of the State is so deeply implanted in the citizens of all countries that they cannot but believe that some day this money must recover a part at least of its former value. To their minds it appears that value is inherent in money as such, and they do not apprehend that the real wealth, which this money might have stood for, has been dissipated once and for all. . This sentiment is supported by the various legal regulations with which the Governments endeavor to control internal prices, and so to preserve some purchasing power for their legal tender. Thus the force of law preserves a measure of immediate purchasing power over some commodities and the force of sentiment and custom maintains, especially amongst peasants, a willingness to hoard paper which is really worthless... . If, however, a government refrains from regulations and allows matters to take their course, essential commodities soon attain a level of price out of the reach of all but the rich, the worthlessness of the money becomes apparent, and the fraud upon the public can be concealed no longer." . John Maynard Keynes, Economic Consequences of the Peace, NY, 1920, p. 239-40

 

Fri, 09/02/2011 - 12:23 | 1626846 TruthInSunshine
TruthInSunshine's picture

While I read this excerpt to be supportive of price controls, which history tells us inevitably lead to shortages (if I can dig silver out of my backyard for $5 an ounce, but government tells me I can't sell it for more than $5) that damage output and the economy intermediate and long term, it seems to mesh with Keynes' views that inflation is an economic hazard, if even for the wrong reasons (he's arguing against fair market pricing that a normal demand/supply curve would bring about).

In other words, Keynes seems to be confusing inflation (debasement of currency) with price. While modern day central banks play with price via use of inflation (and deflation) depending on what the banker class cries out for, they are not at all the same thing.

Fri, 09/02/2011 - 12:40 | 1626907 falak pema
falak pema's picture

Hey don't blame the doctor (Keynes) who diagnoses savings in boom times and the patient ( government) who goes on a spending binge the moment the economy rolls and the gravy train derails immediately, as every body and his son, grandson and grand mother, wants a dip in the honey pot. That's not the fault of the doctor! 

Human nature has to obey the laws of nature, checks and balances,summer and winter,  or suffer the consequences straigth off the cliff!

Fri, 09/02/2011 - 12:46 | 1626928 TruthInSunshine
TruthInSunshine's picture

In more modern parlance, the problem that arises anytime government is allowed to spend money, is that the money that they're spending is OPM.

OPM is a moral hazard.

OPM is why short term profit seekers so recklessly destroy other peoples' retirement accounts.

OPM is why we tend to order filet mignon and a $14 glass of wine when on a business expensed lunch, but stick to a sirloin (or hamburger) and beer on our own tab.

OPM is why we drink the entire open bar at weddings, in an attempt to get the price we paid for the gift back, and then some.

Fri, 09/02/2011 - 11:54 | 1626755 Clint Liquor
Clint Liquor's picture

Which is exactly why Keynesian Economics is flawed. It ignores Human nature. Politicians never have nor ever will save for a rainy day. They know when it rains they can always demand more. Keynes gave Bankers and Politicians what they wanted: An Economic Theory that allowed them to steal the fortunes of future generations.

Fri, 09/02/2011 - 12:05 | 1626795 Dr. Engali
Dr. Engali's picture

I agree with you there. I am a firm believer in the Austrian school of thought. I am just pointing out the distortion in his ideas.

Fri, 09/02/2011 - 12:18 | 1626842 AnAnonymous
AnAnonymous's picture

Ah, another knowledgeable in human nature US citizen.

It is rather funny how US citizens love to claim they know human nature. Really part of US citizenism.

So playing the US citizen here, a bit of cheap propaganda: but isnt ignoring human nature an element of human nature, with the consequence that they have not ignored human nature?

Typical US citizen answer to be expected: "I have not understood a simple word of what you've said. You might have a valid point. Only wished I could understand it"

Fri, 09/02/2011 - 12:47 | 1626937 takinthehighway
takinthehighway's picture

"No one ever went broke underestimating the intelligence of the American public." - H. L. Mencken

Fri, 09/02/2011 - 13:52 | 1627165 Clint Liquor
Clint Liquor's picture

Ah, another condesending prick with no contribution.

Fri, 09/02/2011 - 20:05 | 1628550 samslaught
samslaught's picture

damn...this guy is really smart.  I wished I was more knowledgeable in simple words and stuff.

Fri, 09/02/2011 - 12:38 | 1626910 Rynak
Rynak's picture

Kinda reminds me of some other popular people. Among them Einstein and Kant. Even though they may have had a valid point, how they modelled it, and how humans interpreted it, caused so much longterm cultural damage, that all fiat in the world cannot pay for it.

Fri, 09/02/2011 - 12:29 | 1626860 Rynak
Rynak's picture

Which applies to how many ideologies?

How about capitalism? The current system is called capitalism. Proponents of capitalism distance themselves from it, saying that it isn't "true capitalism". Opponents on the other hand say, that true capitalism is wishful thinking and that what currently is called capitalism, is the typical outcome of it.

How about communism? Some past systems were called communism. Proponents of communism distance themselves from them, saying that it wasn't "true communism". Opponents on the other hand say, that what happened is the typical outcome of it.

How about individualism, including anarchism and libertarianism? Some current aspects of society are called individualistic. Proponents distance themselves from them, saying that it isn't "true individualism". Opponents on the other hand say, that what currently is, is the typical outcome of it.

Or how about fascism, including collectivism? Some current and past aspects of society have been called fascist. Proponents distance themselves from it, saying that it isn't "true fascism". Opponents on the other hand say, that what happened is the typical outcome of it.

 

Perhaps.... just perhaps.... it doesn't make such a big difference which stamp you put on something, and more HOW it is implemented and for which purposes.

Fri, 09/02/2011 - 13:23 | 1627065 johnnynaps
johnnynaps's picture

Keynesian thought can now be added to the lengthy list of failures here in the US:

Democracy, Capitalism, the currency, Afghanistan, Equality, Socialist policies, the Constitution, Iraq, trickle-down economics, supply and demand, market manipulations, Real Estate, Individualism, Debt, CONgress, the President, Bill of Rights, Nasdaq, Dow, common sense.

Fri, 09/02/2011 - 12:57 | 1626973 hackettlad
hackettlad's picture

Yup, and nowhere (as far as I know) does Keynes encourage running unsustainable deficits - counter-cyclical yes, but not bankrupting.

Fri, 09/02/2011 - 14:36 | 1627328 TruthInSunshine
TruthInSunshine's picture

+1

Fri, 09/02/2011 - 11:49 | 1626732 pslater
pslater's picture

Finally, a well researched, considered, multi paragraph repy to a serious topic that doesn't contain the word 'bitchez' in it.  Could this be the beginning of the end for the swamp that the ZH comments section has become????

Fri, 09/02/2011 - 11:58 | 1626773 PaperBugsBurn
PaperBugsBurn's picture

bitchez

Fri, 09/02/2011 - 13:21 | 1627054 slewie the pi-rat
slewie the pi-rat's picture

got hypocricy?  you have more Q-marks than sentences in yer criticism of other bloggers in the "swamp" you lower youself to "play" in now & then

i just took the time to look up 3 of yer posts: 

  • 1 sentence; 12 words
  • 3 sentences (weak para?)
  • 1 sentence, 8 words

so, you also seem to be a viscious little cunt of a person, too.  of course many keynesians are extremely "busy" right now, and i'm sure they mostly consider zH a swamp. leo certainly did! 

why don't you just stay off the boards, toy-boy?  or at least be a little less the hypocrite and troll while here.  if you don't, we might have some fun together as you find out how slewie takes the nut-jobs and bullshitters and turns them into his own, personal, little BiCheZ

Fri, 09/02/2011 - 12:08 | 1626804 TruthInSunshine
TruthInSunshine's picture

Here is a free, downloadable copy of Modern Money Mechanics, which is the blueprint as to how our central bank (never mind that we were literally tricked into allowing a central bank to operate on U.S. soil - but I digress) operates with respect to fiat & the money supply.

 

Modern Money Mechanics : Federal Reserve : Free Download

 

The main difference between the Austrian School & the Keynesian School of economics lay primarily in what should be deemed to be money, itself.

Once this fundamental question is answered, and depending on how one answers it, only then can one determine whether the Austrian or Keynesian construct is more or less supportive of long term, real economic expansion, and whether this goal can be achieved in a smooth fashion (largely free of central planning and governmental, monetary and regulatory disincentives and/or subsidization), or only with inevitable booms and busts (via central planning and through governmental, monetary and regulatory disincentives and/or subsidization).

Fri, 09/02/2011 - 12:21 | 1626847 AnAnonymous
AnAnonymous's picture

Made me laugh. Must be tough days for economists in this US driven world. Must still have to convince people that their economics hogwash is worth more than cheap propaganda.

Austrians have no other point than trying to delegitimate theft in a civilization that has grown out of theft and for which theft has reached the point of negative return.

That is the main purpose of Austrian economics drivel.

Fri, 09/02/2011 - 12:26 | 1626857 TruthInSunshine
TruthInSunshine's picture

So you don't believe in the axiom that fair market value for anything is equal to:

...the price at which a seller will freely sell and a buyer will freely buy...

 

???

Fri, 09/02/2011 - 12:35 | 1626891 Vergeltung
Vergeltung's picture

man, this is so accurate it's scary! eerily on target. yikes!

 

Fri, 09/02/2011 - 12:53 | 1626959 hackettlad
hackettlad's picture

Superb contributions Truth - thanks

Fri, 09/02/2011 - 13:02 | 1626990 Ellesmere
Ellesmere's picture

Finally someone who states something worthwhile regarding Keynes, who is being made the scapegoat for all this.

The last administration Keynes would have endorsed (at all or in part) is Clinton's, who was running a fiscal surplus. Debasing (or debauching as Keynes would have put it) the currency started in earnest when Nixon closed the gold window. This has been a while in the making.

Keynes wouldn't recognized much of what has been going on.

 

Fri, 09/02/2011 - 19:53 | 1628509 StychoKiller
StychoKiller's picture

Clinton used accrual accounting which amounted to wishful thinking on huge tax receipts to *show* a balanced budget ON THE BOOKS, but in the future, not in real life.  We did not have *cash* on hand or even equity on hand that would have been tangible assets to "balance" our budget. However, starting with Reagan (mid 80's)and continuing with Clinton (even with the then largest tax increase in history) we were on a better path towards balanced budgets.  The disclaimer there though.... we borrowed money to pay for pet projects, just as Bush II became addicted to doing, because we knew SS and both Mediscare programs were insolvent, so the budget was balanced "on the books" while the National Debt (what we owe everyone else) went through the roof!

Fri, 09/02/2011 - 11:40 | 1626690 buzzsaw99
buzzsaw99's picture

MS should have an "L" tattooed on its forehead.

Fri, 09/02/2011 - 11:47 | 1626722 centerline
centerline's picture

Yeah. I am going to file this one under "duh." That file is getting pretty damn big at this point.

Fri, 09/02/2011 - 11:40 | 1626693 espirit
espirit's picture

Collateral, bitchez.

Got some?

Fri, 09/02/2011 - 11:41 | 1626697 GoldbugVariation
GoldbugVariation's picture

This is well-written and intelligent, and I can't find any fault in the logic.  But it doesn't help with trading/investment decisions, because it tells us nothing about timing - and we all know that between now and the "jubilee" scenario described there will be plenty of short-covering due to QE3 and other periods of hopium.

Fiscal integration in the EU is probably a political impossibility.  If it were to happen at all, I would expect it would need 3 or 4 years preparation, for legislation and regulation and everything as well as dismantling national systems: it would be a bigger project than anything the EU has done, bigger than adopting the euro.

 

Fri, 09/02/2011 - 11:45 | 1626716 john39
john39's picture

fuck the jubilee, its not enough.  it would allow the same ruling cabal to continue this debt enslavement game into the future.  what he is really proposing is yet more centralized control.   this is not the answer.

Fri, 09/02/2011 - 11:42 | 1626698 Clint Liquor
Clint Liquor's picture

Did Greece crush Keyesiansim? No, Keynesianism has reached it's logical conclusion.

Keyesianism ignores Human behavior, much like Communism and Socialism. Therefore, it was doomed from it's inception.

Fri, 09/02/2011 - 12:22 | 1626850 AnAnonymous
AnAnonymous's picture

And what is human behaviour?

Fri, 09/02/2011 - 13:16 | 1627033 Breaker
Breaker's picture

"And what is human behaviour?"

If you take the doctrine of original sin and the resulting sinful nature of mankind articulated in Genesis as a scientific hypothesis and then test it for the next 4,000 years or so with actual human behavior, it is a hypothesis that has a whole lot of supporting evidence. Applying that to the thread, politicians will "sin" (spend more than they make) whenever they have the power to do that. They will use Keynes as a rationalization for that during hard economic times. They will continue spending more than they make during good economic times well, just because they can. Keynes recommendations notwithstanding. That's human behavior in the context of this thread.

Or, as Elvis Costello said "There's no such thing as an original sin." And if you look at human behavior. He's right. It's the same sorry stuff over and over. Power. Money. Sex. Over and over.

The genius of the Constitution was that it was adapted to human behavior. It didn't give the politicians (the guys with guns) the power to do too much damage. That worked for a while.

Fri, 09/02/2011 - 13:56 | 1627185 Clint Liquor
Clint Liquor's picture

Try 'absolute power corrupts absolutely' for one.

Fri, 09/02/2011 - 11:42 | 1626699 Mountainview
Mountainview's picture

In the process, young Greek people are reduced to be "socialy assisted" recipients of government money, giving them no chance to develop freemarket abilities.

They will sooner or later revolt against this state of circumstances.

Fri, 09/02/2011 - 13:25 | 1627074 Breaker
Breaker's picture

> "In the process, young Greek people are reduced to be "socialy assisted" recipients of government money, giving them no chance to develop freemarket abilities."

>>"They will sooner or later revolt against this state of circumstances."

Yes. But they will revolt when reality removes their comfortable state of infantilization. None of them will revolt for the privilege of making it in a big, mean world.

Fri, 09/02/2011 - 11:44 | 1626705 choorles
Fri, 09/02/2011 - 11:49 | 1626729 nah
nah's picture

so is it saying the debt is all bad or the efsf is all bad

.

diatride on puny weakness

Fri, 09/02/2011 - 11:51 | 1626740 Rodent Freikorps
Rodent Freikorps's picture

Is it just me, or does it seem the PIIGS are the ones driving the EU bus?

Fri, 09/02/2011 - 19:43 | 1628490 Ghordius
Ghordius's picture

shhht! It's not meant to be discussed in public. see it as consensual sex among adults instead of Greece screwing Germany or the other way round...

Fri, 09/02/2011 - 11:52 | 1626744 rambler6421
rambler6421's picture

Currency Devaulation Bitchez!

Fri, 09/02/2011 - 11:53 | 1626747 SheepDog-One
SheepDog-One's picture

This is not even really 'Keynesianism' in the first place, this is a Frankenstein monster hobbled together by bankster pirates consisting exclusively of printing debt and handing it free to the banksters.

Fri, 09/02/2011 - 11:53 | 1626750 Fortunes Favor
Fortunes Favor's picture


All you need to know for a complete understanding of the average economist will be revealed to you in the following picture.  

http://rosenthalcapital.com/blog/2011/09/understanding-economists-credit-update-with-mj-and-the-precious-metals-outlook/

Fri, 09/02/2011 - 11:54 | 1626753 g speed
g speed's picture

There is no system invented ,be it gov't or economic or religious that will with stand the onslought of corruption-- all systems and standards will fail-even the gold standard hard money and not even the market can opporate in the ocean of corruption that is the norm today--

Fri, 09/02/2011 - 11:59 | 1626762 Lexington Duffet
Lexington Duffet's picture

Keyne's had a large body of work, which among other things endorsed monetary standards and requirements governments agree to abide by those standards. To claim Keynes actually meant to endorse parties breaking the standards he recommended is PFS.  It's highly unlikely Keynes would endorse Greece, and the other PIGS, breaking those standards.  How Keynes would propose dealing with the problems in the Eurozone?  Who knows.  Personally, I think Keynes would have opposed allowing many into the Eurozone and would have advocated kicking out the cheaters once caught cheating rather than doing these endless bailouts.  But who knows what Keynes may or may not have suggested.  

Picking on Keynes because people did not follow his advice makes no sense.  That's certain.

If you want to tout Hayek, better to read some of his works.  Basically little or nothing to do with monetary policy.  Hayek endorsed the idea governments should provide a social safety net.  How much, how to set them up, how to pay for them--not discussed by Hayek   Hayek's main works would be of little use--I'd say of absolutely no use-- in deciding how governments should deal with the problems facing today's Eurozone, or how to deal with the cheaters causing problems in it, or whether its a good idea for Germans to work to 64-70 while being forced to subsidize Greek workers who get to retire at 50.   Hayek's main work The Road to Serfdom is mainly a critique of how Hitler and his Nazi regime did things (remove checks and balances, conslidate power through murder among other things, remove the rule of law and regulations by appointing judges with a philosophy of ignoring them).  

 RW'ers who bash Keynes and endorse Hayek or the other members of the so-called Austrian school as some alternate solution to Keynes' observations and recommendations obviously never read the actual works or do not understand what they said or meant.  That's Keynes and Hayek both. 

 

 

 

Fri, 09/02/2011 - 12:41 | 1626918 Mountainview
Mountainview's picture

You right, it's not black and white...it's grey and grey...

Fri, 09/02/2011 - 14:37 | 1627078 TruthInSunshine
TruthInSunshine's picture

Lexington, this just my free opinion, so consider it as such, but I believe that you overcomplicated your assessment, and in doing so, you missed pointing out a profound - the most critical, in fact - difference between Hayek & Keynes, which centers around a question that vexes society (consumers, economists, banks, businesses, governments) to this day, to wit:

What is money?

Keynes promoted the general notion that money need only be mere fiat, and that there was no need for such a fiat medium of exchange to be tied or backed by anything of inherent value (Keynes actually argued for an international currency, the bancor, not having any inherent worth aside what nation-states would mutually ascribe to it via their official declarations).

Hayek countered that if there was no constraint on the supply of fiat money, and the only way that there could be such a constraint was by backing it by something of inherent value that couldn't be diluted into infinitum, there would be no way to avoid banker manipulations that would cause boom (inflationary) and bust (deflationary) cycles, whereby material wealth would become more and more concentrated (as those previously holding assets would be dispossessed of them during busts - sound familiar?), and whereby economic activity and societal wealth would become less and less stable, over time.

Keynes advocated a fiat standard whereby, for all practical purposes, money and debt were equivalents. If fiat can be created by a ledger entry, but only by the central bank, and then leveraged many times over by those with a "fiat license" (member banks), and it could also be similarly and just as easily deleted, can't this "money" act in the exact same manner as a debt, also?

If one used a true standard of money, that had inherent value (at least in the sense that it couldn't be created from thin air, as a ledger entry, and then diluted through leverage), as Hayek proposed, there could never be massive boom-bust cycles, and those holding real money, and the real things purchased by it, not subject to arbitrary (or not) confiscation, couldn't easily be dispossessed of the equivalent measures of their labors.

Fri, 09/02/2011 - 13:35 | 1627104 Breaker
Breaker's picture

" Hayek's main work The Road to Serfdom is mainly a critique of how Hitler and his Nazi regime did things (remove checks and balances, conslidate power through murder among other things, remove the rule of law and regulations by appointing judges with a philosophy of ignoring them)."

In all fairness, Hayek's, "The Fatal Conceit," is a stinging indictment of socialism and communism, and not just the fascist version of socialism.

You make some good points about the difference between Keynes and the way politicians use Keynes. However, Keynes saw a greatly expanded role for government in the economy that "The Fatal Conceit" would predict to be doomed to failure. Keynes main contribution in the real world has been to provide justifications for that much larger role of government in the economy--however mendacious the use of his recommendations by politicians has been (and it has been mendacious). On the evidence so far, that expanded role has not been a big success, which is what Hayek would likely have predicted.

So I would say there is a difference between slagging "Keynes" and slagging "Keynesianism." Keynesianism is what politicians have made of Keynes and has acquired a life all its own. And it is a mess. Hayek, to his credit, slagged Keynesianism before it even existed.

Fri, 09/02/2011 - 11:56 | 1626765 JW n FL
JW n FL's picture

 

 

Keynesianism is NOT! the Problem!!!

Keynesianism NEVER! was the Problem!!!

The fact that the sheep keep talking about Keynesianism makes it a winner!!!

Keep telling your-selfish-selves that LESS! is MORE!!!

Government has taken Corruption as far as it can.. now a more outright / out front push to claw back from "We the People" is needed.

Fri, 09/02/2011 - 13:29 | 1627079 JW n FL
JW n FL's picture

 

 

For ALL of those idiot sheep who believe Austerity is needed becuase the POOR are stealing your Tax Dollars! LOL!!! vote the facts down you blind sheep!

 

$16 Trillion Dollars???  

http://info.publicintelligence.net/GAO-FedAudit.pdf

 

PLUS!!!

 

Wall Street Aristocracy Got $1.2 Trillion in Fed’s Secret Loans

http://www.bloomberg.com/news/2011-08-21/wall-street-aristocracy-got-1-2-trillion-in-fed-s-secret-loans.html

 

PLUS!!!

 

SEC Covering Up Wall Street Crimes?

http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817

How about the $2.5 Trillion in Social Security Bailouts??

http://moneywatch.bnet.com/retirement-planning/video/good-news-on-social-security/478373/

 

Damn those POOR People Stealing from Social Security!! LOL!!!

$16 Trillion in Liar Loans!!

We need Tax Breaks for the Job Creators!! they are Not sitting with more cash than any time before in History!! LOL!!!

BAAAAAAAAAAAAAAAAAAAAAAAAA

BAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA

You Blind Fucking Sheep! BAAAAAAAAAAAAAAAAAAAAAAAAAA

Fri, 09/02/2011 - 14:24 | 1627288 JW n FL
JW n FL's picture

 

 

More Austerity!! Games from Washington DC!!

 

Subject: Taking hostages in a hurricane?

Dear Friend,

The waters have just begun to recede in Vermont. New Jersey is still reeling. North Carolina is just starting to pick up the pieces. But Republican House Majority Leader Eric Cantor is already taking Hurricane Irene's victims hostage.

Truly, Mr. Cantor has no shame. It's outrageous to take advantage of the urgent needs of hurricane survivors in order to advance his radical crusade to cut Medicare, Medicaid and Social Security. But that's exactly what one of the top Republicans in Congressional leadership is doing with his refusal to allocate money to disaster relief unless Congress first offsets that money with cuts to vital government programs.

I just signed a petition telling Eric Cantor to release the hostages and stop blocking funds for urgently needed disaster relief. You should sign the petition too. Click below to take action.

http://act.credoaction.com/campaign/hurricane_hostages/?r_by=26640-4136952-0dcX88x&rc=paste2

 

Fri, 09/02/2011 - 20:05 | 1628547 StychoKiller
StychoKiller's picture

Sorry, but the Illuminati use the Ignorati's financial difficulties to RATIONALIZE robbing productive citizens in order to alleviate the Ignorati's woes!  Better that the productive citizens should take pity on the Ignorati and supply them with VOLUNTARY CHARITY, than allowing Big Brother to steal from them with gun(s)!  Check your premises, because you're justifying the actions of thieves!

Fri, 09/02/2011 - 11:56 | 1626767 DollarDive
DollarDive's picture

Ask Switzerland how Keynesianism is working out..... Did anyone notice the unemployment numbers yesterday for Switzerland ?   Employed dropped from 4.11m to 2.1m - 50% drop.... OOPS.   How's that expensive CHF working out - sounds like an invitation for more currency intervention.  What's amazing is that when you google swiss unemployment, there's only four articles.  Can you imagine what would be going on in this country if employment dropped by that much ? .....  More bad news being swept under the rug, hoping the sheeple don't put all the pieces together.  Move along now.... nothing to see here.

Fri, 09/02/2011 - 16:53 | 1627882 ViewfromUnderth...
ViewfromUndertheBridge's picture

a link would help...especially when claiming a 50% drop in employment.

AFP Sunday Aug 7 2011

"Swiss unemployment reached 2.8 percent in June, a 2.5 year low."

http://www.hurriyetdailynews.com/n.php?n=swiss-unemployment-to-rise-on-strong-franc-2011-08-07

 

Fri, 09/02/2011 - 12:03 | 1626771 antisoshal
antisoshal's picture

No. Because no one actually practices Keynesianism. BAD behavior abounds, justified by a proclaimed goal of a keynesian system, but in reality only whatever portions of the concept that are convenient at the moment are applied. If true Keynesianism (were that a real word) had been adhered to, we wouldn't be here asking the question. The reality is that there are several ideal systems that if adhered to utterly would actually function as described. The trick is no one actually adheres to them. In the end, opponents of whomever is in charge demonize whatever concepts were used as a mask for bad behavior, and everyone gets a scapegoat for a while.

If it had been actual "Keynesianism", not only would deficits have been paid off during robust times, but large surpluses would have been accrued and held on to to manage times like this. True "Keynesianism" would never have allowed for the run amok behavior of various entities that created unsustainable systems of profit and greed.

Russia was never true communism either, but that didn't stop anyone from proclaiming the defeat of communism when their corrupt and dysfunctional system collapsed. Everyone had a good time burning their effigies, just like everyone here does now. You are celebrating the death of something, but it isn't "Keynesianism". Never was. The real problem is NO system is ever maintained without the injection of corruption and imbalance by those enacting it. You might as well blame Fred Rogers for everything. He has as much to do with what has been going on as Keynes. Keynes just has his name printed on the book everyone points to when they don't do what he suggested.

Fri, 09/02/2011 - 13:40 | 1627123 Breaker
Breaker's picture

Of course, this is the progressive answer to every failure--our pure system wasn't really tried. IMHO, there is a huge break between pure progressive systems (whether communism or Keynesian socialism) and human nature. Both have to be implemented in the real world. Both will be perverted and fail because humans are humans. Progressives will always blame the failure on the implementers and the implementation rather than on an interesting, but fundamentally flawed, theory.

Fri, 09/02/2011 - 13:58 | 1627149 TruthInSunshine
TruthInSunshine's picture

Yes.

Devout communists claim Stalin and Mao were "bad people," who did "bad things," and that they were not communists at all (which is actually true).

In reality, you'd never get a pure form of communism to work in the 'real world,' because the entire precept is based on an utopian view of human nature (that each will work hard to ensure supply, and that some will compensate for the lax ways of others, and produce their supply for them, as well, working overtime, with not only no additional supply, but handing over the supply to the lax).

 

Fri, 09/02/2011 - 12:02 | 1626787 props2009
props2009's picture

Next 2 weeks supply of bonds for G4

http://capital3x.com/?p=636

Fri, 09/02/2011 - 12:05 | 1626793 falak pema
falak pema's picture

the EU has no choice; make or break time. Either its fiscal harmony and discipline OR its disintegration. Merkel's choice. 

Fri, 09/02/2011 - 12:07 | 1626801 Tense INDIAN
Fri, 09/02/2011 - 12:10 | 1626812 Segestan
Segestan's picture

Pandora’s Box has been opened. Only fiscal integration accompanied by centralized financing of governments can bring about full stabilization of the market in Europe, in our view. The alternative could eventually be a resumption of the run on governments and a wave of public and private defaults.

 

Bullshit........Pandora's Box was opened 50 years ago by Liberalism/Globalism. Now those same idiots want a fully centralized control to ensure ignorance, and distribution. Another supposed capitalist author/professional with a communist/internationalist bent.

Fri, 09/02/2011 - 12:12 | 1626820 HF Critic
HF Critic's picture

Looks like the end for Greece - caught between the Scylla of needing revenues and the Charybdis of no one paying taxes. 

http://www.ft.com/intl/cms/s/0/5a6e2be6-d4aa-11e0-a7ac-00144feab49a.html#axzz1WjsCAaRC

 

 

Fri, 09/02/2011 - 12:16 | 1626836 markar
markar's picture

fiscal integration will never happen now that the idiocy of the suits in Brussels has been laid bare for all to see.Looks like break up is the only option left.

Fri, 09/02/2011 - 12:16 | 1626837 Silver Exterior
Silver Exterior's picture

keynesianism crushed itself long ago, Greece just spitted on it's dead body...

Fri, 09/02/2011 - 12:17 | 1626841 jmc8888
jmc8888's picture

Through monetary policy that was pushed, a monetary crisis developed.  Now the only thing left is to give up one's soverignity to 'solve' this made up monetary problem.

The only way is through integration.  My ass.  The only way out is disintegration.  Then applying Glass-Steagall to all the euro countries individually.  Throwing out the vast majority of the fraudulent debt that have got them in a 'corner', and thus 'requiring integration as the only way out'.

Way to create a problem and solution.   Too bad neither is true.

Morgan Stanley pushes for coup against each euro country.

 

The funny thing is, even if they DID all of this, it still wouldn't 'solve it'. 

 

Morgan Stanley has the collective IQ of a turnip.  But never let that get in the way of screwing people over, huh.   Because the more power you give the banksters, the better things turn out.  Just look at what they've done since we repealed Glass-Steagall and gave them full reign.  Just look at what has become of European countries since the adoption of the euro.  The big change is more of the same, lots more.  So much more, you're country will basically cease to exist, since it wouldn't make any decisions involving money anymore....basically.

 

Glass-Steagall

Fri, 09/02/2011 - 12:27 | 1626844 orangedrinkandchips
orangedrinkandchips's picture

I have to stick up for the analysts on the street. I know they are not dumb, they know what is going on...IT'S THE POLITICS THAT PREVENTS THEM FROM TELLING THE TRUTH ABOUT THE SITCH....PERIOD. You know they know what the fuck is going on..but their bosses and upper management cant allow them to speak freely.

 

"put some lipstick on this pig"...is just an example of the politics going on in the corp world....

 

it really must suck for them to look this stupid...but you HAVE TO WATCH WHAT THEY DO WITH THEY OWN MONEY...NOT A FUCKING THING NOW....because they know...atleast they can get to the sidelines....

 

They "play dumb" with recommendations about SINO and other beyond fucked up companies and they HAVE to...ARE MADE TO go along with the stupid charade. No way in hell are they really that dumb per their research.

 

The paper above is more than obvious to even my 1st grader. But, since expectations are so dumbed-down on the street he looks like a fucking genius for speaking the truth.

 

I was in the sub prime bullshit underwriting that horseshit and I got nailed time and time again for doing what was OBVIOUS AND LOGICAL. It was the political shit that humiliates the people trying to do the right thing ....ALL IN THE NAME OF THE ALMIGHTY DOLLAR....

 

nothing new folks....same shit, differnent year

Fri, 09/02/2011 - 12:25 | 1626856 pcrs
pcrs's picture

oh no, new world order. Super corrupt anonymous officionados far far away srewing you over.

Fri, 09/02/2011 - 12:28 | 1626866 Flounder
Flounder's picture

Martin Feldstein Says Euro `Experiment' Is a Proven Failure

http://www.bloomberg.com/video/74737133/

Fri, 09/02/2011 - 13:01 | 1626987 Market Efficien...
Market Efficiency Romantic's picture

Felstein is an elite lobbyist fuck. Why is it that I would have expected him to be among the first to manifest the outcome of offensive strategic market activity serving a geo-strategic interest of money and power elites...

Fri, 09/02/2011 - 12:33 | 1626884 jumbalika
jumbalika's picture

Check out LOIS EUR on Bloomberg. At Apr 2009 level & at highest level since Jan 2010.

Fri, 09/02/2011 - 12:36 | 1626897 Lucius Corneliu...
Lucius Cornelius Sulla's picture

I think I will be converting dollars to drachmas the next time I visit Greece.

Fri, 09/02/2011 - 12:41 | 1626916 fresno dan
fresno dan's picture

I agree - this is some witty sarcasm, and actually quite insightful. 

"...while Keynesian economists are busy advising world leaders from top academic institutions"

That is just LOL - I laughed so hard I hurt myself.  With the economy in the sh*tter no thinking proponent of a philosophy would want to suggest they are actually influencing public policy.

Fri, 09/02/2011 - 12:50 | 1626935 hackettlad
hackettlad's picture

Tyler, you are an indispensible resource, indeed a very generous one at that, and I rely you on constantly.  But your partie prise hyperbole makes you no less dogmatic than those you accuse of the same failing.

Do you really believe that "the entire Keynesian dogma (rests) on this very tenet"?  I cannot believe this is the case or else you really do not understand Keynesian theory at all.  I am concerned about this type of bombast as it provides ammunition to your detractors.

TruthInSunshine's post above neatly expresses how Keynes has been misquoted and misinterpreted, at times transmogrifying into something he would not have recognised, let alone endorsed.  Maybe better to express more nuanced views such as those.

Fri, 09/02/2011 - 12:56 | 1626970 Market Efficien...
Market Efficiency Romantic's picture

Am I getting totally confued are some assumptions in global capital markets entirely absurd. If sovereign debt is per ' definition' risk-free, why does the market expect and trade different yields for different entities. The difference in yield and CDS spreads are the quantification of risk and risk spreads. How can one accepts these facts and at the same time assume risk-freeness? I understand the theoretically perfect capability for sovereigns to avoid default, but theory, markets, policy and geo-strategy are entirely different things, which everyone basically agrees to when accepting differences in yields and spreads.

Similarly, the entire discussion on losing the AAA rating is BS. Bond yields work on a continuous scale, whereas ratings are categorical in natire. How and when are rating agencies supposed to reflect a continuous valuation in a categorical system. Just impossible. Instead of facing this dilemma when bond rating change issues first camer up, market participants postponed this discussion, thereby causing several consequences:

1) You consciously live with a flawed system, knowing that it can only exist until the ultimate gap surfaces.

2) Theoretically, any debitor can have access to credit as the price will reflect the perceived risk by the creditor. If sovereign debt was different, why would anyone invest in US treasuries instead of some high-yield African debt?

3) Realizing the conceptual difference between continuous and categorical valuation systems, market participants try to convey alpha sources from that difference. The alpha only lies in the conceptual difference. Here, the ultimate gap surfaced, when structuring conveyed that 8% yields could be achieved while holding a AAA rating. Structuring certainly allowed for complexities and cost of assessing the true risk structure.

Please let me know, if I miss something or got something wrong, but my impression increasingly is that the entities and imperfect conpepts of institutionalized markets are due to their long-lasting institutionalization concerning their outcomes and perfection somehow confused with theoretically abstract perfect neo-classic theory of markets.

Fri, 09/02/2011 - 13:01 | 1626989 dcb
dcb's picture

I had a different take, asking for gold as backing for the bonds, really leaves a two tier system of capitial in the world pipes. what is sways is they don't trust fiat, it's a joke. they will be rich with gold backed money, we will be stock holding the bag.

Fri, 09/02/2011 - 14:30 | 1627308 malek
malek's picture

...to finally comprehend that when sovereign debt is not [considered] 'risk-free' then fiscal (and monetary) [Keynesian] policy can become pro-cyclical.

A memorable statement, thanks TD!

Fri, 09/02/2011 - 14:56 | 1627391 navy62802
navy62802's picture

Goldman is so dry and boring. Why don't they have reports on the "Animal Spirits?"

:-P

Fri, 09/02/2011 - 20:59 | 1628638 prophet
prophet's picture

G-20. Bingo! The Great Intervention is taking shape.

Fri, 09/02/2011 - 21:45 | 1628715 Bendromeda Strain
Bendromeda Strain's picture

This "Fiscal Integration" is not at all what its proponents hold it out to be...

Sat, 09/03/2011 - 16:24 | 1629922 ShoeShineBoy
ShoeShineBoy's picture

 and people still wondering why gold to the $10,000++.. here is your anwer, read a few times, if you don't get it..

Sat, 09/03/2011 - 16:24 | 1629924 ShoeShineBoy
ShoeShineBoy's picture

 and people still wondering why gold to the $10,000++.. here is your anwer, read a few times, if you don't get it..

Mon, 09/05/2011 - 08:38 | 1633792 shacai
shacai's picture

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