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

http://www.youtube.com/watch?v=WTdqqJI02HE

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 CrockettAlmanac.com
CrockettAlmanac.com'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

@LTER

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

Krugman:

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

http://www.jtsa.edu/x11835.xml

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:
http://survive-prosper.com/A-Decade-of-Volatility/
Click here for the transcript

...and...

IT'S PRIVATE DEBT, NOT PUBLIC DEBT, THAT GOT US INTO THIS MESS - Michael Clark - Seeking Alpha

http://seekingalpha.com/instablog/428250-michael-clark/591021-it-s-priva...

 

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.

http://www.aljazeera.com/news/asia/2012/09/201291643935935407.html

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 www.mises.org

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

IS THIS PROOF THE EMBASSY KILLINGS NEVER HAPPENED?

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.
http://www.embassyworld.com/US_Embassies/US_Embassies_3/

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.
http://www.usembassy.gov/

List of Diplomatic missions of the US in the Middle East
http://en.wikipedia.org/wiki/List_of_diplomatic_missions_of_the_United_S...

http://www.usembassy.gov/

Who really killed Libyan Ambassador Stevens? It’s the Zionists, stupid!
http://www.veteranstoday.com/2012/09/12/who-really-killed-ambassador-ste...

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]

SOURCE:

http://vaticproject.blogspot.com/2012/09/alert-update-embassy-killings-n...

http://www.rumormillnews.com/cgi-bin/forum.cgi?read=252926

Also check out these sites:

http://zioncrimefactory.com/research-articles/

http://iamthewitness.com/

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...

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