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Guest Post: Krugman, Newton & Zombie Banks

Tyler Durden's picture


Submitted by John Aziz of Azizonomics

Krugman, Newton & Zombie Banks

Paul Krugman:

Mitt Romney – supposedly advised by Mankiw among others – is outraged:


[T]he American economy doesn’t need more artificial and ineffective measures. We should be creating wealth, not printing dollars.


That word “artificial” caught my eye, because it’s the same word liquidationists used to denounce any efforts to fight the Great Depression with monetary policy. Schumpeter declared that


Any revival which is merely due to artificial stimulus leaves part of the work of depressions undone


Hayek similarly decried any recovery led by the “creation of artificial demand”.


Milton Friedman – who thought he had liberated conservatism from this kind of nonsense –must be spinning in his grave.


The Romney/liquidationist view only makes sense if you believe that the problem with our economy lies on the supply side – that workers lack the incentive to work, or are stuck with the wrong skills, or something.

Perhaps Krugman ought to consider more seriously the reality that since both Japan and now America have gone down the path of continually bailing out a corrupt, dysfunctional and parasitic financial system that neither nation has truly recovered.

Our ancestors who correctly judged the climate, soil and rainfall and planted crops that flourished were rewarded with a bumper harvest. Those who planted the wrong crops did not get a bailout — they got a lean harvest, and were forced to either learn from their mistakes, or perish. While some surely perished from misfortune, and some surely survived from luck, this basic antifragile mechanism ensured the survival of the fittest agriculturalists and the transmission of their methods, ideas and genes to further generations. In the financial sector today the Darwinian mechanism has been turned on its head; in both Japan and the West, financiers have not been forced by failure to learn from their mistakes, because governments and regulators protected them from failure with injections of liquidity. Markets have become hypnotised and junkified, trading the possibility of the next injection of central banking liquidity instead of market fundamentals.

So it should be no surprise that financial institutions have continued making exactly the same mistakes that created the crisis in 2008. That crisis was caused by excessive financial debt. Many Wall Street banks in 2008 had forty or fifty times as much leverage as they had equity. The problem with leverage is that while successful bets can very quickly lead to massive profits, bad bets can very quickly lead to insolvency, liquidity panics and default cascades.

Following 2008, many on Wall Street promised they had learned their lesson, and that the days of excessive leverage and risk-taking with borrowed money were over. But, in October 2011, another Wall Street bank was taken down by bad bets financed by excessive leverage: MF Global. Their leverage ratio? 40:1.

So why was the banking system bailed out in the first place? Defenders of the bailouts have correctly pointed out that not bailing out certain banks would have caused the entire system to collapse. This is because the global financial system is an interconnected web. If a particularly interconnected bank disappears from the system, and cannot repay its creditors, the creditors themselves become threatened with insolvency. Without state intervention, a single massive bankruptcy can quickly snowball into systemic destruction. The system itself is fundamentally unsound, fundamentally fragile, and prone to collapse.

Government life-support has given Wall Street failures the resources to continue their dangerous and risky business practices which caused the last crisis. Effectively, Wall Street and the international financial system has become a government-funded zombie — unable to sustain itself in times of crisis through its own means, dependent on suckling the taxpayer’s teat, alive but yet failing to invest in small business and entrepreneurs.

My theory is this: our depression is not a problem of insufficient demand. It is systemic; most prominently and immediately financial fragility, financial zombification, moral hazard, and excessive private debt, alongside a huge number of other long-term systemic problems.

The new policy of unlimited quantitative easing is an experiment. If those theorists of insufficient aggregate demand are right, then the problem will soon be solved, and we will return to strong long-term organic growth, low unemployment and prosperity. I would be overjoyed at such a prospect, and would gladly admit that I was wrong in my claim that depressed aggregate demand has merely been a symptom and not a cause. On the other hand, if economies remain depressed, or quickly return to elevated unemployment and weak growth, or if the new policy has severe adverse side effects, it is a signal that those who proposed this experiment were wrong.

Certainty is something that economists in particular should be particularly guarded against, even as a public relations strategy. Isaac Newton famously noted in the aftermath of the South Sea bubble that “I can calculate the motion of heavenly bodies but not the madness of people.” In the sphere of human action, there are no clear and definitive mathematical principles as there are in astronomy or thermodynamics; there have always been oddities, exceptions and quirks. There has always been wildness, even if it is at times hidden.

So we shall see who is right. I lean toward the idea— as Schumpeter did — that the work of depressions and crises is clearing out unsustainable debt, unsustainable business models, unsustainable companies, unsustainable banks and — as much as anything else — unsustainable economic theories.


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Sun, 09/16/2012 - 08:52 | 2800223 Colombian Gringo
Colombian Gringo's picture

Hang all banksters, NOW!

Sun, 09/16/2012 - 08:55 | 2800226 GetZeeGold
GetZeeGold's picture



Yeah....that won't kill them.


Sun, 09/16/2012 - 09:57 | 2800314 Stackers
Stackers's picture

Paul Krugman: Professional Cat Herder

Sun, 09/16/2012 - 10:06 | 2800340 A Middle Child ...
A Middle Child of History's picture

Pussy chaser? I thought that appellation belonged to Slick Willie?

Sun, 09/16/2012 - 10:14 | 2800355 Atlas_shrugging
Atlas_shrugging's picture

The "our ancestors" paragraph may be the truest and most concise explanation of the world's problems I've ever read

Sun, 09/16/2012 - 11:11 | 2800487 LetThemEatRand
LetThemEatRand's picture

You guys just love stories where people who don't succeed actually die. don't you.  Ironically, the bankers responsible for this mess don't die when they fail even in your Randian paradise.  In the world of corporations (which Rand loved), they take their Bentleys and go home to their mansions.  The investors and workers die.  The Presidents and Vice Presidents get to live on to see another day of wealth.

I usually enjoy this author, but this article is setting up a classic strawman (Krugman).  The answer is much more complex than simply letting a bunch of bankers fail.  The entire corporate system that allowed their existence needs to be re-examined.

From the Ayn Rand Institute, which may as well say "corporations are people too":  "a corporation is a union of human beings in a voluntary, cooperative endeavor. It exemplifies the principle of free association, which is an expression of the right to freedom. Any attributes which corporations have are attributes (or rights) which the individuals have—including the right to combine in a certain way, offer products under certain terms, and deal with others according to certain rules, for instance, limited liability."

Sun, 09/16/2012 - 13:03 | 2800630's picture

Don't you just love the story of government which is the tale of an elite class which claims the right to exercise a monopoly on violence up to and including the right to murder of millions of people? Why shouldn't limited liability on a voluntary basis be deemed superior to the complete immunity claimed by government? Can you name any businessmen who were responsible for more death and destruction than the governments of Hitler, Stalin or LBJ?

Sun, 09/16/2012 - 13:10 | 2800709 formadesika3
formadesika3's picture


Classic strawman, indeed (Rand).

I wasn't aware that Schumpeter and Hayek were adherents of the philosophy of Ayn Rand. /sarc

I didn't down arrow you, btw. 2 kinds of love here, honest and troll. You deserve neither.

Sun, 09/16/2012 - 13:25 | 2800734 KickIce
KickIce's picture

+1 for Corporations are people quote.  They should not be permitted lobbyists nor should they be able to make political donations.

Sun, 09/16/2012 - 13:55 | 2800778 FL_Conservative
FL_Conservative's picture

But I guess unions are people, right?  That's just a stupid observation.  If anyone is REALLY interested in disabling the impact of lobbyists and special interests in government, they would:

1) put all their efforts in drastically shrinking the federal government and placing those responsibilities at the local and state government level where citizens could more easily attach the cost/benefit of expenditures and policies and have the ability to influence them OR RELOCATE if they can't; and

2) simplify the federal tax code to a flat rate without ANY deductions other than personal exemptions or replace the income tax with a national consumption tax.

But keep building strawmen.  I know that's a "mainstream" thing to do.

Sun, 09/16/2012 - 15:17 | 2800971 KickIce
KickIce's picture

No, I don't believe unions are people.

Curious, what strawman did I build?

Sun, 09/16/2012 - 21:36 | 2801951 Tommy Gunner
Tommy Gunner's picture

Picture this:


Ayn Rand riding on Bernank's donkey carck (the huge one he sliced off the donkey in the Ghan and had stitched into penoose area) moaning and groaning - oh ben oh ben. 

Meanwhile Randian acolyte Greenspan sits in the corner with a family sized bag of coke blasting lines with a trillion dollar bill that Bernank printed off earlier.  Every so often Greenspan takes a feather duster and tickles Ben's balls (which are completely out of proportion to his penoose because in his excitement he took the donkeys carck only forgettting the balls).


Of course John Galt films the action and uploads it to Porn Hub for a significant fee later that evening.

Sun, 09/16/2012 - 12:16 | 2800609 Kayman
Kayman's picture


Looking up a dead dog's ass.

The problem is with Gross National Income (GNI), not GDP.

So... rather than giving more front running money to those that are already well off- create the circumstances where private sector, tax-paying middle class families can be put back to work.  Then and only then will Krugman and Bernanke reach their stated goal(s).

Repatriate American jobs. And don't give me the false argument that we cannot afford to.  We cannot afford not to. 

Sun, 09/16/2012 - 13:16 | 2800720 FL_Conservative
FL_Conservative's picture

Obama and Bernanke would have gotten more bang for their printed dollars (from both a monetary and fiscal policy perspective) if they would have done more to deleverage each American person.  Our issue "this time" is the extent of leverage caused by decades of living beyond our means and NOTHING will change until aggreagte debt decreases significantly.  Now, not only does each American have to find a way to pay their own debt down in a miserable employment and business environment, but then we're all going to have to pay more taxes to enable the national debt to get paid down.  That's a lot (NOT) to look FORWARD to.

Sun, 09/16/2012 - 13:09 | 2800706 FL_Conservative
FL_Conservative's picture

He's easily one of the dumbest fucks I've ever heard (or read) and it's hard to believe he could ever have been awarded a Nobel prize.  That really sets the hurdles pretty low in the academic world....although you only are considered "worthy" if you agree with "them".

Mon, 09/17/2012 - 06:10 | 2802508 LMAOLORI
LMAOLORI's picture



This article sums up krugman perfectly

In Krugman, Keynes Meets Orwell

Sun, 09/16/2012 - 09:01 | 2800232 Ungaro
Ungaro's picture

That would be a decent start (if "banksters" include central, investment, and commercial types) but would need to continue with all the parasitic politicians who were fattened at the banksters' trough while violating their sworn oath to uphold the US Constitution.

Sun, 09/16/2012 - 09:02 | 2800233 eigenvalue
eigenvalue's picture

No...Hang all the male banksters now. Leave the female ones to me. I will punish them...:)

Sun, 09/16/2012 - 09:23 | 2800250 KickIce
KickIce's picture

We'll leave Abby Cohen for you.

Sun, 09/16/2012 - 10:06 | 2800345 Popo
Popo's picture

He prefers females.

Sun, 09/16/2012 - 10:07 | 2800347 GetZeeGold
GetZeeGold's picture



71 more virgins.....and he's good to go.


Sun, 09/16/2012 - 10:22 | 2800376 KickIce
KickIce's picture

While I'm being generous I would also include Janet Reno, Janet Napalitano and Elana Kagan.

Sun, 09/16/2012 - 11:04 | 2800480 NewWorldOrange
NewWorldOrange's picture

I just threw up into my own mouth...

Sun, 09/16/2012 - 11:10 | 2800492 SafelyGraze
SafelyGraze's picture

Abby Joseph Cohen Named Chair of the Board of Trustees of The Jewish Theological Seminary

not that her corporate affiliation would influence what is taught to the teachers (or what topics they would avoid)

theological capture

Sun, 09/16/2012 - 09:15 | 2800240 mjorden
mjorden's picture

Hanging - the Purpose is to break the neck ...


Breaking the neck requires a spine.


This would assume that Bankers have spines.


Bankers don't have spines.

Sun, 09/16/2012 - 09:37 | 2800270 adr
adr's picture

That is why the guillotine was invented. Much quicker and capable of killing the spineless. For the bankers I would use a dull blade though. 

Sun, 09/16/2012 - 11:09 | 2800490 NewWorldOrange
NewWorldOrange's picture

Most of 'em never needed a spine. They had a big silver spoon shoved far up their ass from day one. How do you think Mitt Romney can flip flop like that and still stand up?

Sun, 09/16/2012 - 13:44 | 2800753 Hulk
Hulk's picture

The guillotine is so 17th century. I'd like to see a few Trebuchets lined up on the Rim of

the Grand Canyon. That would be: A) fun to watch, Monty Pythonish in fact and B) No banker body mess to clean up afterwards !!!

Sun, 09/16/2012 - 10:02 | 2800328 A Middle Child ...
A Middle Child of History's picture

Spine or no spine, I bet they can't dodge a bullet. Although rope is "green" if it is made from hemp, and it has the advantage that it can be reused multiple times; recycling, better for the environment!

Sun, 09/16/2012 - 08:56 | 2800227 francis_sawyer
francis_sawyer's picture

We're in the 'loot the treasury' part of the business cycle...

Sun, 09/16/2012 - 09:04 | 2800236 GetZeeGold
GetZeeGold's picture



New plan....pick some crap up......and run!


Sun, 09/16/2012 - 17:00 | 2801246 RockyRacoon
RockyRacoon's picture

The demographics cannot be denied.  Hardly any "fiscal" or "economic" cure will work now.  Buckle up!

For those looking for info on the public/private debt situation:

A Decade of Volatility: Demographics, Debt, and Deflation

Video version of this presentation by Harry Dent,
please click on the following link:
Click here for the transcript




Sun, 09/16/2012 - 09:05 | 2800229 hedgeless_horseman
hedgeless_horseman's picture



Relax, everyone!  Everything is going to be just fine.  The bailouts and money printing is all just a bunch of misunderstandings and cultural differences among the banker-owned politicians and the people they serve.  Just like our Invasion and Occupation of Afghanistan, the longest war in American history...

Afghan and NATO officials say, however, that about 75 per cent of the attacks are not connected to the Taliban and are mostly triggered by misunderstandings and cultural differences among the Afghans and their Western allies.

Sun, 09/16/2012 - 09:54 | 2800307 malikai
malikai's picture

The bailouts and money printing is all just a bunch ofmisunderstandings and cultural differences among the banker-owned politicians and the people they sever.

Sun, 09/16/2012 - 09:00 | 2800231 A Lunatic
A Lunatic's picture

Fleecing the Sheeple will always be sustainable........

Sun, 09/16/2012 - 09:04 | 2800234 disabledvet
disabledvet's picture

Buy gold seems as good a comment as any in dealing with "experimental economic policies." I've preferred oil because "the biggest lie was that evil didn't exist." as with oil "it exists in beyond belief quatities."

Sun, 09/16/2012 - 09:04 | 2800235 Aquarius
Aquarius's picture

If its ".. clearing out - 'just' — unsustainable economic theories" - it will be the greatest depression of all time!


and good riddance.

Sun, 09/16/2012 - 09:14 | 2800238 Winston of Oceania
Winston of Oceania's picture

"From 1926 to 1929 the attention of the world was chiefly focused upon the question of American prosperity. As in all previous booms brought about by expansion of credit, it was then believed that the prosperity would last for ever, and the warnings of the economists were disregarded." The Theory of Money and Credit Ludwig von Mises (from the Preface to the English edition) availabe at

Sun, 09/16/2012 - 09:20 | 2800239 Heiman Van Rock...
Heiman Van Rockerchild's picture


How could the the Libyan Ambassador be killed at the Benghazi embassy,consulate or mission when none exists there. Be sure to copy these pages and watch for Benghazi to magically appear if this story gains traction.

Notice, there is one embassy in Libya, and that is in Tripoli.

You can also see on the US gov. page that the only Libyan embassy is in Tripoli. If you find anything different, please let me know.

List of Diplomatic missions of the US in the Middle East

Who really killed Libyan Ambassador Stevens? It’s the Zionists, stupid!

Bacile, a California real estate developer who identifies himself as an Israeli Jew, said he believes the movie will help his native land by exposing Islam’s flaws to the world.
“Islam is a cancer, period,” he said repeatedly, his solemn voice thickly accented.

The two-hour movie, “Innocence of Muslims,” cost $5 million to make and was financed with the help of more than 100 Jewish donors, said Bacile, who wrote and directed it.  – Yahoo News

[ islam is a cancer, better check out the Jewish Talmud, a real eye opener]


Also check out these sites:

Sun, 09/16/2012 - 09:20 | 2800246 AUD
AUD's picture

No. No it isn't.

Sun, 09/16/2012 - 09:33 | 2800264 nmewn
nmewn's picture

Spent a minute of my life (that I'll never get back) trying to figure out which "brotherhood" you belong to...aryan or muzz.

Then decided it didn't matter.

Sun, 09/16/2012 - 10:28 | 2800393 malikai
malikai's picture

Your sacrifice was for the greater good.

The rest of us will not have to make the same sacrifice you did.

Sun, 09/16/2012 - 18:26 | 2801450 RockyRacoon
RockyRacoon's picture

Yes!  I'm glad I didn't waste any time at that link-fest.

Sun, 09/16/2012 - 09:33 | 2800265 insanelysane
insanelysane's picture

In one news report they identified the attacked building as a "safe" house.  Not sure why the embassador was there and how a "spontaneous" uprising that had at least 2 organized units knew the embassador was there.


As for the movie, the guy identifies himself as an Israeli Jew but turns out to be a Coptic Christian whatever that is.  I believe in the 1st amendment but I think you could be prosecuted for trying to start a war between Jews and Muslims.

Sun, 09/16/2012 - 09:55 | 2800312 lakecity55
lakecity55's picture

The stupis u-toob trailer of that "movie" has been on line for months.

It's easier to blame a u-toob flick than admit the truth: either the uprisings were unforseen because of incompetence, or they were organized by the puppet's Masters.

Sun, 09/16/2012 - 10:49 | 2800419 Heiman Van Rock...
Heiman Van Rockerchild's picture

Yeah, that story on government controlled yahoo is pretty incendiary, but what do expect from the federal government that kills innocent americans (911, pearl harbor, USS Liberty etc..) to further an agenda.

Sun, 09/16/2012 - 11:01 | 2800470 Ralph Spoilsport
Ralph Spoilsport's picture

The quality of the government funded trolls here on ZH is declining rapidly.

Sun, 09/16/2012 - 09:40 | 2800271 bigbwana
bigbwana's picture

The Zionists are controlled by the Illuminati. The Illuminati, however, sold out to a far superior race, in their evil quest for a NWO, the Annunaki. All will answer to God for their crimes against humanity. Promise the Galactic Federation, who represent God, and cannot tell a lie. 

Sun, 09/16/2012 - 09:39 | 2800276 bigbwana
bigbwana's picture

The Zionists are controlled by the Illuminati.

Sun, 09/16/2012 - 12:13 | 2800604 francis_sawyer
francis_sawyer's picture

 francis_sawyers' 'phallus' is controlled by Christina Hendricks... The conspiracy starts there...

Sun, 09/16/2012 - 13:02 | 2800695 Kayman
Kayman's picture

Seems to be proof that you are living in your mother's basement.

Sun, 09/16/2012 - 09:16 | 2800241 Ungaro
Ungaro's picture

Dr BS Bernanke should be hauled off to The Hague and prosecuted for crimes against humanity.

All major commodities are priced in USD. The USA will bomb the shit out of any country that tries something different.

As Dr BS Bernanke continues issue forth an avalanche of USD, the price of world commodities continues to rise relentlessly.

As confidence in the financial system erodes, high rates of unemployment persist the world over. Wages do not keep up with rising prices.

Revolts and revolutions break out, first in countries where spending on food and energy are the highest percentage of disposable income, then spreading to the developed parts of the world.

The danger of global conflict rises to higher and higher levels (as more nations are unable to secure needed commodities) and probably a major war breaks out.

Please help stop this insanity. Write off bad debts, repudiate all foreign obligations, stop all forms of borrowing and let the marginal lenders fail. End fictional reserve banking, restore Glass-Steagall and isolate all levels of government from corporate influence by ending corporate personhood.

Sun, 09/16/2012 - 09:18 | 2800242 AUD
AUD's picture

You haven't taken the meaning of Newton's quote.

You cannot predict madness, that's why it's called madness.

Sun, 09/16/2012 - 12:14 | 2800607 francis_sawyer
Sun, 09/16/2012 - 09:21 | 2800247 knukles
knukles's picture

The only exit from a Liquidity Trap resulting in large part for a Credibility Trap is reform of the banks and monied interests in Washington and equal application of laws to all parties.
Till that happens, shit ain't gonna change.

The Idiot Dr. Krugman is a paid shill (employee pf the NYT, for shit's sake) a supporter of the leftist redistributionist policies... and as such deserved to be ignored.

Sun, 09/16/2012 - 09:23 | 2800251 nmewn
nmewn's picture

Monetary theorists running amok, pulling on levers, enriching themselves while screwing around with our reality...same as it ever was.

Sun, 09/16/2012 - 11:12 | 2800495 JamesBond
JamesBond's picture

and if it fails, the claim will simply be that it wasn't tried enough...


Sun, 09/16/2012 - 13:08 | 2800704 Kayman
Kayman's picture

Or... imagine what would have happened if we didn't do QE forever...

Sun, 09/16/2012 - 09:29 | 2800257 AnAnonymous
AnAnonymous's picture

Quantitative easing is a new experiment, just as 'America' is.

Sun, 09/16/2012 - 11:04 | 2800475 Ralph Spoilsport
Ralph Spoilsport's picture

-1 because you're getting monotonous. Take the rest of your shift off and bring in the next disinfo agent.

Sun, 09/16/2012 - 13:10 | 2800708 Kayman
Kayman's picture


Start your own site and see how many people are interested in your Shiticisms.

Sun, 09/16/2012 - 13:30 | 2800738 malikai
malikai's picture


Thanks for the new word!

Sun, 09/16/2012 - 13:37 | 2800745 formadesika3
formadesika3's picture

Quantitative easing is a new experiment, just as 'America' is.


Is that you, Dung?

You really are getting monotonous. Otherwise, why all the reflexive down arrows, it's the first thing I've ever heard you say that makes any sense.

edit: but regardless, QE ain't gonna work.

Sun, 09/16/2012 - 09:34 | 2800267 adr
adr's picture

"The liquidationist view only works if you believe the problems with the economy lay on the supply side - that workers lack the incentive to work, or lack the right set of skills, or something"

Jesus fucking christ Krugman actually got it right by tying to expain why everyone else is wrong.

What do you call being able to make more money on unemployment than working?

What do you call millions of workers having nothing beyond the skillset of burger flipper? The majority of last two generations couldn't work in a machine shop if their life depended on it. Unless the machines worked by XBOX controller.

100 million people living off the government? That is the direct result of lacking the incentive to work.

Idiots like Krugman believe the height of the stock and real estate bubbles were not a peak of excess, but the correct valuation of the economy. They are trying to re-inflate the bubbles to provide for the "wealth effect" to drive consumer activity.

By definition the "wealth effect" provides the incentive not to work. Wealth without labor. Why work for a living when you can just sit on your ass and watch you home double in value every five years?

Liquidation provides the incentive to work because you will not be able to generate income in any other way. With the destruction of bloated corporations, most likely paying most employees the minimum possible wage, it allows many new small companies to take its place. Each small corporation will generate more wealth for individuals through hard work, than the bloated publicy traded company ever could.

The real truth is that liquidation destroys fake wealth and those who rely on wealth without work, will lack the necessary skill set to compete with te lower classes. Local private business has no need for financial wizzards and stock promoting media.

Sun, 09/16/2012 - 09:46 | 2800288 Ungaro
Ungaro's picture

Liquidation provides the incentive to work because you will not be able to generate income in any other way. With the destruction of bloated corporations, most likely paying most employees the minimum possible wage, it allows many new small companies to take its place. Each small corporation will generate more wealth for individuals through hard work, than the bloated publicy traded company ever could.

True -- IF the boated corporation is unable to buy government regs to create barriers to entry for smaller firms.

Corporate bloat is the ONLY limitation of corp growth, unlike the limitation of natural growth (cubic vs. quadratic proportions). As more unproductive, spreadsheet generating, powerpoint slide creating, meeting calling hierarchy needs to be supported by a dwindling proportion of productive workers, the competitiveness of the corp falls.

Sun, 09/16/2012 - 09:52 | 2800304 adr
adr's picture

Which is why the bloated corporation buys off the government regulators. Bloated government is the other side of the coin.

Sun, 09/16/2012 - 09:58 | 2800316 Ungaro
Ungaro's picture

Which is why corp personhood must end.

Sun, 09/16/2012 - 12:50 | 2800675's picture

Can you be more specific? Would individuals still be able to organize into groups to pursue common goals? Would limited liability by mutual consent be permitted?

Sun, 09/16/2012 - 18:31 | 2801457 RockyRacoon
RockyRacoon's picture

That depends on whether it can be rolled into a CDS and rehypothcated.

Sun, 09/16/2012 - 11:45 | 2800560 three chord sloth
three chord sloth's picture

"Idiots like Krugman believe the height of the stock and real estate bubbles were not a peak of excess, but the correct valuation of the economy. They are trying to re-inflate the bubbles to provide for the "wealth effect" to drive consumer activity."

The huge run-up in the labor participation rate during the 70s - 90s is also a product of this debt-fueled hyperconsumption as well. I do not think that an economy can support two well-paying jobs per household -- the demand isn't there (sans artificial stimulus) -- unless those households abandon savings, strip out all accumulated equity from their assets and spend it, and still plunge ever deeper into unsecured debt.

The shape of things to come, if we are to ever get back on a stable, sustainable path, will look like the 50s. Only now, due to assortative mating, a few household will squat on two well-paying jobs, while the bottom half cobble together a hand-to-mouth existence out of McJobs, government checks, and petty scams.


Sun, 09/16/2012 - 13:13 | 2800713 Kayman
Kayman's picture

adr  + 100  you've got it.

Sun, 09/16/2012 - 09:35 | 2800268 Ungaro
Ungaro's picture

When a country devalues (debases) its currency, it is the worst kind of trade protectionism. The WTO is powerless against a sovereign devaluing its own currency, but its trading partners will have an increasingly hard time exporting to the devaluing country and investors will demand a higher rate of interest on its bonds or simply stop buying them. Thus, the problem of currency debasement is self-correcting -- except when the debasing country has the world's reserve currency, the USD. When that is the case, please refer to my previous comment below.

Sun, 09/16/2012 - 09:50 | 2800296 adr
adr's picture

Hence the prices paid component soaring. The United States lacks the infrastructure to produce 90% of what is sold at retail.

Even if the infrastructure existed, publicly traded retail lacks the ability to absorb the higher wholesale margins. Either prices explode 40% higher on every item, or retailers must reduce margins to the historical average of 30-40%.

Outside of a few select categories, Walmart and other publicly traded retailers work off a minimum of 65% margin. On many items margins hit 80%. Think about this for a second. The margin on the gum at the register is 90%. If you want to sell gum to Walmart you need to sell a $1 pack to them for $.10. Now you see why the only gum left comes from two giant publicly traded corpoations.

Now you also see why Amazon can undercut retailers by such a huge margin. Since Amazon is willing to make 0% to steal business, they are destroying the economy. Retail doesn't need to take 65%+, but they do need to make enough to provide jobs and make some profit.

Sun, 09/16/2012 - 09:39 | 2800273 SafelyGraze
Sun, 09/16/2012 - 09:39 | 2800275 kevinearick
kevinearick's picture

The economy is now complete,ly flux, the problem for G is a complete lack of demand, and the kids can begin tot direct it in any manner they choose, if they are in the correct place. If you look, you will see direct democracy.

the robots are just standing in line at troughs that can no longer produce pie of any variety. the emporer is powerless, and the lords are now free to experiment, though most will continue to sit on their ass waiting to take the geen shoots of others.

now that you see how labor manages reversion...

Sun, 09/16/2012 - 09:42 | 2800280 Spastica Rex
Spastica Rex's picture

Really weird +1

Sun, 09/16/2012 - 18:37 | 2801466 RockyRacoon
RockyRacoon's picture

Oooh.  Things are so bad that the trolls are being off-shored.  Wonder what nationality this one was?   My guess: Bangladesh.  No wait.  Even their English is better than most Chicago public school graduates.

Sun, 09/16/2012 - 09:42 | 2800279 insanelysane
insanelysane's picture

Back in the early 80s, the head of engineering during the freshmen orientation said something to the effect of; engineering is difficult and complex which is why engineers are paid more, if it was easy, everyone would be doing it.


What confounds me is that Krugman and the Keynesians believe the solution is simple; just print money and hand it out.  When it doesn't work, it just means you haven't handed out enough money.


But if it is that simple for countries to be prosperous utopias, why isn't every country just printing???  Oh wait, they all are, except for Iceland.

Sun, 09/16/2012 - 09:47 | 2800291 Spastica Rex
Spastica Rex's picture

The argument is getting old. Can't it all be boiled down something like this:


Team A:

"If we do this thing, we'll get back to growth and prosperity."

Team B

"If we don't do this thing, we'll get back to growth and prosperity."


What if they're both wrong and they both know it?

Sun, 09/16/2012 - 13:52 | 2800772 formadesika3
formadesika3's picture

@ Spastica

+1 that's interesting. If they both know it, it has to be a rigged game. Question is who's doing the rigging, no?

Sun, 09/16/2012 - 09:57 | 2800315 adr
adr's picture

Through the destruction of skilled labor, there ended up being too many engineers for the jobs available, and the wage of the mid level engineer collapsed.

All skilled trades saw the same thing happen. It will happen in health care as well.

The celebrity engineer, designer, or doctor will generate a higher salary than was ever possible before, but the unknowns will be lucky to make a bit more than a burger flipper.

Sun, 09/16/2012 - 10:03 | 2800332 insanelysane
insanelysane's picture

LOL.  My point was about the fact that nothing is easy.  However, you are correct.  Corporations shipped a lot of manufacturing oversees.  I changed professions and got into computer programming.  Of course, those jobs are being shipped oversees although I am optimistic that the trend is to come back onshore.  Should have been a plumber, it is more difficult to ship that job oversees.

Sun, 09/16/2012 - 11:28 | 2800532 Hillbillyfreak
Hillbillyfreak's picture

"Should have been a plumber, it is more difficult to ship that job oversees."

But not hard to import labor that will work at a fraction of what you think you are worth.  Particularly, if the border isn't a border. 



Sun, 09/16/2012 - 10:04 | 2800333 insanelysane
insanelysane's picture

going to enjoy the day.  looks like china will blow up japan or vice versa soon.  must be bullish

Sun, 09/16/2012 - 09:44 | 2800284 Buck O Five
Buck O Five's picture

Ahhh the new normal...
It's either printing cash or violence...
If either hasn't fixed your problem, you haven't used enough yet, because more always = better.

Sun, 09/16/2012 - 14:37 | 2800832 BrigstockBoy
BrigstockBoy's picture

Wish I could like your comment about ten more times.

Sun, 09/16/2012 - 09:48 | 2800285 Monedas
Monedas's picture

War production put people back to work .... but what a cost ?  Black people haven't been engaged in productive work since slavery .... getting any meaningful work out of them is a daunting challenge .... they are generally more trouble than they are worth .... 40 million street sweepers is not an attractive vision .... now we have 50% of our people "niggerized" .... have any flippant solutions for that ?       Monedas       1929        Comedy Jihad Flippant Humour Flipping Tour

Sun, 09/16/2012 - 09:52 | 2800303 Spastica Rex
Spastica Rex's picture

You know who else has been "niggerized?"

Your mom!

Sun, 09/16/2012 - 10:10 | 2800350 Monedas
Monedas's picture

We never owned any slaves .... we invested in farm machinery and cotton gins .... they don't need coffee breaks and hoe downs !

Sun, 09/16/2012 - 10:18 | 2800365 Monedas
Monedas's picture

If stating the problem offends you .... the solution is probably out of your grasp ?

Sun, 09/16/2012 - 15:39 | 2801032 akak
akak's picture

I find the extent of your expression of civility rather niggardly.

Sun, 09/16/2012 - 17:17 | 2801281 TheFourthStooge-ing
TheFourthStooge-ing's picture

...and quite hebephrenic as well.

Sun, 09/16/2012 - 17:25 | 2801308 akak
akak's picture

"Hebephrenic" --- how very anti-quotidian!

Sun, 09/16/2012 - 17:41 | 2801352 TheFourthStooge-ing
TheFourthStooge-ing's picture

I'm just trying to counter some of the anti-semantic prejudice.

Sun, 09/16/2012 - 09:45 | 2800286 bank guy in Brussels
bank guy in Brussels's picture

Mr John Aziz, you (like most Western 'pundits') are being very misleading about Japan, and you do not understand Japan's Richard Koo.

In Japan, they have successfully floated a post-crash scenario for 22 years (!) without ruining the lives of Japanese workers and common people

The Japanese - like Iceland recently, and unlike Europe or the US - UPHELD THEIR SOCIAL CONTRACT and did not impose 'austerity' ravaging the incomes or benefits of common people.

Yes, the Japanese floated the bank bad debt etc ... but THEY KEPT COMMON PEOPLE WITH JOBS AND INCOMES ... the quality of life for most Japanese was not destroyed, even though there was a large collapse in asset values.

Mr Aziz do you know anyone living in Japan, like many of us do? ... Have you ever really read what Richard Koo is saying?

The Japanese floated the whole system, but ABOVE ALL the common people ... not just the 'banksters' like in the US and Europe.

And ZH's favoured example, Iceland, after its recent bank crash INCREASED social protections for common people ... that was a key element in their strong comeback.

We in the West will be LUCKY to have things as good as they have been in Japan for the last 22 years.

What Richard Koo says is key, is to maintain some incomes and decent lives for common people ... not 'bailouts for banksters' and 'eat dirt' for the commoners, like in the US and EU 'Troika'.

Sun, 09/16/2012 - 10:04 | 2800336 jimmyjames
jimmyjames's picture

Yes, the Japanese floated the bank bad debt etc ... but THEY KEPT COMMON PEOPLE WITH JOBS AND INCOMES ... the quality of life for most Japanese was not destroyed, even though there was a large collapse in asset values.


Only because of the unique position Japan was in during the 2 decades of deflation-

The rest of the world was blowing a credit bubble allowing people to buy every toy Japan produced and so Japans exports were in high demand which kept unemployment low-

Japan has moved from surplus to deficit and that is a game changer-


Sun, 09/16/2012 - 11:24 | 2800524 Bay of Pigs
Bay of Pigs's picture

Aside from the Nikkei, what other assets 'collapsed'? Certainly not RE values or the Yen.


Sun, 09/16/2012 - 11:54 | 2800579 jimmyjames
jimmyjames's picture


Japan has actually printed very little money in comparison to the rest of the world-thus-strong Yen-

RE did crash in Japan-although still very high priced-which could fall even further in light of the ongoing shitshow around the world-

Gotta love gold here Bay-

Sun, 09/16/2012 - 10:07 | 2800346 adr
adr's picture

The Japanese are much better at masking their social problems. A homeless man in Japan will be sitting in the corner of a subway station wearing a business suit holding a breifcase.

The quality of life was destroyed for millions of Japanese. It is just in the culture to take it and not complain. Many Japanese are happier to live without the excess.

Millions of the younger generation fled Japan for better prospects since the 1990s. Hence, the aging population. Ask any middle aged man in Japan about his prospects, you won't get a happy story. If their country worked like America, nearly the entire population would be on anti-depressants.

I doubt you have ever been with a commoner of Japan. I have worked for Japanese corporations for 15 years. Most 50 year old + men just drop their head and sigh when you ask them about their country. They are very proud but every one of them will tell you today is not the Japan they grew up in.

Sun, 09/16/2012 - 15:24 | 2800989 Aziz
Aziz's picture

We in the West will be LUCKY to have things as good as they have been in Japan for the last 22 years.

Well, I agree with that.

Sun, 09/16/2012 - 15:48 | 2801075 Bunga Bunga
Bunga Bunga's picture

Japanese could export their deflation for over 20 years to the rest of the world, since it was still inflating  (dotcom, BRICs, US-RE) and Japan has a very competitive industry. This was the main factor behind the flotation-survival of Japan. Japan is not an isolated, self-contained economy, but highly dependent on exports.

The situation is completely different for the western world today, especially US.

Sun, 09/16/2012 - 09:55 | 2800313 pods
pods's picture

QE4EVA is merely a doubling down by the FED in support of the ones who own it. Banks.

Of course it is the logical outcome of our system.  

More and more leverage is required by banks to maintain increasing profits.  Eventually this has to stop, and when it stops, the damage is proportional to the amount of leverage.  

There is no way out where this system survives, and unfortunately, our system of governance is directly tied to this type of system.  If our government had to finance spending through tax receipts, goodbye empire, goodbye social nets, etc.  Of course, I would love to see a nation built on that, but I am in the minority.

The only thing we as individuals can do now is to get out of debt and place our surplus capital in something that has shown to hold value independent of the current money system.


Sun, 09/16/2012 - 10:03 | 2800330 Ungaro
Ungaro's picture

get out of debt and place our surplus capital in something that has shown to hold value

and which is not an obligation of anyone else. There, I fixed it for ya.

Sun, 09/16/2012 - 10:42 | 2800430 pods
pods's picture

I understand what you are saying, but unless the terms of valuation change, you will always be beholden to somone else to determine if anything has value.

Now if you said something that has no counterparty risk, ie a debt obligation or valued in said debt obligation, I would be in agreement.

Ex.  A baseball card, a rare one in great condition is not a debt obligation.  But the value of such is an obligation of anyone with whom you would want to exchange it.  The book "value" might be 300 bucks, or 5 grams of gold, 8 reals, or 3 chickens.  But value is determined where the rubber meets the road, and is certainly an obligation of anyone you wish to exchange it with.


Sun, 09/16/2012 - 10:25 | 2800387 nmewn
nmewn's picture

Yes, war & welfare.

"There is no way out where this system survives, and unfortunately, our system of governance is directly tied to this type of system. If our government had to finance spending through tax receipts, goodbye empire, goodbye social nets, etc. Of course, I would love to see a nation built on that, but I am in the minority."

So many fail to see the obvious even when its placed right in front of them. They will argue lets keep this and not keep that, this one is better that one, that ones much worse. It can be done with the same system in place, just tweak it.

No, actually it can't.

Both war & welfare are now financed largely with debt issuance. The problem remains whether its for war or welfare...its the debt stupid.

Yes, sadly we are in the minority and if I hear one more pandering politician speak about tax credits I'll surely lose my mind. The tax code should never be used for social this, don't do that...and WE will let you keep more of your earnings.


How...ummm, national socialist of

Sun, 09/16/2012 - 10:04 | 2800327 Monedas
Monedas's picture

Obama and his hapless minions rediscover the "G" word big time when one of their diplomats is smoked ?         Monedas     1929      Comedy Jihad Striped Pants And "Smoking Jacket" Required For Diplomatic Roast Tour 

Sun, 09/16/2012 - 10:24 | 2800383 GetReady
GetReady's picture

Do one better...Reelect Obama, let him continue with his policies.

Along with all the printing, we'll give Bernanke, Krugman, and Obama all of what they want and see how they do.

Of course they'll be able to blame the economy on WWIII in a couple of years.

Sun, 09/16/2012 - 10:44 | 2800388 deflator
deflator's picture

"The new policy of unlimited quantitative easing is an experiment. If those theorists of insufficient aggregate demand are right, then the problem will soon be solved, and we will return to strong long-term organic growth, low unemployment and prosperity..."

  The goal of QE has nothing to do with improving aggregate demand, improving employment or creating prosperity. QE is all about maintaining the lower left to upper right trajectory of government growth in an economic environment that otherwise cannot support government expansion.


Sun, 09/16/2012 - 10:27 | 2800391 Sleepless Knight
Sleepless Knight's picture

The current economic policy can be summed up as "heads I win, tails you lose"

Sun, 09/16/2012 - 10:37 | 2800401 Monedas
Monedas's picture

Obama's real father, Black American Communist Frank Marshall Davis, admitted he felt superior to southern blacks because of his education and association with white liberals !        

Sun, 09/16/2012 - 10:41 | 2800426 rehypothecator
rehypothecator's picture

"On the other hand, if economies remain depressed, or quickly return to elevated unemployment and weak growth, or if the new policy has severe adverse side effects, it is a signal that those who proposed this experiment were wrong."  

No, it will merely be proof that the experiment didn't go far enough.  Unlimited purchases of MBSs is only a half-measure.  They need to stop pussyfooting around and do the right thing.  QE to infinity and beyond!!

Sun, 09/16/2012 - 11:22 | 2800521 swmnguy
swmnguy's picture

Yes, they will need to create new artificial MBSs to purchase.  Pulling MBS demand forward is the only way.

Sun, 09/16/2012 - 11:24 | 2800460 hedgehog9999
hedgehog9999's picture

I just did an analysis of the weekly and monthlly chart of the long bond and they both show sell signals as of this Friday for the monthly chart and as of last week for the weekly chart.

So what that means is that bonds are going down no matter what as Ben's TWIST was unable to stop the slide.

Given he owns most of the Treasurys dated 10 years and longer, he's pouring his money printing on MBS paper where there is more outstanding and at the same time bailng out the banks and Fannie/Freddie from the Interest rate derivative explosion that's starting to unfold as rates creep up.

This also explains Draghi's desperate measures.

Just to put it in perspective the size of the Interest rate related derivatives is over $500 TRILLION dollars. A 1% variance in exposures can wipe out Ben's QE for the next 5 years at current rates. That's probably why the word "unlimited"  has become popular for these central bankers.

The end of the movie is rapidly approaching, get some more Pop Corn.........

Sun, 09/16/2012 - 11:21 | 2800518 swmnguy
swmnguy's picture

I think we can all see that the Fed's QE approach will do absolutely nothing for "the real economy."  The question then is, are they stupid?  I don't think so.  I think they know exactly what they're doing.  I think they're setting up their positions for the next phase of the global economy.

Our current system uses debt as money, and the fundamental economic actiivity it cares about is lending at interest in one form or another.  This requires infiinite expansion; either of markets, resources, or money supply (which though abstract, is considered a resource in some ways).

Ours, however, is not an infinite world.  We're out of continents to diiscover and plunder, and everyone who can afford a refrigerator and has electriciity already has one.  So the only expansion remaining available is the expansion of money supply.  We can export the inflationary dangers for the time being, just as I suppose someone marooned on a desert island could survive a short time by eating himself.  Not really a long-term approach, though.

We're already at the point of debt saturation.  The total outstanding private household and corporate debt is not repayable.  Even the interest and fees is no longer payable.  That's why Finance has had to become so abstract.  If profits can no longer be made usiing real money and real economic activity, they're naturally going to come up with pretend, abstract money and economic activity to enrich themselves.  The abstract debt only becomes real when somebody has to pay up, so they keep pushing the debt around to delay the day when somebody has to settle.  Eventually though, somebody does have to pay, and then we have a crisis.

So what are Bernanke and the other bankers up to?  They're just trying to shift all the private debt onto the public balance sheet, re-distribute all the wealth upward.  That way when the unpayable debt cannot be paid, the bankers still make money either pocketing the interest and fees, or repossessing assets.  One of the key assets they're laying claim to right now is government's right to tax.  That's really all QE-to-infinity is.  All the better if the assets are all abstract.  Jaime Dimon doesn't want a bazillion bushels of grain, and he doesn't want all the houses on my block.  He just wants the coupons representing those assets, which he can make even more abstract and sell ten times over as derivatives.  Not to pick on Jaime Dimon any more than anyone else.

In other words, they're not doing anything that will actually solve our crisiis because they know they can't solve the problem of a finance system that has to be infinite, in a finite world.  Actually, they don't even consider it to be a crisis.  It's just the next step in the process, to them.  They're just looking to get claim to all assets.  Then when one shiny day our current system becomes so obviously kaput that nobody shows up, as happened in Russia but will soon happen across the globe, the bankers hold title to everything they want.  They think they can impose a new feudalism.  If nobody can afford to pay their debt obligations, they eventually become serfs, and become assets themselves. 

The thing they can't see, however, is that our system is based on trust and people buying in to it.  If people stop buying into an abstract system, it ceases to exist.  Jaime Dimon isn't going to be able to take what he wants if nobody will take his coupons.  But our financial elites think about our money system the way a fish thinks about water; they just assume it.  That's not going to help either of them when they break the fishbowl.

Sun, 09/16/2012 - 13:46 | 2800757 Kayman
Kayman's picture


Well said.  Flipping and skimming paper adds nothing to the economy. Someone has to create wealth.

A town full of barbers will fail just the same as a world full of financial engineers.

A faster and faster spinnning top eventually succumbs to centrifugal force. When is the only question.

Sun, 09/16/2012 - 11:34 | 2800542 Bernankenstein
Bernankenstein's picture

Think of the Fed's approach as a governmental hospice experiment. Just trying to make the last days more comfortable, that's all. 

Sun, 09/16/2012 - 11:45 | 2800561 theoakman
theoakman's picture

I live about 6 blocks away from Krugman.  His house is pretty damn big.  He pays 45k a year in taxes on it.  He also owns a nice penthouse in NYC. Why?  He's got public schools all over the country using his book for AP Econ.  The man's comfortable lifestyle depends upon public spending.

Sun, 09/16/2012 - 11:50 | 2800569 shovelhead
shovelhead's picture

"Yeah honey,

I know I promised to only put the tip in but since I'm already in the neighborhood...

surely it can't do any harm."


"Ben... Did you call me Shirley?"

Sun, 09/16/2012 - 11:57 | 2800580 defencev
defencev's picture

Azizoid is stupid, ignorant, worthless loser. He does not have any theories. He is just primitive anarcho-fascist who wants to destroy the civilization as we know it.

As any anarchist of this kind he hopes to become a part of new "elite" of Mad Max

world he is salivating about. Obviously, it is not going to happen. Historically, there are only two outcomes possible. Either a meaningful correction occur based on scientific and technological progress or Marxists temporarily prevail moving the civilization back to darkness. There will be no opening for anarchists.

Sun, 09/16/2012 - 13:39 | 2800749 Sathington Willougby
Sathington Willougby's picture

ad hominen.  Nice point, no one cares what you say, you have nothing but ad hominen.

Sun, 09/16/2012 - 13:02 | 2800696 icanhasbailout
icanhasbailout's picture

When "mistakes" are rewarded and good behavior is not, the "mistakes" become the successful behaviors that are emulated, repeated, and magnified.

Sun, 09/16/2012 - 13:16 | 2800722 Curt W
Curt W's picture

Bernanke is going to bring the jobs back,

He is going to de-value the dollar until someone here making $10hr. will be cheaper than someone in China making 5 Yaun and hr.

Unfortunately when the dollar is that worthless, Gasoline will be out of the question.

Learn how to ride a horse, and swing an ax.

Sun, 09/16/2012 - 13:49 | 2800764 LawsofPhysics
LawsofPhysics's picture

Won't it be simpler to build a guillotine with wheels?

Sun, 09/16/2012 - 13:50 | 2800765 Kayman
Kayman's picture

You won't be able to afford a horse and I'm not lending you my axe.


Sun, 09/16/2012 - 16:00 | 2801109 ejmoosa
ejmoosa's picture

The dollar has been undergoing devaluation for almost 100 years.  I can find no correlation between it and jobs.

Sun, 09/16/2012 - 13:45 | 2800756 Sathington Willougby
Sathington Willougby's picture

The agenda is a planned takedown of the US.  It's now complete.  

Sun, 09/16/2012 - 14:54 | 2800881 elwu
elwu's picture

All them economists (no mattter if fresh- or saltwater), central banksters and political 'elites' are idiots.

Because either no one of them understands that the system all of them support, w/o exception, is not sustainable, can't be; or nobody seems to believe that he and his family won't be affected once it explodes.

Talk about endless growth, harrharr.

Sun, 09/16/2012 - 15:43 | 2801057 ejmoosa
ejmoosa's picture

"Defenders of the bailouts have correctly pointed out that not bailing out certain banks would have caused the entire system to collapse."


Correctly?  I call Bullshit on this. 


Sun, 09/16/2012 - 17:51 | 2801375 MoneyShaman
MoneyShaman's picture

There is no such thing as pure demand. Not in a market economy. Demand is meaningless. Everybody demands things, the problem is can they afford it. You people working minimum wage don't want to buy a mansion with large pools, and throw parties every weekend? Paul Krugman ain't a economist. He is more like a socialist than anything. Say's Law says that supply creates demand. Of course when you have government, which confiscates wealth, then you can create demand without supply. Demand in a market context is fiction.


New Keynesian Krugman makes typical anti-economical proposals. He makes broken window fallacies, and disregards Say's Law altogether. He proposes more spending, even negative nominal interest rates. Says savings are unproductive, but spending money is productive. He thinks that spending money is growth.  In short Krugman is not a guy to be taken seriously. He has a religion, which doesn't make sense when critiqued with real science. People should stop giving this guy legitimacy, because he simply has none, other than the noebel prize he hides behind, and really what's the real value of a noebel prize anyway? About as much as a Zimbabwe dollar.

Mon, 09/17/2012 - 01:30 | 2801802 Turin Turambar
Turin Turambar's picture

Austrian Business Cycle Theory dumbasses!  If there was a sincere interest in finding out what the problem is and how to fix it, all one has to do is to read Rothbard's America's Great Depression, then apply the medicine:

Eliminate the Fed, and transition from fraudulent fiat fractional reserve banking to sound money on a gold standard.  Oh yea, if anybody even mentions fractional reserve banking, throw their sorry arses in jail.  1 to 1 ratio bitches.

Mon, 09/17/2012 - 00:57 | 2802310 honestann
honestann's picture

Funny, but nobody (I mean no economist) seems to understand what constitutes a healthy economy!  Though the austrians are right about a lot of things, even they don't seem to understand what kind of economy would develop under their assumptions.  So I'll oversimply just a bit (but not as much as you'd imagine) to make the point.

A healthy economy is an economy in which overall, prices are LOW.  To be sure, every country has a somewhat unique situation, with more-or-less raw materials, with more-or-less efficient location (import/export/shipping wise), with more-or-less available land, with more-or-less land appropriate for farming, with more-or-less population inclined towards science, engineering and advanced skills, and so forth.  However, overall, a country in which prices are low will be a healthy economy.

Probably 90% of economists (and political/economist mouthpieces) today want to jack up prices.  They imagine the higher home prices go, the richer homeowners will feel, the more homeowners can borrow against their homes, and so forth.  And fairly similar arguments are given for high stock prices and so forth.  And, of course, the higher the prices charged by corporations, the more rich they become.  Supposedly all a huge beneficieal situation --- high prices.

So, how has this "theory" or "assumption" been implemented?  How have prices been driven higher?  Simple!  Just "print" and "lend" --- both federal reserve style, and by huge banking organizations applying various [corrupt] fractional-reserve practices and increasing leverage.

Well, I'm sorry, but duh!  Think though this (intentionally corrupt) "theory" a bit.  Start with the simplest and most fundamental, unavoidable, obvious observations.  If prices are high, each individual cannot buy as much.  No question about that!  Whether individuals are buying with earnings, with savings, or with money they borrowed, the amount of stuff they can purchase is less.  Thus "high-prices" does not increase demand, and does not benefit the economy.

At this point in history, prices have been driven sky high, whether people choose to notice or not.

To understand this situation, consider the current situation from the perspective of someone who refuses to go into debt... and compare him/her to someone like the normal moron in the world today who "does whatever most other people do", namely borrow, borrow, borrow to buy whatever they want to have the lifestyle they'd like to have (not the lifestyle they have earned).

The first guy or gal lives a frugal life, at least in comparison to the people around him/her.  He has to, because he must spend considerably less than he earns in order to accumulate savings in order to someday accumulate enough to buy a new car, a nice home, or whatever else he/she dreams of.

But consider the environment he lives in, and consider the markets he is forced to compete in.  The predatos-DBA-banksters and predators-DBA-government have created a system in which just about all his family, friends and neighbors have been brainwashed into thinking living under water, deep in debt, is utterly natural.  The honest, ethical, prudent, productive saver has to buy products in a market where his family, friends and neighbors only need a pulse to get a loan to buy a car or home --- or anything else.  The world of debt-a-holics can buy any car and any house for which they can make a 0% to 3% down payment.  The prudent saver can only buy a car or house that he has saved enough to buy outright.  Thus he needs 33x to 100x more money to buy the car or house than others.

What does this situation do to the price of goods?  Duh.  It jacks them up --- through the roof.  I and others have done careful calculations, and figured out more-or-less how this works.  The price paid for a house is 8x to 12x more than it would be in a world without the availability of fictional debt vehicles.  This doesn't mean "no debt", this means the only debt that exists is savings held by one person who agrees to lend to another.  No "money-out-of-thin-air" debt, and no fractional reserve practices (which is also a form of "money-out-of-thin-air").

Let me be first to admit that not every product we buy would be 8x to 12x less expensive in a world without fictional debt.  The fact is, housing is a special case with especially large artifical manipulations involved.  But overall, counting all products, the cost of living for everyone in a world without fictional debt would be 2x to 5x.  Just take 3x as a reasonable estimate.  If everyone got 3x more for their money, what would that do to the world economy?

Answer:  compared to the current world economy, we'd be in a boom!  But even more importantly, we'd be in a boom that did not increase debt.  Which means, we'd be in a boom economy that would last indefinitely.

EVERYTHING the predators-DBA-banksters are doing is destructive.  EVERYTHING that raises prices is destructive.  EVERYTHING that gets people and corporations to borrow more is destructive.

The entire world today is being run entirely for the benefit of central banksters and their owners (large financial institutions and mega-rich families).  The entire difference between the healthy economy I describe and the fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-toilet-paper economy that exists today is routed directly into the hands of the most destructive predators in the history of earth.  Which makes the "inefficiency" describes much worse than inefficiency, it makes the inefficiency increasingly impossible to eradicate, because the predators-that-be have total control of every powerful fiction on earth --- of every government, of every central bank, of every financial institution, of every large corporation, of every multinational organization.

The ENTIRETY of what is called "economics" today is pure fraud... the largest and most destructive in the history of mankind.  Which is why humans are finished.  The predators-that-be will destroy the species --- many of them have even stated openly this is their goal.

Though humans have given away all their power to the predator-class at this point, the fact is, the economy that works is the economy without those predators who raise the price of everything physical by an average of 300%, and the price of the most valuable of commodities to infinity (honesty, liberty, individualism).

Mon, 09/17/2012 - 01:47 | 2802366 Turin Turambar
Turin Turambar's picture

" Though the austrians are right about a lot of things, even they don't seem to understand what kind of economy would develop under their assumptions."

What a bunch of ignorant BS.  Instead of spouting off unsubstantiated ex cathedra pronouncements, I challenge you to provide a list of real books that you've read on Austrian economics and then list exactly where the Austrian position fails to "understand what kind of economy would develop under their assumptions."

Have you ever heard of Man, Economy, and State with Power and Markets by Rothbard?  It certainly doesn't sound like it.  You should probably learn something about a topic of critique before trying to peddle a position made in ignorance that is only deserving of ridicule.

P.S.  I just love how you use such a subjective measurement as "low" prices as a metric for defining a healthy economy.  LOL

Tue, 09/18/2012 - 06:54 | 2806308 honestann
honestann's picture

Wow, you are a bit touchy fellow!  I said "seem", which I included because I have not read every supposed austrian book or article --- far from it.  Also, from what I can tell, people who consider themselves "austrian economists" do not agree on every particular.  To be sure, the main trust seems rather consistent, and that main trust I pretty much agree with.  Or depending on what is included, maybe we could say I just plain agree with.  So I'm not attacking austrian economics --- not at all.

However, I have not noticed any of them talk about what price levels would look like under their favored system of economics, which I would characterize more or less as "liberty" or "lack of central planning".  Maybe somewhere articles exist that discuss this issue and I've just missed them.  Feel free to send links.

I don't consider "low prices" to be very subjective at all.  Just take average earnings (or average earnings of average jobs) and divide by the price of products (in proportion to how much is spent on each product).  Presto!  You have a fairly objective measure of price levels... certainly a lot better than CPI and other government-rigged measures.

I'm rather amazed you don't get the point, because the point is quite simple.  If you take your earnings, whatever those earnings might be, and you have to pay a large percentage of those earnings to buy the necessities and basics of life, you can buy less.  Put another way, if you spend much of your income on taxes, fees, dues and mandates, you have less remaining to buy goods - the real, physical things you need and enjoy.  AND, if the prices of those goods are - on average - a higher percentage of your income, then you are able to buy less.  You thus have a less comfortable or less luxurious life, and more importantly, less free time, less personal flexibility, and less opportunity to start your own endeavors.

On the scale of the entire economy, you get the same situation.  The more people spend on each good, the less remains to buy additional goods.  Therefore, if prices are lower, people can buy more, quality of life is higher, and sufficient demand exists to justify greater employment.  Of course, if prices are low enough, many people would have the luxury of not having to work their entire adult life.  Many would be able to take a year or three off during their adult life to travel, explore, develop a business, and so forth - which I personally consider good.

Think about your final comment.  Consider how silly it is.  Let's test it with the "take it to an extreme" technique.  You would be saying that we can have a "healthy economy" if food costs your entire income.  No problem that you must sleep under a road overpass or in some used tent you found in someone's trash.  To you, this constitutes a "healthy economy", because "a healthy economy has nothing to do with low or high prices".  So yeah, I totally disagree with you.  I'd say that if your food only consumes 1% of your income, and homes were so cheap you paid cash for yours and have no rent or mortgage payments to make, that... yeah... your economy would be GREAT.  And by extension, if everyone was in the same situation, the overall economy would be great.

What it comes down to is efficiency.  Or stated another way, production minus destruction (including theft by taxation, mandates, fees, etc).  If you (and everyone else, on average) produce A LOT every day, then prices will be low since the labor portion of each good is tiny.  But wait, materials are also largely labor - after all, steel is simply rock, which costs zero.  What doesn't cost zero is the labor to process and transport those rocks (and the metal they are composed of), and the energy required to process and transport those rocks.  So if the people who work in those material industries produce A LOT every day, material costs are lower too.

The point really is simple, so simple that I can't believe you really don't see it, understand it, or agree with it.  I suspect you're just pissed-off because you think I am criticizing austrian economics, which I'm not, since I agree with them far more than any other theories I've ever heard.  I'm just surpirsed that in all the austrian-oriented articles I've read, I don't recall hearing a description of how great life would be when prices are low (relative to earnings, of course).

BTW, if you're saying that "Man Economy and State with Power and Markets" has a good discussion of this topic, then I thank you for the reference.  Maybe I'll find time to read it someday.  But I was more talking about shortish, popular articles.  That's mostly what I read when it comes to economics, since I'm not an economist and have too many interests already to read everything about every topic.

PS:  When I read my intro paragraph, I realize it was probably not very well considered.  What I meant to say was this.  Based upon my non-exhaustive reading short, popular articles about economics, I haven't seen anyone explicitly note that prices in the kind of economy austrians would favor would be very low compared to what we have today.

AND importantly, I want to contrast this with the endless LIE that Bernanke and Keynsians push that high prices are good for the economy.  That's just COMPLETELY WRONG, even if they restrict the areas where they want high prices to "stocks", "houses" and so forth.  To be sure, if you have a home and some stocks, and Bernanke jerks the prices of homes and stocks through the roof, YOU can sell stocks and buy more goodies than otherwise.  And IF you were willing to move from your nice house into a dump (or refinance yourself into deep, deep debt), YOU could free up some cash to spend on other goodies that way too.

However, that is pure BS as a theory.  Why?  Because EVERYONE ELSE IN THE FUTURE now has to pay a LARGER percentage of their earnings to buy stocks and homes.  EVERYONE in the future gets screwed, and everyone in the future has less to buy other goodies, which HARMS the economy.  So their theory is absolutely, completely, utterly WRONG.  More people in the future will have to pay higher prices than those who gain from high prices right now.  And none of this even addresses the damaged caused by arbitrary manipulation of prices by central planning, which is large and getting worse.  It is no mistake the USSR went belly up.  The USSA will to, thanks to central planners (non-austrians).

Mon, 09/17/2012 - 11:25 | 2803549 Darth Mul
Darth Mul's picture

I wish ZH would spend a day on deconstructing Krugman.


I'm pretty dumb, but even I recognize that the guy is working for The Borg


Mon, 09/17/2012 - 13:25 | 2804010 dadichris
dadichris's picture

It is Systemic

The monetary system cannot function without continuous exponential growth of the money supply (with corresponding exponential growth of debt)

This is not a sustainable (or desirable) system and must be replaced





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