# The dumbest article ever written



## wayneL (8 January 2009)

Background: Anatole Kaletsky is the worst economic writer in Britain:



> Feb 5 08
> The US is currently facing a mid-cycle slowdown rather than a full-blown recession. One way or another, the credit crunch is likely to end within the next month.






> Mar 21 08
> There is a persuasive argument that the US economy is not even in recession, since growing exports are compensating for much of the weakness in housing and consumer spending. And better still, a period of much stronger growth lies ahead only a few months ahead.
> 
> Once the stimulus from the tax rebates runs out at the end of the year, the US economy will receive another shot of adrenalin from low interest rates.
> ...






> May 5 08
> So, the sky did not fall in. It is increasingly likely that the US economy will not experience even a minor recession as a result of the credit crunch last year. Even more important than the relatively benign statistics is the news from the financial markets. Signs that the worst of the banking crisis may be over appeared to be confirmed by rallies in financial markets worldwide last week.






> Jun 16 08
> Why does anyone still think that the US economy is in recession? The troubles in US banking and construction have been almost exactly offset by gains in America's booming international trade. There is a world of difference between a dislocation confined to only one or two parts of the economy, such as housing and finance, and a generalised economic decline.
> 
> If there were going to be a US recession in response to the credit crisis, it would have started by now. So let me stick my neck out and say without qualification - the US economy is out of the woods.






> Sep 20 08
> n America, by contrast, an outright recession would be avoided if financial stability could be quickly restored. The worst of the housing slump there appears to be over, consumer confidence is rising and a gradual economic recovery should soon be under way.




*...and now the coup de grace!!*

http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article5469589.ece



> Punish savers and make them spend money
> Near-zero interest rates and even a tax on bank deposits are necessary to force those with cash to use it productively
> Anatole Kaletsky
> 
> ...




WTF????

Read the comments section at the bottom. He cops a slating.


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## chops_a_must (8 January 2009)

*Re: The dummest article ever written*

"The dummest article ever written"

Definitely one of the dumbest articles I've read.


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## Sean K (8 January 2009)

*Re: The dummest article ever written*

Sure the dates of those articles weren't all Apr 1?

Geepers creepers!


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## Stormin_Norman (8 January 2009)

either tax savings or create massive inflation so there is no incentive to save.

not saving is what causes this problem. its interesting its a proposal to solve it.

ffs - let the markets sort it out and stop stuffing them up. stoopid governments.


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## Bushman (8 January 2009)

Stormin_Norman said:


> either tax savings or create massive inflation so there is no incentive to save.
> 
> not saving is what causes this problem. its interesting its a proposal to solve it.
> 
> ffs - let the markets sort it out and stop stuffing them up. stoopid governments.




Aye - inflation is just one big indirect tax after all. At least they would be the first government that would be upfront with their intentions. Ha ha.


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## prawn_86 (8 January 2009)

Im no moentary economist like Norman but here are my simple thoughts on where spending has got us:

Who encourages saving? CHINA

Who has a huge surplus? CHINA

Who funds a heap of the Western govs? CHINA

Who could destroy the Western economy/demand what they want? CHINA

IMO Cre doin a 'backdoor listing' as such and are purchasing up all the assets of western coys and eventually they can demand what they want as they will already own everything.

Saving and living within our means is the answer, if other countries do it why can't Western ones?


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## aleckara (8 January 2009)

prawn_86 said:


> Saving and living within our means is the answer, if other countries do it why can't Western ones?




Because historically living within our means meant living in poverty and working hard for the bare necessities (most of CHINA). Doesn't leave much room for R&D, and the like. None of the developments that have made our lives easier would exist.

It meant wars over previous current resources, rather than making resources seem abundant by using future ones (debt). Since WW2 there really hasn't been too many wars fought on land. Before last century this was a common occurrence.

No one wants to live in poverty. The more people spend (as long as the money stays local) the more work is generated locally and prosperity is a function of work done, not of paper in people's bank accounts. However I don't agree with savers being penalised (myself included). Of course there isn't the amount of resources on the planet to fuel the work and therefore prosperity that people take for granted in the long run.

The only real problem is when there is a big hole in the ship (i.e a CAD).

Governments just like their voters don't want a drop in prosperity just to live 'within their means' even if this is the right thing to do. The majority wins at the expense of the responsible and intelligent, what's new?


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## wayneL (8 January 2009)

aleckara said:


> Because historically living within our means meant living in poverty and working hard for the bare necessities (most of CHINA). Doesn't leave much room for R&D, and the like. None of the developments that have made our lives easier would exist.
> 
> It meant wars over previous current resources, rather than making resources seem abundant by using future ones (debt). Since WW2 there really hasn't been too many wars fought on land. Before last century this was a common occurrence.
> 
> ...



I don't think living within your means, means not borrowing at all. But it does mean that any debt taken on is serviceable in good times and bad.

Buy a house on tick? Sure. But make sure you can pay the mortgage.


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## prawn_86 (8 January 2009)

aleckara said:


> The only real problem is when there is a big hole in the ship (i.e a CAD).
> 
> Governments just like their voters don't want a drop in prosperity just to live 'within their means' even if this is the right thing to do. The majority wins at the expense of the responsible and intelligent, what's new?




So what happens when the CAD reaches a point where it is just ludicrous? I mean even now surely China and the other countries funding Western deficits don't actually expect to ever get their money back?

My theory is all debts will be wiped clean, followed by a decade or so of financial and economic wasteland, and then it will all start over again 



wayneL said:


> I don't think living within your means, means not borrowing at all. But it does mean that any debt taken on is serviceable in good times and bad.
> 
> Buy a house on tick? Sure. But make sure you can pay the mortgage.




Well put


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## Buddy (8 January 2009)

Aayyee, as the local luds wud say, this lud's a bit of a tosser.

Here is an article where he eats a bit of humble pie. Well, sort of.
http://www.theaustralian.news.com.au/business/story/0,28124,24854214-5018029,00.html

In the 4th para he talks about not being under the influence.  Well, all I can say is that in the very latest article he must have been on some powerful stuff.


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## eladamrine (8 January 2009)

I read in a Time article that Milton Friedman and some other economist wrote that the stock market crashes in history does not cause full blown depression. It is the seizure of credits which does the most damage and insolvency issues which are exacerbated by panic. But this time around, following Keynesian economics, the US government has swiftly responded with the injection of cash into banks and various companies to solve the current issue of liquidity and stimulate spending. It will be definitely interesting to see how this current economic turmoil pans out. 

A little bit of mental masturbation, i wonder what the effect of the media's report about the economic conditions are on people's actions. Thriftiness is the enemy of recession, and thus what would happen if the media promoted a positive, false image of the economy?


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## Bushman (8 January 2009)

eladamrine said:


> I read in a Time article that Milton Friedman and some other economist wrote that the stock market crashes in history does not cause full blown depression.




Housing market crashes are a different beast to stock market crashes as 'Joe Average' gets bent over and that ain't good for consumption.


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## cuttlefish (8 January 2009)

wayneL said:


> ...and now the coup de grace!!
> 
> http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article5469589.ece
> 
> ...





Holy cow!   Quite unbelievable.

Its almost as though people have forgotten that when money gets borrowed there actually has to be a lender on the other side (even with fractional reserve banking ).


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## Knobby22 (8 January 2009)

He is right!

The present policy is to discourage savings by lowering interest rates and bailing out lenders. He is making the next logical step!!

If it is right to punish savers by lowering interest rates in an attempt to rescue borrowers and 0% is the lowest possible you can go, then the only way you can go further is to have in affect have negative interest rates. This can be achieved by the use of the tax system and the money obtained can be used to help all the borrowers to pay their debts.

In affect it is happening already, taxes will rise to pay off government lending to rescue corporate lending. 

This just shows how wrong the thinking is in GBR, the US and Japan at present.

The problem with the present finacial system is that everything is geared to helping borrowers  (taxation system, government) against savers and if we continue this logic we will go back to the status quo.  It won't be long before we repeat the same mistakes and end up in an even worse mess. 

I think a little bit of deflation, encoragement to savers, reduction in tax breaks for negative gearing and a good clean out of the financial systems could give us another 25 years of prosperity. No votes in that!!


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## mayk (8 January 2009)

cuttlefish said:


> Holy cow!   Quite unbelievable.
> 
> Its almost as though people have forgotten that when money gets borrowed there actually has to be a lender on the other side (even with* fractional reserve banking* ).



Just change the fraction. Instead of 10:1 make it 100:1 problem solved


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## aleckara (8 January 2009)

wayneL said:


> I don't think living within your means, means not borrowing at all. But it does mean that any debt taken on is serviceable in good times and bad.
> 
> Buy a house on tick? Sure. But make sure you can pay the mortgage.




But then the benefits of debt are only one off - i.e only one off increases in standards of living and often (not always) only for a short period of time. i.e if the debt level rises to 0% to 30% then you only get a once off boom in activity and then activity slows down again to pre debt levels ONLY if the debt stays at 30% (i.e never is repaid). Debt is not income, as much as governments have been using it to subsidise income and generate activity. You may pay off your mortgage ok, but if everybody paid off their 30% then there would be a contraction in the amount of money circulating. Doesn't really lean to sustained prosperity - paradise living. As my grandfather and grandmother once said to me "we live better than kings here" while watching his TV, and her using her "washing machine" to do her laundry. He used to sleep on dirt floors and had to grow his own food without electricity when he was a kid. And he is right, we do live better than they did. Besides the system relies on increasing debt/money creation to pay the interest bill on any debt as far as I recall.

I do agree with your sentiments. I'm just stating that governments do not share your view, nor do the majority of the population. They think they do, but when push comes to shove they don't want to pay the price - well not right now anyway. This is how I understand things to be - welcome any corrections if I'm wrong of course.


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## chops_a_must (8 January 2009)

Knobby22 said:


> He is right!
> 
> The present policy is to discourage savings by lowering interest rates and bailing out lenders. He is making the next logical step!!
> 
> If it is right to punish savers by lowering interest rates in an attempt to rescue borrowers and 0% is the lowest possible you can go, then the only way you can go further is to have in affect have negative interest rates. This can be achieved by the use of the tax system and the money obtained can be used to help all the borrowers to pay their debts.




Yes.

I was going to say this. Effectively what is going on now is exactly the same. What is proposed is just an overt way of doing what is being done now to bail  out the ****ed in the ear property bulls, which really just points out how ****ed in the head it actually is.


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## cuttlefish (8 January 2009)

mayk said:


> Just change the fraction. Instead of 10:1 make it 100:1 problem solved




Yep - this is the solution!   Change the fraction by a multiple of 10 and gives the banks the ability to loan 10 times as much.    And this solution can go on until 1/(infinity) - so there is no end to solving the problem this way - it can be used time and time again. Sorted!


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## Bushman (8 January 2009)

cuttlefish said:


> Yep - this is the solution!   Change the fraction by a multiple of 10 and gives the banks the ability to loan 10 times as much.    And this solution can go on until 1/(infinity) - so there is no end to solving the problem this way - it can be used time and time again. Sorted!




It already exists and goes by the name of 'securitisation'....


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## Ageo (8 January 2009)

Just another typical economic commentator with no idea.

But it was kinda funny wayne


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## Temjin (8 January 2009)

Ahhh, the wonder of Keynesian economics. Keynes's teaching will save us all!

You have to really understand that these people have studied in his economic teachings for decades and it is emotionally impossible for them to change their belief of which they have invested so much into it. Tell them about Austrian economics and the first thing they will do is to criticize you for not thinking mainstream and is not acting in the interest of the public. 

Yep, let's punish the savers. Might as well give every one a million to spend to simulate the economy.


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## eladamrine (8 January 2009)

Keynesian economics is sound and based on concrete theory. Saving does exacerbate recessions, even though it seems counter intuitive. If savings (leakage) increases as people become more thrifty, and investments (injections) decrease as business do not foresee any point in capital expenditure then the aggregate expenditure will decline greatly. Then there is an accumulation of inventory, which signals to producers to cut production. We know price-wages isn't completely liquid due to trade unions, contracts, minimum wage legislation, etc...so employment will go down. People have less to spend and aggregate expenditure falls. So instead, government intervenes by bailing out companies and giving banks money. Thats my two cents from reading a text book anyway, but i see nothing wrong with Keynesian economics.


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## Stormin_Norman (8 January 2009)

keynes was right.

it was his followers who werent.

schumacher and keynes were onto the same thing. the economists which took keynes' thoughts and butchered them are the problem.

keynes' thoughts are as much keynsian in practice as marx's were communism in practice.

keynsian economics bought massive budget deficits for the 50,60s and 70s. this caused a financial meltdown and massive inflation in the 70s and 80s until monetary economics reduced the government spending and money supply to restore price stability.

then they go and do it all again. make no mistake inflation was there. but this time in the asset markets, not the consumer market; thanks to cheap chinese imports.

the asset inflation caused the bubble which has so spectacularly busted along with huge government borrowings.

read keynes. ignore the bastardisation of his works by those which claim his name.


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## wayneL (9 January 2009)

Stormin_Norman said:


> keynes was right.
> 
> it was his followers who werent.
> 
> ...



Indeed,

Although I don't favour the Keynesian model, properly implemented, I can see some sense in it. The problem as you and others mention is the bastardization of it. I have mentioned this before quite often on this forum using the ajective of "perverted" Keynesianism, the model basically only invoked once everything is FUBAR.

Yep, if we must have Keynesian Economics, let's go the whole hog and have it in prosperous times as well. Theoretically at least, governments would be in a much stronger position to deal with a (probably much shorter and shallower) recession.

It's Laissez Faire mixed with deficit inducing pork barreling when it suits them with sudden reversions to Keynes when it goes t1ts up. It's political expediency economics rather than adhering to any coherent economic model.


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## ducati916 (9 January 2009)

eladamrine said:


> Keynesian economics is sound and based on concrete theory. Saving does exacerbate recessions, even though it seems counter intuitive. If savings (leakage) increases as people become more thrifty, and investments (injections) decrease as business do not foresee any point in capital expenditure then the aggregate expenditure will decline greatly.
> 
> Then there is an accumulation of inventory, which signals to producers to cut production. We know price-wages isn't completely liquid due to trade unions, contracts, minimum wage legislation, etc...so employment will go down.
> 
> People have less to spend and aggregate expenditure falls. So instead, government intervenes by bailing out companies and giving banks money. Thats my two cents from reading a text book anyway, but i see nothing wrong with Keynesian economics.




*eladamrine*

Depending upon which economic camp you sit in, Keynes is viewed either as a genius, or an idiot. I subscribe to the idiot school.

If we take your first point with regards to "savings." I'm simply going to reproduce some posts from my blog;

Saving is a term that tends to be misused, or used to mean different things, depending on who you might be talking to. Therefore we shall initially define what is meant by saving in economic terms.

We shall approach the savings rate from the perspective of the consumer. The consumer will allocate a percentage of their disposable income to saving. Thus they will deposit this excess cash into a savings account.

This cash, forms part of the Banks’ Balance Sheet, under, deposits. The Bank will be paying interest on this deposit to the consumer, thus to pay this interest, the bank must invest this money somewhere that will earn a higher rate of return.

Banks lend out their Balance Sheets to finance Capital Goods. Capital Goods increase the productivity of an economy. Through an increase in productivity, so the wealth of an economy is increased. To import goods, you must export goods to pay for the imports.

Therefore to increase production, if we simply allocated 20% of income to savings, the following results would accrue from this savings rate to productive capability.

Year…………………Total Production………………Consumer Goods…………….Capital Goods
1………………………….100………………………………….80……………………………..20
2………………………….102.5……………………………….82……………………………..20.5
3………………………….105…………………………………84………………………………21
4………………………….107.5………………………………86………………………………21.5
5…………………………110………………………………….88……………………………..22
6…………………………112.5……………………………….90………………………………22.5
7…………………………115…………………………………92……………………………….23
8…………………………117.5………………………………94……………………………….23.5
9…………………………120…………………………………96……………………………….24
10………………………..123.5………………………………98……………………………….24.5
11……………………….125………………………………..100……………………………….25

The first thing to notice is that “total production” increases each year due to saving. The saving has been used each year to replace or improve the capital goods population. 

The problem or fear, and the one that we are currently experiencing is the sudden change, either increasing or decreasing, of consumer demand. A sudden increase, drives inflationary pressures from the resulting lack of consumer goods available. A sudden decrease, drives disinflationary pressure, due to excess consumer goods available.

This increase or decrease in consumer demand would be reflected by either an increase in savings or possible hoarding, or a decrease in savings, resulting in an inability to fund and therefore increase capital goods. Both scenarios however require the action to be sudden.

What if the investment opportunities are limited? That the savings continue to accumulate, but that there is no requirement by industry to increase capital goods. This is referred to as a stagnant growth period. The solution often proposed is one of government intervention. For government to expropriate the surplus savings via increased taxation, and spend it on creating jobs via [for example] infra-structure building. Is this a viable government policy? I will explore the ramifications in a follow-up post.

The hole in the argument is that “savings” can only exceed “investment” by the “hoarding rate.” The hoarding rate is [generally] insignificant. Today, we see the Banks due to decimation of their Balance Sheets, are potentially hoarding. If this were true, then an increased savings rate would move to repair their Balance Sheets, returning the savings/investment equilibrium.

This is only another way of saying that savings and investment constitute the supply and demand of the commodity known as money. The cost of this commodity is priced by the rate of interest.

When the rate of interest is lw, the demand for money will rise. The lower the rate of interest, the greater the demand, which at some point brings in the marginal borrower. The marginal borrower is most easily defined as the borrower who invests the money at a hurdle rate below the cost of that capital. Thus, by definition, destined to lose money.

This is of course the exact outcome that we are now experiencing due to the excessive policy of Chairman Greenspan. Easy Al, drew in the marginal borrower, who is now increasingly in default, which magnified by the leverage of the banks, has almost collapsed the banking system.

It is interesting that currently the solution, mirrors the causation. There is therefore a strong argument for removing the power of the Federal Reserve to “set” interest rates, and move to a self-adjusting natural rate as I proposed in a previous post.

To attract increased savings, the interest rate needs to be higher. With increased savings, the banks will recapitalise their Balance Sheets. The absolute rate is irrelevant to a bank that earns on a spread. With higher interest rates, marginal borrowers are eliminated, and we return to capital projects that again increase productivity.

In summary, savings are thus crucial to an economy as they are the means by which increased productivity, wealth and consumption can be increased incrementally over time.

http://leduc998.wordpress.com/2008/12/04/saving/#comments

 I'll let you have a think about this part of my argument before addressing your other points.

jog on
duc


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## wayneL (9 January 2009)

ducati916 said:


> *eladamrine*
> 
> Depending upon which economic camp you sit in, Keynes is viewed either as a genius, or an idiot. *I subscribe to the idiot school*.




I am keen to explore this line of thought.


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## ducati916 (9 January 2009)

*enzo*

I have just finished reading "The General Theory..." and it is a tortured read. So many fallacies, liquid definitions, pure bunk, with some really communistic tendancies.

Unfortunately, Lord Keynes was British. As he was part of the Bloomsberry sect, as was Blunt etc, I'm now convinced he was really a Russian, or taking part in the most monumental piss-take ever.

jog on
duc


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## ducati916 (9 January 2009)

Originally published in 1936 “The General Theory of Employment, Interest and Money” has been considered by the two primary economic camps as a work of genius, or the scribblings of an idiot. I fall into the scribblings of an idiot camp.

That governments periodically return to Keynes [while some never abandoned him] is quite easy to demonstrate. I shall reproduce directly from Keynes, pg. 330 of “The General Theory”



> Thus the remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping in permanently semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.




Thus it becomes easy to discern where the monetary policy of Alan Greenspan originated. Greenspan was a desciple of Keynes. Unfortunately, so it would seem are Bernanke and Paulson. The solution that all the above have reached, is a pure Keynesian solution to the popping of a bubble, cheap money, re-inflate the bubble.

It would also seem that Obama is reaching for a Keynesian solution to the increasing unemployment by advocating government [deficit] spending on “Public Works” as are [from previous post] numerous governments around the world.

In essence, governments intend to “inflate” their way out of the problems incurred via cheap money and malinvestments. This is analogous to the “hair of the dog” cure for a hangover.

The result will be inflation. The inflation will be serious, as the debt destruction, or credit contraction, has due to the level of malinvestment, been huge and looks not yet to be over.


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## wayneL (9 January 2009)

ducati916 said:


> *enzo*
> 
> I have just finished reading "The General Theory..." and it is a tortured read. So many fallacies, liquid definitions, pure bunk, with some really communistic tendancies.
> 
> ...




He was also a member of The Fabian Society, which explains much of your observation.


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## ducati916 (9 January 2009)

wayneL said:


> He was also a member of The Fabian Society, which explains much of your observation.




I've never seen him linked to "The Fabians." Which is not to say he wasn't, but you would have expected such a prominent figure as Keynes to be listed amoungst their alumini.

However, it is his economics that I have issue with. Of course, your politics may well influence your economics.

jog on
duc


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## wayneL (9 January 2009)

ducati916 said:


> I've never seen him linked to "The Fabians." Which is not to say he wasn't, but you would have expected such a prominent figure as Keynes to be listed amoungst their alumini.
> 
> However, it is his economics that I have issue with. Of course, your politics may well influence your economics.
> 
> ...




Duc,

he is mentioned in this article, amongst others.

http://www.newworldencyclopedia.org/entry/Fabian_Society


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## ducati916 (9 January 2009)

wayneL said:


> Duc,
> 
> he is mentioned in this article, amongst others.
> 
> http://www.newworldencyclopedia.org/entry/Fabian_Society





So he is. A socialist masquerading under the sobriquet of capitalism.

jog on
duc


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## Ageo (9 January 2009)

eladamrine said:


> Keynesian economics is sound and based on concrete theory.




hehehehe this line made my day  I think history has proved that its anything but sound.

I still cant believe that people think the current economic structure we live in today is sound and the right 1 to practice??? its the whole reason why boom and busts happen in the 1st place. And all these business's crying poor shouldnt have been that big in the 1st place. 

And can a Keynesian pro please answer me this....... If im broke and maxed out my credit cards would it be wise financial advice to tell me to spend more on credit and consume or should i save and invest (or reduce debt)?

Because for some reason it seems the whole world is encouraging the 1st line and thats due to Mr Keynes economic theory.

I shake my head and sometimes wonder how many people in their powerful positions actually know what their talking about (except for Ron Paul of course  )


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## mayk (9 January 2009)

Ageo said:


> And can a Keynesian pro please answer me this....... If im broke and maxed out my credit cards would it be wise financial advice to tell me to spend more on credit and consume or should i save and invest (or reduce debt)?





What if you are given the option that your, yet to born, grandkids can repay your debt. What will you do then? Leaving the morality issue aside.

Ducati, 

In your example, you mentioned a saving of 20% but because of fractional reserve banking, wouldn't it increase by a multiple of 10? Or if we take an average increase by only a multiple of 5, would it change the model, or the relationship will remain the same.


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## Ageo (9 January 2009)

mayk said:


> What if you are given the option that your, yet to born, grandkids can repay your debt. What will you do then? Leaving the morality issue aside.





Well considering the idea to spend spend and spend some more will just leave my kids and grandkids in a shatload of debt i think the option is stupid. Of course if i could just write the debt off and continue to borrow for many yrs to come then the system would be fantastic.


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## mayk (9 January 2009)

Ageo said:


> Well considering the idea to spend spend and spend some more will just leave my kids and grandkids in a shatload of debt i think the option is stupid. Of course if i could just write the debt off and continue to borrow for many yrs to come then the system would be fantastic.




If it is recursive, meaning your grandkids will also have the options to leave the repayments to their grandkids. I think at the government level this is the system they are pursuing, borrowing from their grandkids generation and spending it today.


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## Temjin (9 January 2009)

I prefer not to get into this economic discussion in details, but will give it a small try. I only claim to know a little more of Austrian economics than Keynasian, so yes, I do subscribe to the "idiots" side. 

Common sense tells me that economic propersity is achieved through effective use of resource and increased productivity. Saving should be encouraged in which they should be reinvested to enable higher productivity. 

The policies being adopted by these Keynasian insired economists make absolute no sense to me. If "reckless" spending beyond your mean is so good for the economy, why not just give everyone a million dollars and make everyone rich??

Keynasian economics also completely ignore the concept of external shocks. The Market Efficient Theory is just plain stupid too as if they are treating humans are perfectly logical mammals and will never become emotional when they make investment decisions. That's why most of the mainstream economists (Keynasian inspired) DID NOT predict the incoming crash. Only a few economists / independent analysts, whom most of them follow Austrian economics, have predicted this for a long time. 

So who do I trust, mainstream Keynasian or the "idiot" Austrians? 

www.mises.org have tons of article that are highly critical of the Keynasian economics. 

Here is a good article to read.

http://mises.org/story/3279

*Why Congress Must Stop the Fed's Massive Pumping*

selected text below



> Can fiscal policy revive economic activity? At the G20 summit on November 15, 2008 leaders stressed that fiscal policy ”” strong increases in government outlays ”” will have a bigger role to play in reviving economic activity. US President-elect Barack Obama has suggested that one should not worry about budget deficits ”” what matters, he said, is to revive the economy.
> 
> But how can an increase in government outlays kick-start the economy? Any activity that the government would initiate requires funding. (Various individuals who will be employed by the government will expect compensation for their work.) The government as such doesn't create any real wealth, so the only way it can pay these individuals is by taxing others who are still generating real wealth. By doing this, the government weakens the wealth-generating process and undermines prospects for economic recovery. (We ignore here borrowings from foreigners.)
> 
> As in the case of money-printing policy, if the pool of real savings is declining, massive government outlays cannot revive the economy; on the contrary, they will make things much worse. The only way fiscal stimulus could "work" is if the pool of real savings is still growing. The increase in economic activity when the pool of real savings is expanding is erroneously attributed to the government's loose fiscal policy. If the pool is shrinking, real economic activity will continue to decline ”” regardless of any increase in government outlays. Again, government is not a wealth-generating entity; the more it spends, the more it takes from wealth generators, thereby weakening any prospects for a recovery.


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## Temjin (9 January 2009)

Ageo said:


> hehehehe this line made my day  I think history has proved that its anything but sound.
> 
> I still cant believe that people think the current economic structure we live in today is sound and the right 1 to practice??? its the whole reason why boom and busts happen in the 1st place. And all these business's crying poor shouldnt have been that big in the 1st place.
> 
> ...




Agree, and it's sad though that almost every economic graduates that comes out of University are Keynasian inspired. They didn't really have a choice on school of thought their text books are subscribed to. And the problem expands when they go out for work and their colleages, supervisors, managers, head of economic department, also studied on the same flawed theory. 

Peer and social pressure along with how much they have emotionally invested in these studies would have forced them to stick to their believes contrary to conflicting evidences. If they abandon their believes, they would have to start all over again or try to go against everyone and might have trouble looking for job / promotion.


----------



## eladamrine (9 January 2009)

Temjin said:


> I prefer not to get into this economic discussion in details, but will give it a small try. I only claim to know a little more of Austrian economics than Keynasian, so yes, I do subscribe to the "idiots" side.
> 
> Common sense tells me that economic propersity is achieved through effective use of resource and increased productivity. Saving should be encouraged in which they should be reinvested to enable higher productivity.
> 
> ...





"If "reckless" spending beyond your mean is so good for the economy, why not just give everyone a million dollars and make everyone rich??"

Because that kind of spending is unsustainable. The point of fiscal and monetary policy is to move the economy to non-inflationary levels of full employment. When unemployment levels deviate from the natural levels of employment you should stimulate the economy by increasing spending and the  income from the created jobs can sustain the elevated levels of spending.  

"Keynasian economics also completely ignore the concept of external shocks. The Market Efficient Theory is just plain stupid too as if they are treating humans are perfectly logical mammals and will never become emotional when they make investment decisions. "

I must admit i am having great difficulty recalling a lot of the economics material i've read but i always thought that it was the neo/classical economists who advocated the market as capable of self regulation and the efficient market theory. I thought the Keynesians argued that the market could not regulate itself and government intervention was required to reach full employment. 

In addition, it was the classical economists that argued that savings and investments balanced out because they are governed by interest rates. The Keynesians are the ones who argued that investers and savers are a diverse group of people who are influenced by various factors, and not solely interest rates.


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## Knobby22 (9 January 2009)

I disagree.
Isn't it obvious that if the present situation was left to run without any government intervention that the recession will be deeper.

I see nothing wrong with the government undertaking infrastructure works that keep people employed which in turn helps to keep retailers etc. employed also. 

It's fashionable to bag Keynasian ideals if done properly - and I don't mean the kind of fascist socialism that Bush has employed so far, I don't see what is wrong with smoothing the bumps in this manner.


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## wayneL (9 January 2009)

Knobby22 said:


> I disagree.
> Isn't it obvious that if the present situation was left to run without any government intervention that the recession will be deeper.
> 
> I see nothing wrong with the government undertaking infrastructure works that keep people employed which in turn helps to keep retailers etc. employed also.
> ...



Keynes' theory was basically to spend in recession, but to build up surpluses in booms to partially pay for it. He also advocated taking monetary and fiscal measures to slow down booms to prevent bubbles.

This is clearly not the case. To invoke Keynes only in a recession isn't proper Keynesianism, it's pork barreling in his name.


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## aleckara (9 January 2009)

I know a bit about Keynesian and Austrian economics and to be honest all of them have their faults. I prefer Austrian but some basics in Keynesian are common sense too.  A lot depends on culture and human behaviour.

Saving on its own does not generate investment. Only savings borrowed can create capital for future productivity (i.e you are spending money on a machine in the hope that you will generate more work per unit of time). Someone's work still was required to create that machine and that is the work that stimuluses can encourage.

A stimulus gets people to spend, and the people providing the goods get the work. The assumption that has been violated of course is that spending generates work locally in Australia and gives us an incentive to "work" out of the mess we are in. The real problem of course is that this sort of economics doesn't work when we have outsourced "all this work". Spending stimulus packages so that retailers (who really are just foreign good shopfronts) can keep their shop is pretty much all its good for.

I think in this globalised environment Keynesian methods may stimulate work, but policy wise not necessarily achieve it where the goal of the policy is (i.e to smooth out the pain of the recession here).

Of course in the long run monetary economics catches up and currencies can be destroyed because the cure isn't fixing the problem, it is creating more imbalances. I think this is what Austrian economics highlights - that debt paid off by inflation makes the currencies standing less credible and that gold money naturally rewards those who work straight away and can't be meddled with. If we had gold money I think that most countries would still be highly protectionist as they can't print more 'gold' and would be hemmoraging it.

The system is broken. People want to have their cake and eat it too.


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## eladamrine (9 January 2009)

wayneL said:


> Keynes' theory was basically to spend in recession, but to build up surpluses in booms to partially pay for it. He also advocated taking monetary and fiscal measures to slow down booms to prevent bubbles.
> 
> This is clearly not the case. To invoke Keynes only in a recession isn't proper Keynesianism, it's pork barreling in his name.




Thats only the case because different people who in charge. Alan Greenspan and the Bush administration, the latter which we know is a sped, advocated de-regulation of the financial sector while the people now in charge are Obama and Hank Paulson. So really its not selective application but just different people in charge.


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## Ageo (9 January 2009)

Another question for all you keynesian buffs, if we had the gold standard back (i.e gold/silver as currency) would all these stupendous amounts of stimulus packages be available???? i think not....... you see keynes theory is really based on spending money you dont have! the world is talking about spending more!! Obama is urging that if congress dont pass a $1trillion stimulus the U.S will be hit hard but where if the world is this money coming from????? of course if the gold standard was here none of the stupid bailouts etc... would be put through as they would just be throwing there money away (and you cant just make gold like you can with paper).

So in theory Lord Keynes theory is based on spending money even if you dont have it? hmmmm sounds like him and the Rothchild's have something in common.


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## Glen48 (9 January 2009)

Depends on what caused the recession most have been housing slumps, or stock crashes, high unemployment. This one is a credit bubble and any thing associated with money won't help until the debit is cleared or the feds decide to wipe the debt and we start all over again.


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## aleckara (9 January 2009)

Ageo said:


> So in theory Lord Keynes theory is based on spending money even if you dont have it? hmmmm sounds like him and the Rothchild's have something in common.




I think the Keynesian theory was to try to start a boom and then hold it off when it takes off, like kicking a horse then reining it in. People by their very nature have fits of optimism/pessimism and this causes cycles. Debt driven spending causes work, but the debt itself should rein in future growth when things pick up.

Two problems with this:

1) How much do you kick? How much do you rein in? Governments are probably not the best to make these decisions. A floating rate would be better (i.e the more debt people take on, the more savers are rewarded moderating the debt cycle. if the rate is never able to adjust then there is an issue where people keep borrowing since the price can never move to its equilbrium point).

2) Since governments control it they are very willing to kick, but never really willing to stop people running since it isn't politically good to do so.

Of course gold can't be controlled and solves all these problems. Fiat can work, but only if you let the 'free market' work as it should. There is a number of issues with the system as we have it now that make that not occur.


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## Ageo (9 January 2009)

Its an interesting thing fiat money, i mean the only reason why its better than gold because its much easier to transfer.......... other than that its crap! can be duplicated, manipulated etc..... gold simply cant........


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## Stormin_Norman (9 January 2009)

Ageo said:


> Its an interesting thing fiat money, i mean the only reason why its better than gold because its much easier to transfer.......... other than that its crap! can be duplicated, manipulated etc..... gold simply cant........




and what's gold other then pretty pieces of dirt?


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## Ageo (9 January 2009)

Stormin_Norman said:


> and what's gold other then pretty pieces of dirt?




At least its looks nicer than paper 

oh and did i mention its been used for 1000s of yrs???


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## aleckara (9 January 2009)

Ageo said:


> At least its looks nicer than paper
> 
> oh and did i mention its been used for 1000s of yrs???




And its physical and takes work to produce. It represents work done. i.e if I want a gold bar I either have to pay for it (work), or work for it (dig it up). In the end the gold is worth a certain unit of work. Doesn't have to be gold, just not a stamped piece of paper. It's past work traded, not future work to be done.


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## Temjin (9 January 2009)

Stormin_Norman said:


> and what's gold other then pretty pieces of dirt?




Yeah, go back 200 hundred years ago and ask the same question and people would think you are crazy. Fiat money has an extremely short history and statistically has a 100% failure rate beside for the one that still exists today. 



			
				aleckara said:
			
		

> Of course gold can't be controlled and solves all these problems. Fiat can work, but only if you let the 'free market' work as it should. There is a number of issues with the system as we have it now that make that not occur.




Unfortunately, the "free market" concept has been highly criticised as the cause for this crisis. Not enough regulations and rules to prevent those who lend recklessly as well as the number of frauds that are beginning to show themselves.

I'm definitely a pro for free market, but unfortunately the public never had the patience to wait for it to work out and instead begged for more "interventions" to protect their own interest at the expense of the greater good. 



			
				aleckera said:
			
		

> I know a bit about Keynesian and Austrian economics and to be honest all of them have their faults. I prefer Austrian but some basics in Keynesian are common sense too. A lot depends on culture and human behaviour.
> 
> Saving on its own does not generate investment. Only savings borrowed can create capital for future productivity (i.e you are spending money on a machine in the hope that you will generate more work per unit of time). Someone's work still was required to create that machine and that is the work that stimuluses can encourage.
> 
> ...




Unfortunately, the very same traditional monetary policies being encouraged by the Keynasians have NEVER EVER WORKED in the past to solve recessions. If one thinks the 2001 recession was solved by pulling down interest rate alone, then he is dead wrong because it simply extended the problem further by creating a much bigger bubble.

Japan was one good example why "stimulating" economics never worked. Of course, they only pursued traditional policies. But if Ben Chopping & Co start using some of the more unconventional ones, in which some of them are already in action (plus the possibility of bypass the banks and hand out money directly to the public), it will create serious inflationary pressure on their currency. 

The biggest underlying problem is still everyone (ok, except the Chinese and other "idiot" savers who should be blamed for this recession) has lived beyond their mean with their reckless spending. This inflated production capacity and put everyone deeper in debt, both privately and by the government.

The only way to solve it is to let everything crash, liquidate all mal-investments, a serious deflation, more bankrupcies and a few more suicides. Then we can start all over again.

Unfortunately, this is a political unacceptable move. Any politicans who dare to pursue such things will surely get himself thrown out of the office faster than he filled out the forms to apply for position. 

Solving too much debt with more debt will never work and I still have absolutely no idea why people still believe it would. Because Keynas was a genius and he all figured it out???


----------



## Stormin_Norman (9 January 2009)

Ageo said:


> At least its looks nicer than paper
> 
> oh and did i mention its been used for 1000s of yrs???




i understand the history of gold very well. i was more continuing along the lines of the underlying worthlessness of it.

whatever is a 'storer' of value is by logical terms valuable.

if people think that the value of fiat money is waining, then they will look to other storers of value - ie precious dirt.

and to that means, gold is just like fiat money. the main difference is however its supply is constrained by what comes out of the ground rather then what rolls off the printing press at the federal banks.

for an interesting read check out the initial US currencies issued by banks in the 1800s. it was a very successful venture, until the US government got the irks with it because they couldnt tax it (either directly, or through inflation).

very very few private banknotes failed, dispite the common assumption that they would.


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## Temjin (9 January 2009)

Stormin_Norman said:


> i understand the history of gold very well. i was more continuing along the lines of the underlying worthlessness of it.
> 
> whatever is a 'storer' of value is by logical terms valuable.
> 
> ...




Assumptions? EVERY Fiat currency have it is in practiced have FAILED, except for those being used currently. They all shared the same fate, massively devalued until the collapsed. 

You might have mistake the different between fiat money without backing (which will eventually fail) and fiat money under the gold standard. (which will work but those in power hated the restrictions for being able to freely distribute it) 

http://www.dailyreckoning.com/rpt/fiathistoryWP.html


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## eladamrine (9 January 2009)

Ageo said:


> Another question for all you keynesian buffs, if we had the gold standard back (i.e gold/silver as currency) would all these stupendous amounts of stimulus packages be available???? i think not....... you see keynes theory is really based on spending money you dont have! the world is talking about spending more!! Obama is urging that if congress dont pass a $1trillion stimulus the U.S will be hit hard but where if the world is this money coming from????? of course if the gold standard was here none of the stupid bailouts etc... would be put through as they would just be throwing there money away (and you cant just make gold like you can with paper).
> 
> So in theory Lord Keynes theory is based on spending money even if you dont have it? hmmmm sounds like him and the Rothchild's have something in common.




Yes you are dead right, Keynesian economics is in some ways spending money you don't have and thats why you result in a budget deficit. To increase government spending you can either borrow money from the public i.e. by issuing bonds or by printing more money. I'm not quite sure where the bailout money is coming from, but it the treasury could also have accumulated surpluses. 



> Assumptions? EVERY Fiat currency have it is in practiced have FAILED, except for those being used currently. They all shared the same fate, massively devalued until the collapsed.
> 
> You might have mistake the different between fiat money without backing (which will eventually fail) and fiat money under the gold standard. (which will work but those in power hated the restrictions for being able to freely distribute it)




Fiat currency is obviously not full proof, it is only worth something if people recognise its value and mainly because the government backs it. But didn't the gold standard have it's faults too, like when trade breaks down and the flow of gold was disrupted the exchange rate got screwed?


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## Stormin_Norman (9 January 2009)

Temjin said:


> Assumptions? EVERY Fiat currency have it is in practiced have FAILED, except for those being used currently. They all shared the same fate, massively devalued until the collapsed.
> 
> You might have mistake the different between fiat money without backing (which will eventually fail) and fiat money under the gold standard. (which will work but those in power hated the restrictions for being able to freely distribute it)
> 
> http://www.dailyreckoning.com/rpt/fiathistoryWP.html




i love the daily reckoning. great comment on the markets.

the thing you rightly point to is the government devaluation of the notes. its a tax. one which most people dont even realise is happening until its too late.

is that a fault of fiat money? no. its the fault of those in control of its distribution. 

which is why private banknotes throughout history have done well. its not in the bank's interest to reduce the value of their notes, so they store their value far better then the govt issued notes.

again the problem comes back to governments stuffing around with the markets. 

friedman's idea of a constant 5% monetary growth is a good one. rather then set interest rates, set the money supply growth. during high demand for money, interest rates rise, during low demand the interest rates fall and the currency holds its value as the supply side of the fiat market is held consistent.

over supply of gold is the same, its just harder to do. in the 1500s spain took mountains of gold back from the americas to europe. it caused them huge inflation which they only controlled just before they went to the euro. they went from the european powerhouse to a basket case economy because of oversupply of money (in this case gold).


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## ducati916 (9 January 2009)

mayk said:


> What if you are given the option that your, yet to born, grandkids can repay your debt. What will you do then? Leaving the morality issue aside.
> 
> Ducati,
> 
> In your example, you mentioned a saving of 20% but because of fractional reserve banking, wouldn't it increase by a multiple of 10? Or if we take an average increase by only a multiple of 5, would it change the model, or the relationship will remain the same.




mayk,

I am assuming no "fractional lending" simply savings from earnings. Keynes argued that "savings" were a very bad outcome for an economy and would choke it. This simply is not the case.

jog on
duc


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## ducati916 (9 January 2009)

Knobby22 said:


> I disagree.
> Isn't it obvious that if the present situation was left to run without any government intervention that the recession will be deeper.
> 
> I see nothing wrong with the government undertaking infrastructure works that keep people employed which in turn helps to keep retailers etc. employed also.
> ...




Knobby,

This is simply one of the Keynesian fallacies. Keynesian economics argues for *deficit spending* usually on infrastructure and lowering of interest rates.

With numerous governments once again committed to deficit spending to address and cure “unemployment,” just how effective has it been historically? It found it’s first trial-by-fire through the Roosevelt administration during “The Great Depression.”

Year……………..Deficit[Billions]………..Unemployed……..As %
1931…………………$0.5……………………8.0……………..15.9%
1932…………………$2.7……………………12.1…………….23.6%
1933…………………$2.6……………………12.8……………24.9%
1934…………………$3.6……………………11.3……………21.7%
1935…………………$2.8……………………10.6…………..20.7%
1936…………………$4.4……………………9.0…………….16.9%
1937…………………$2.8……………………7.7…………….14.5%
1938…………………$1.2……………………10.4……………19.0%
1939…………………$3.9……………………9.5……………..17.2%
1940…………………$3.9……………………8.1……………..14.6%

The second policy is the cult of the low interest rate as practiced currently by Ben Bernanke, and previously by Alan Greenspan. Again, has it worked historically?

Year……………Interest Rate [CP]…………….Unemployment %
1929………………….5.85%…………………………..3.2%
1930………………….3.59%…………………………..8.7%
1931………………….2.04%…………………………..15.9%
1932………………….2.73%…………………………..23.6%
1933………………….1.73%…………………………..24.9%
1934………………….1.02%…………………………..21.7%
1935………………….0.75%…………………………..20.1%
1936………………….0.75%…………………………..16.9%
1937………………….0.94%…………………………..14.3%
1938………………….0.81%…………………………..19.0%
1939………………….0.59%…………………………..17.2%
1940………………….0.56%…………………………..14.6%

Low interest rates do not eliminate unemploment. They do not in fact in this example even help unemployment, rather, they exacerbate the situation.

The current low interest rate, is admittedly, to ostensibly save the banks and financial system by relieving pressure on the mortgage rates that were “causing” high default rates. Rather, it was bad loans, made by banks, who no longer exercised any credit risk on the loans, rather than interest rates, that are responsible for the default rate.

However, Greenspan, used interest rates for precisely this purpose [reducing unemployment] after the bursting of the stockmarket bubble in 2000 and the resultant recession.

The recovery was known as the “jobless recovery” for the very reason that while economic metrics were showing improvement, unemployment didn’t really respond to the monetary stimulus. It was only really with another bubble developing in housing, and home equity lending [spending] that the “illusion” of prosperity returned.

Year…….Interest Rate…………….Unemployment %
2000-01-01 5.50………………………4.0%
2000-02-01 5.73………………………4.1%
2000-03-01 5.86………………………4.0%
2000-04-01 5.82………………………4.0%
2000-05-01 5.99………………………4.0%
2000-06-01 5.86………………………4.0%
2000-07-01 6.14………………………4.0%
2000-08-01 6.28………………………4.1%
2000-09-01 6.18………………………3.9%
2000-10-01 6.29………………………3.9%
2000-11-01 6.36………………………3.9%
2000-12-01 5.94………………………3.9%
2001-01-01 5.29………………………4.2%
2001-02-01 5.01………………………4.2%
2001-03-01 4.54………………………4.3%
2001-04-01 3.97………………………4.4%
2001-05-01 3.70………………………4.3%
2001-06-01 3.57………………………4.5%
2001-07-01 3.59………………………4.6%
2001-08-01 3.44………………………4.9%
2001-09-01 2.69………………………5.0%
2001-10-01 2.20………………………5.3%
2001-11-01 1.91………………………5.5%
2001-12-01 1.72………………………5.7%
2002-01-01 1.68………………………5.7%
2002-02-01 1.76………………………5.7%
2002-03-01 1.83………………………5.7%
2002-04-01 1.75………………………5.9%
2002-05-01 1.76………………………5.8%
2002-06-01 1.73………………………5.8%
2002-07-01 1.71………………………5.8%
2002-08-01 1.65………………………5.7%
2002-09-01 1.66………………………5.7%
2002-10-01 1.61………………………5.7%
2002-11-01 1.25………………………5.9%
2002-12-01 1.21………………………6.0%
2003-01-01 1.19………………………5.8%
2003-02-01 1.19………………………5.9%
2003-03-01 1.15………………………5.9%
2003-04-01 1.15………………………6.0%
2003-05-01 1.09………………………6.1%
2003-06-01 0.94………………………6.3%
2003-07-01 0.92………………………6.2%
2003-08-01 0.97………………………6.1%
2003-09-01 0.96………………………6.1%
2003-10-01 0.94………………………6.1%
2003-11-01 0.95………………………5.9%
2003-12-01 0.91………………………5.9%
2004-01-01 0.90………………………5.7%
2004-02-01 0.94………………………5.6%
2004-03-01 0.95………………………5.7%
2004-04-01 0.96………………………5.5%
2004-05-01 1.04………………………5.6%
2004-06-01 1.29………………………5.6%
2004-07-01 1.36………………………5.5%
2004-08-01 1.50………………………5.4%
2004-09-01 1.68………………………5.4%
2004-10-01 1.79………………………5.4%
2004-11-01 2.11………………………5.4%
2004-12-01 2.22………………………5.4%
2005-01-01 2.37………………………5.2%
2005-02-01 2.58………………………5.4%
2005-03-01 2.80………………………5.1%
2005-04-01 2.84………………………5.1%
2005-05-01 2.90………………………5.1%
2005-06-01 3.04………………………5.0%
2005-07-01 3.29………………………5.0%
2005-08-01 3.52………………………4.9%
2005-09-01 3.49………………………5.1%
2005-10-01 3.79………………………4.9%
2005-11-01 3.97………………………5.0%
2005-12-01 3.97………………………4.9%
2006-01-01 4.34………………………4.7%
2006-02-01 4.54………………………4.7%
2006-03-01 4.63………………………4.7%
2006-04-01 4.72………………………4.6%
2006-05-01 4.84………………………4.6%
2006-06-01 4.92………………………4.6%
2006-07-01 5.08
2006-08-01 5.09
2006-09-01 4.93
2006-10-01 5.05
2006-11-01 5.07
2006-12-01 4.97
2007-01-01 5.11

The most recent data appears as a chart.
Top chart is the interest rate, bottom chart is unemployment

As can be ascertained from the data, it would seem that lower rates are not closely correlated with reducing unemployment rates.

In summary, deficit spending [Fiscal Policy] and reducing Interest Rates [Monetary Policy] do little to nothing in preventing or reversing unemployment. Why then are the politicians once again embracing the very inflationary policies that will rather damage the economy in the longer term?



jog on
duc


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## Stormin_Norman (9 January 2009)

ducati916 said:


> mayk,
> 
> I am assuming no "fractional lending" simply savings from earnings. Keynes argued that "savings" were a very bad outcome for an economy and would choke it. This simply is not the case.
> 
> ...




no he didnt. he talked about the paradox of thrift causing a drop in consumption.


----------



## ducati916 (9 January 2009)

Stormin_Norman said:


> no he didnt. he talked about the paradox of thrift causing a drop in consumption.




Fraid not old chap, I can quote you chapter and verse if you wish from "The General Theory....."
And what is "thrift" by any other name?


jog on
duc


----------



## Bushman (9 January 2009)

Temjin said:


> They all shared the same fate, massively devalued until the collapsed.




They have not all been destroyed by hyperinflation. In this study of 775 currencies, the following has occured to the currencies : 

23% are still in circulation 
24% ended due to 'monetary reforms' (i.e. the creation of the Euro) 
12% ended due to Acts of Independence 
21% have been destroyed by Acts of War
20% have been destroyed by hyperinflation.

http://dollardaze.org/blog/?post_id=00405#fn00405_2

However, given enough time, I think the fate for most currencies being run under a centralised government system will be oblivion.

Here is a list of 599 dead currencies. Interesting 'roll of valour'. 
http://dollardaze.org/blog/?page_id=00017


----------



## ducati916 (10 January 2009)

*eladamrine*



> Because that kind of spending is unsustainable. The point of fiscal and monetary policy is to move the economy to non-inflationary levels of full employment. When unemployment levels deviate from the natural levels of employment you should stimulate the economy by increasing spending and the income from the created jobs can sustain the elevated levels of spending.




Fiscal & Monetary policies are designed and executed by government, in the attempt to exert control over the economy. They can be disinflationary, or inflationary. Disinflationary stimulus would have high interest rates [monetary] and high taxes [fiscal] Inflationary are simply the reverse, low interest rates [monetary] and low taxes [fiscal]

As previously detailed, interest rates [monetary policy] and deficit spending [fiscal policy] have no discernable influence on employment levels. In point of fact "full employment" is simply a theory, it is, and never was meant to be interpreted literally. The primary driver of long term unemployment is the "wage rate."



> I must admit i am having great difficulty recalling a lot of the economics material i've read but i always thought that it was the neo/classical economists who advocated the market as capable of self regulation and the efficient market theory. I thought the Keynesians argued that the market could not regulate itself and government intervention was required to reach full employment.




Economists such as Adam Smith, Ricardo, Bastiat and others did argue that the market was capable of self-regulation.

Efficient Market Theory was not an economic theory per se, rather it enters under "Finance Theory" and was developed from the work completed by Bachelier, developed by Markowitz, Sharpe, Treynor and others. Modigliani crossed the finance/economic divide, working in both camps.

Keynes certainly argued that government intervention was required in the "markets."

*knobby22*



> I disagree.
> Isn't it obvious that if the present situation was left to run without any government intervention that the recession will be deeper.
> 
> I see nothing wrong with the government undertaking infrastructure works that keep people employed which in turn helps to keep retailers etc. employed also.
> ...




This current crisis was a direct consequence of government intervention, or attempts to micro-manage the economy and various markets. To solve the crisis, it would rather be in the interests of all if government left the market to adjust the malinvestments made under government suasion.

Government infrastructure development, or deficit spending results in taxes being redistributed to areas of the governments choice. Thus visually, they are seen to be doing something.

What is not seen, are the job losses as a result of higher taxes contracting discretionary spending in all other areas of the economy.

Keynesianism, is the posturing of village idiot.

jog on
duc


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## Knobby22 (10 January 2009)

ducati916 said:


> *eladamrine*
> 
> 
> This current crisis was a direct consequence of government intervention, or attempts to micro-manage the economy and various markets. To solve the crisis, it would rather be in the interests of all if government left the market to adjust the malinvestments made under government suasion.
> ...




I don't disagree that much of the present crisis is due to government ineptitude, but this is not caused by them acting with Keynesian principles.

The USA and GBR for example has enjoyed boom times and yet the government of both these nations were running large deficits before the present problems. This is not Keynesian behaviour. Now they are all attempting to use his name as an excuse for their present behaviour, much of which isn't in the least following the correct course. . e.g. Bush repeatedly trying to directly influence the market diectly and indirectly.

I repeat there is no reason that if governments acted responsibly and built surpluses then wisely spent these surplases during a downturn doing things to make the country more efficient through enhanced infrastructure and by looking after people that have become unemployed that this will reduce the severity of the downturn. 

I do agree that governments should not be influencing the markets except in the form of regulation. The purpose of the regulation should be to provide market transparency to help free markets work more efficiently and to ensure that capitalism works for the good of all, not an ogliarchy.


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## ducati916 (10 January 2009)

*Knobby22*



> I don't disagree that much of the present crisis is due to government ineptitude, but this is not caused by them acting with Keynesian principles.
> 
> The USA and GBR for example has enjoyed boom times and yet the government of both these nations were running large deficits before the present problems. This is not Keynesian behaviour. Now they are all attempting to use his name as an excuse for their present behaviour much of which isn't in the least following the correct course. . e.g. Bush repeatedly trying to directly influence the market diectly and indirectly
> 
> ...





We are considering two _different _deficits.
*Current Account Deficit
*Government [Tax] revenue deficit [Fiscal deficit]

Keynesian policy is advocated with regards to a fiscal deficit. The US was, and is in addition, running a CAD deficit.

Now, if the government is running a _fiscal deficit_ that must by definition mean that they are overtaxing the economy, after all, it is not required to run a surplus for essential _"public domain"_ services.

Thus, taxes should be cut. This would result in the incomes rising, with increased spending in the economy. Which brings us to an interesting point addressed by Keynes: this theory is the "Propensity to Consume." Before going into any depth on this fatally flawed theory, I'll read any thoughts you may have.

jog on
duc


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## ducati916 (11 January 2009)

Germany had embarked on a Keynesian policy: government spending became increasingly important in guiding the economy into the military channels that Hitler wanted. Franklin Roosevelt followed a parallel policy, after his programs of domestic spending failed to extricate America from the Depression.

In his preface to the German edition of The General Theory, dated September 7, 1936, Keynes indicated that the ideas of his book could more readily be carried out under an authoritarian regime:




> Nevertheless the theory of output as a whole, which is what the following book purports to provide, is more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output under conditions of free competition and a large measure of laissez-faire.




Obama, at least in the early stages of his campaign against Clinton, stressed his wanting to leave Iraq as soon as possible [practiable] This seems lately to have been diluted. Afghanistan, in fact, seemingly is looking at an expansion of military.

Roosevelt, really only managed via deficit spending to exit the Depression after the onset of WWII. As previously detailed, deficit spending & interest rate manipulation achieve nothing in relation to unemployment.

Keynes treatise, ostensibly was in regard to minimising, or eliminating unemployment.

jog on
duc


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