Why Did So Many Fail To Predict The Crisis?

[shag]

with respect julia that is a bit naive and paranoid. kiwibank was set up for the vunerable this including beneficiaries/welfare, lower decile people etc, and also including people who relied on savings payments for income.
more importantly it was set up in a period of a very overheated property market, worse than here(see the bluechip saga-elderly taking out morgages for dodgy property investments like storm but far more corrupt and damaging). the reserve bank was doing all it could to keep inflation down due to this property bubble, and wasnt about to design a state owned bank that helped this sector of the market, ie morgages.
i only noted morgages as its all i am involved with, no fees helps savers too.

sorry guys to get off topic, but i believe this model would be good for us as ironically it turned a healthy profit as well as prividing competition and the other less obvious benefits. this shows how much fat is in the banking sector.

i was also supprised by how many people i knew liked it for their bussinesses and complemented it, and these were the upperdecile group.

 

[Buckeroo]

Perhaps many didn't miss the signs at all, but it simply wasn't in their interests to warn people. i.e. financial advisers raking in all those trailing commissions from managed funds which were/are the mainstay of the massive Super industry.

Hence all that advice to the punters (who had no idea about where their funds were or what was likely to happen to them) to just hold tight, it would all be A-OK, baby.

Couldn't agree more Julia - and they are all at it again, spouting off how things are improving on the back of excessive Government spending.

The government with the most money will last the longest - but as soon as the money runs out & governments are maxed out with debt, what then? There is no magic green shoot - its all fake.

Debt will bring down the western world and this delaying action will only ensure that Governments won't have any money left to feed their people when it finally collapses

By all means, keep listening to these idiots at your peril, because as sure as hell, they still can't see whats coming

Cheers

 

[Knobby22]

The view of "fiscal stimulus" will NOT work is not only shared by Mike Shedlock alone, but by many other "alternative thinking" economists who have long predicted this crisis prior to its collapse.

Remember, Mike Shedlock IS NOT AN AUSTRIAN economist. He is aware of their theories but do not actively promote it. He does not see the possibility of hyperinflation anytime in the near future. His views are strongly in line with Steven Keen's thesis on debt deflation.

I agree with them both on that also. However it is what you do that I differ on.

With regards to the scorched earth policy. This is how free market should work. Let bad business FAILs and let the GOOD business take over the mess and buy the good parts of the bad. Yes, unemployment will go sharply up, and yes, people will suffer.

You can't let the populce suffer too much or they will revolt. You can't let the economy go into a continuous downward spiral or the good businesses will go broke also! There should be intervention!

The BIGGEST problem with the banking system is that we still have too much BAD DEBT in the system. Do you realise how much are still there even after so many write downs have occured in the last 2 years? There will be NIL economic recovery as long as these debt are in the system.

The moral of the story is that if there are anything that is too big to fail, then they are too big already. Businesses who become insolvent through bad commercial practices SHOULD BE FORCED TO FAIL, period. Using tax payer money to reward those who "failed" is certainly not the answer to a sustainable economic recovery.

Just look at Japan as your example. How much bailouts have they done with respective to their economy? (amount of $$$ over their GDP) It's at least a few times over what US have done thus far, and still they are facing a deflation after over a decade.

There are plenty of economic theories around that clearly explained the cause of the crisis and how it should be solved. Unfortunately, political and social pressures have prevented these "alternative" thinkings from becoming mainstream.

I agree. Public money should not be used to prop up bad businesses. What I wrote above says that. More banks should have been allowed to go broke. More people who invested poorly should lose their money. What I am saying is that the money should be used to make the country more efficient and amelieorate the wost excesses of the crash. That doesn't mean you can't have a macro policy to help the banks but it means that banks that are broke should be made to go broke. We don't want zombie banks.
I don't think we are very far apart on this.

If I was in classical economics and am in a position of power, and that my career and life is DEPENDANT ON IT, do you think I would NOT abuse my power to prevent those "alternative" thinking a--holes from ruining my life? No way, I would denial every theories they put out until I'm dead.

I agree. But the thing is they really believe it. Theysay in many people, the mind flexibility goes when they hit 50 and yet these guys are making decisions for the world. And as for Fox, what a bunch of dicks.

 

[Knobby22]

with respect julia that is a bit naive and paranoid. kiwibank was set up for the vunerable this including beneficiaries/welfare, lower decile people etc, and also including people who relied on savings payments for income.
more importantly it was set up in a period of a very overheated property market, worse than here(see the bluechip saga-elderly taking out morgages for dodgy property investments like storm but far more corrupt and damaging). the reserve bank was doing all it could to keep inflation down due to this property bubble, and wasnt about to design a state owned bank that helped this sector of the market, ie morgages.
i only noted morgages as its all i am involved with, no fees helps savers too.

sorry guys to get off topic, but i believe this model would be good for us as ironically it turned a healthy profit as well as prividing competition and the other less obvious benefits. this shows how much fat is in the banking sector.

i was also supprised by how many people i knew liked it for their bussinesses and complemented it, and these were the upperdecile group.

The trouble with the words "with respect" is that it implies the opposite.

I saw the comedians on the ABC Clarke and Doyle last night and they were talking about setting up a peoples bank and how profitable will it be.
Clarke playing the prime minister then said when it becomes profitable we can sell it off!

 

[MRC & Co]

You can't let the populce suffer too much or they will revolt. You can't let the economy go into a continuous downward spiral or the good businesses will go broke also! There should be intervention!

Couldn't agree more Knobby.

The problem is, Government intervention should look to pre-empt a crisis, not lag it. To do so, I believe it needs to be more flexible and involve far more market players, not ivory tower academics.

But to let all the major banks collapse, would be catastrophic to the global economy. THEN, you would have a deep deep depression, such as the 20s, where liquidity is nowhere to be found.

The problem now, is even if banks are guaranteed and stabilized, the fundamental structural problems of the US are huge. The massive deficit, both trade and budget, mean stimulation of consumption is almost impossible, hard to move credit. This goes back to banks unwilling to lend and nobody wanting to borrow. Falling velocity of money. No multiplier effect.

Growing household savings as they do their own 'balance sheet deleveraging' will further cause a drop in employment which is already struggling. Not only the fall in employment, but falling incomes and growing underemployed lower ability for recovery and will result in a further fall of collatoral values and trigger further financial instibility (2nd round of stimulus down the track..........? Possible if the Government has to ensure further defaults + lack of ability of bank lending to add 'strong' assets to their balance sheets).

The US has absolutely no way out of this recession, but to pay back their debt, continue to devalue their dollar over the next several years and take no growth for decades.

Trouble is, Asia does not have the same consumption mentality and this will make it very hard for the region to pull us out of this recession. Add to that the Chinese casino mentality, using stimulus more to try to make cash than create production + consumption, does not help the cause.

I see more chance of a double dip and second round of selling, than I do of any form of rally back to previous highs over the next few years. But probability definately favours an L shape recovery. In this manner, you have to adjust your trading style accordingly, jobbing the edges of the ranges. Buy and hold is long gone.

This is my macro outlook of which I structure my individual trade ideas and strategy around.

 

[nulla nulla]

And, greed is good!

'How many yachts can you ski behind?'

Is that a trick question?

 

[Buckeroo]

Couldn't agree more Knobby.

But to let all the major banks collapse, would be catastrophic to the global economy. THEN, you would have a deep deep depression, such as the 20s, where liquidity is nowhere to be found.

Maybe, if we did allow the insolvent banks to fail, the future would be much brighter even if a depression did occur? As with any free market correction, they must be allowed to run their course without interference - corrections are there to take out any excesses in the market & re-balance the unbalanced. What we have done is to delay & make much worse the eventual collapse.

I haven't heard yet, a viable plan of how all this will pan out. How for instance, through higher taxes that we will all have to eventually endure, our economies are going to recover?

There are many people now struggling with the official interest rates of 3% and lower in other countries. If any recover begins, it will immediately be killed off once inflation & interest rates begin to rise.

Incidentally, the only liquidity left in the world is whats being created by Governments. Once this is turned off, there will be nothing but insolvency. At the moment all we are getting is spin - no one is talking about how these problems are going to be addressed.

It maybe that we are headed towards total Socialism - you work & are fed by the state. Seems far fetched - yes at the moment it does, but the foundations are being built as we speak.

Cheers

 

[Temjin]

You can't let the populce suffer too much or they will revolt. You can't let the economy go into a continuous downward spiral or the good businesses will go broke also! There should be intervention!

What intervention? Have they really worked? Have they worked in the past before?

The biggest SCAM coming out of these central governments and classical economists are that they actively promote the NEED for government intervention (must do something) to save the economy or else there will be a global war! It's all scare mongering. What EVIDENCES do they have that we will go into a never-ending spiral of depression where society has collapsed and we will suffer another global war?

You need to be fully aware of the "intentions" behind those policy makers for encouraging such interventions. Their goal is to BAIL OUT their banker friends and uses "society collapse" as an argument for intervention.

I'm sure you know what CAUSED this economic crisis in the first place, right?

That's right, failed policies. Massive leverage allowance on the investment banks, unbacked fiat money, unprecedented ease of monetary policies (i.e. low interest rate, low lending criteria), etc. Most of the problems were CREATED by the VERY SAME economists / policy makers who think they can FIX it by more "interventions".

Do you think we can rely on them??

Austrian economists say that ANY FORM of government intervention is a total waste of money. The government, or rather, central economic planning, WILL NEVER (and have NEVER in the history) able to allocate resource more effectively than the free market do.

And good businesses WILL NOT go broke. Why would they if they are "good" in the first place? They will simply buy off the good parts from those "bad" businesses, throw away the bad ones and go back into the market with a much larger share.

Another biggest problem with most people is that they believed the free market IS NOT CAPABLE of self-regulating. Kevin Rudd has been actively promoting that the free market is dead and that central planning (communist style) is the way to go.

As soon as the debt are defaulted or repaid, it will create a new foundation with more savings for investment opportunities. This will be the driver for a faster recovery. Unfortunately, the government DO NOT want these debt to go away because they are afraid of the consequences, or rather, their SEATS.

One way or the other, these debt will have to be paid down or defaulted on. And either way will lead to an economic downturn. The faster they are paid down, the faster we will go back into recovery.

I agree. Public money should not be used to prop up bad businesses. What I wrote above says that. More banks should have been allowed to go broke. More people who invested poorly should lose their money. What I am saying is that the money should be used to make the country more efficient and amelieorate the wost excesses of the crash. That doesn't mean you can't have a macro policy to help the banks but it means that banks that are broke should be made to go broke. We don't want zombie banks. I don't think we are very far apart on this.

Yes, we aren't very far apart on this too, except for the "need for macro policy".

I already said it, what is the CORE PROBLEM with this crisis? Massive toxic debt. How do you solve this problem? The only way is to have the market to REVALUE them to original value (which is impossible), or write them off at a loss. There is no other way. You cannot make an "asset" to increase in value just by saying it has.

Of course, the mainstream economists would have you believed that to do so would effectively bankrupt the banking industry and cause a Greater Depression. (along with all these scary predictions of global wars and massive social unrest) Thus, to solve it is to USE TAXPAYER money to force them to BUY these debt at a much higher price than the market would. And in addition, create new accounting rules so that these assets can be revalued to whatever value the "banks" deemed they to be (based on PHD-style models) and/or move them off to another balance sheet hidden from the public and "guaranteed" by the government. And of course, reward the bankers with more bonuses too.

All they are doing is just hide the problem or force it onto others. It does not solve anything.

You already said it too, the banks that are broke should be MADE to go broke. Unfortunately, that is not happening right now.

If you read the financial statements from those very banks who are holding these toxic debt, you would have find them pretty much TECHNICALLY INSOLVENT since 2007. That is if you used the precious accounting rules and did not include any of the "government intervention" policies to hide those debts. Those banks are still heavily leveraged that any write down based on REAL market value would immediately bankrupt them.

In essential, we already have zombie banks because they still have too much toxic debt with them. Exactly what the Japanese banks are in right now. They wouldn't write down the losses in their book.


So let me conclude this. I agree with everything you've said in your previous post, except the part where you think the government should step in and "ease" the downturn and make people suffer less.

Unfortunately, they are making it WORSE because they are only delaying the inevitable. Using taxpayers' money to soften the losses from the banks means they are using FUTURE resources to solve today's problems.

And since the US government is already broke and they must sell more bonds or print money to keep the interventions up. There are simply TOO MUCH debt in the system that needs to be removed.

Either the world will suffer an immediate greater depression or an extremely prolonged greater recession/depression span over a decade or two. NEITHER options can be avoided DESPITE what the mainstream economists are telling you.

If anyone here thinks we will get out of this with government interventions, and that we will experience pre-bust growth rate (4% p.a.+) in 2 years time or so (expected by Rudd government in their latest budget forecast), then they really have underestimate the seriousness of the situation out there.

 

[Knobby22]

Couldn't agree more Knobby.

The problem is, Government intervention should look to pre-empt a crisis, not lag it. To do so, I believe it needs to be more flexible and involve far more market players, not ivory tower academics.

But to let all the major banks collapse, would be catastrophic to the global economy. THEN, you would have a deep deep depression, such as the 20s, where liquidity is nowhere to be found.

The problem now, is even if banks are guaranteed and stabilized, the fundamental structural problems of the US are huge. The massive deficit, both trade and budget, mean stimulation of consumption is almost impossible, hard to move credit. This goes back to banks unwilling to lend and nobody wanting to borrow. Falling velocity of money. No multiplier effect.

Growing household savings as they do their own 'balance sheet deleveraging' will further cause a drop in employment which is already struggling. Not only the fall in employment, but falling incomes and growing underemployed lower ability for recovery and will result in a further fall of collatoral values and trigger further financial instibility (2nd round of stimulus down the track..........? Possible if the Government has to ensure further defaults + lack of ability of bank lending to add 'strong' assets to their balance sheets).

The US has absolutely no way out of this recession, but to pay back their debt, continue to devalue their dollar over the next several years and take no growth for decades.

Trouble is, Asia does not have the same consumption mentality and this will make it very hard for the region to pull us out of this recession. Add to that the Chinese casino mentality, using stimulus more to try to make cash than create production + consumption, does not help the cause.

I see more chance of a double dip and second round of selling, than I do of any form of rally back to previous highs over the next few years. But probability definately favours an L shape recovery. In this manner, you have to adjust your trading style accordingly, jobbing the edges of the ranges. Buy and hold is long gone.

This is my macro outlook of which I structure my individual trade ideas and strategy around.

You make a lot of sense MRC. You are right, we couldn't let all the banks go broke, and the multiplier effect is a good point. I don't think all the banks are basket cases though.

A double dip seems a pretty easy bet.

What annoys me about the USA is the giant debt they rung up under Bush hich has effectively meant that the company has to go further into hock just to servive and also needs to print money. Also the relaxation of rules that let the banks get to where they are today.
They have really let the world down.

 

[Knobby22]

Maybe, if we did allow the insolvent banks to fail, the future would be much brighter even if a depression did occur? As with any free market correction, they must be allowed to run their course without interference - corrections are there to take out any excesses in the market & re-balance the unbalanced. What we have done is to delay & make much worse the eventual collapse.

I haven't heard yet, a viable plan of how all this will pan out. How for instance, through higher taxes that we will all have to eventually endure, our economies are going to recover?

There are many people now struggling with the official interest rates of 3% and lower in other countries. If any recover begins, it will immediately be killed off once inflation & interest rates begin to rise.

Incidentally, the only liquidity left in the world is whats being created by Governments. Once this is turned off, there will be nothing but insolvency. At the moment all we are getting is spin - no one is talking about how these problems are going to be addressed.

It maybe that we are headed towards total Socialism - you work & are fed by the state. Seems far fetched - yes at the moment it does, but the foundations are being built as we speak.

Cheers

Well that is the alternative. If you let the world collapse you will have to go back to giving the population food rations. Call it socialism if you like but it is what has happened throughout history. The Romans had to feed the populace in bad times otherwise the people would revolt. You can't the extremely wealthy and powerful living their life when people are suffering.

 

[Knobby22]

What intervention? Have they really worked? Have they worked in the past before?



I'm sure you know what CAUSED this economic crisis in the first place, right?

That's right, failed policies. Massive leverage allowance on the investment banks, unbacked fiat money, unprecedented ease of monetary policies (i.e. low interest rate, low lending criteria), etc. Most of the problems were CREATED by the VERY SAME economists / policy makers who think they can FIX it by more "interventions".

Do you think we can rely on them??

Austrian economists say that ANY FORM of government intervention is a total waste of money. The government, or rather, central economic planning, WILL NEVER (and have NEVER in the history) able to allocate resource more effectively than the free market do.

And good businesses WILL NOT go broke. Why would they if they are "good" in the first place? They will simply buy off the good parts from those "bad" businesses, throw away the bad ones and go back into the market with a much larger share.

Another biggest problem with most people is that they believed the free market IS NOT CAPABLE of self-regulating. Kevin Rudd has been actively promoting that the free market is dead and that central planning (communist style) is the way to go.

As soon as the debt are defaulted or repaid, it will create a new foundation with more savings for investment opportunities. This will be the driver for a faster recovery. Unfortunately, the government DO NOT want these debt to go away because they are afraid of the consequences, or rather, their SEATS.

One way or the other, these debt will have to be paid down or defaulted on. And either way will lead to an economic downturn. The faster they are paid down, the faster we will go back into recovery.



Yes, we aren't very far apart on this too, except for the "need for macro policy".

I already said it, what is the CORE PROBLEM with this crisis? Massive toxic debt. How do you solve this problem? The only way is to have the market to REVALUE them to original value (which is impossible), or write them off at a loss. There is no other way. You cannot make an "asset" to increase in value just by saying it has.

Of course, the mainstream economists would have you believed that to do so would effectively bankrupt the banking industry and cause a Greater Depression. (along with all these scary predictions of global wars and massive social unrest) Thus, to solve it is to USE TAXPAYER money to force them to BUY these debt at a much higher price than the market would. And in addition, create new accounting rules so that these assets can be revalued to whatever value the "banks" deemed they to be (based on PHD-style models) and/or move them off to another balance sheet hidden from the public and "guaranteed" by the government. And of course, reward the bankers with more bonuses too.

All they are doing is just hide the problem or force it onto others. It does not solve anything.

You already said it too, the banks that are broke should be MADE to go broke. Unfortunately, that is not happening right now.

If you read the financial statements from those very banks who are holding these toxic debt, you would have find them pretty much TECHNICALLY INSOLVENT since 2007. That is if you used the precious accounting rules and did not include any of the "government intervention" policies to hide those debts. Those banks are still heavily leveraged that any write down based on REAL market value would immediately bankrupt them.

In essential, we already have zombie banks because they still have too much toxic debt with them. Exactly what the Japanese banks are in right now. They wouldn't write down the losses in their book.


So let me conclude this. I agree with everything you've said in your previous post, except the part where you think the government should step in and "ease" the downturn and make people suffer less.

Unfortunately, they are making it WORSE because they are only delaying the inevitable. Using taxpayers' money to soften the losses from the banks means they are using FUTURE resources to solve today's problems.

And since the US government is already broke and they must sell more bonds or print money to keep the interventions up. There are simply TOO MUCH debt in the system that needs to be removed.

Either the world will suffer an immediate greater depression or an extremely prolonged greater recession/depression span over a decade or two. NEITHER options can be avoided DESPITE what the mainstream economists are telling you.

If anyone here thinks we will get out of this with government interventions, and that we will experience pre-bust growth rate (4% p.a.+) in 2 years time or so (expected by Rudd government in their latest budget forecast), then they really have underestimate the seriousness of the situation out there.

To me the Austrians are a an extreme form of traditional economists, not really a new strand but a substrand who believe despite evidence to the contrary that governments have no good effect on economies. They do! Public consumption and taxes do have an effect and to say the government should be tiny and try to ignore it doesn't in my mind answer everything.

They also say all the bad things happening are due to government intervention which is what the traditional economists think when in fact they are due to government abrogating their role to make and enforce laws to control bad behaviour and perform some regulation of financial entities. Bush got rid of many of the laws that were put in after the Great Depression because he and his foolish economists believed the market will act rationally. How wrong was he?

If you look at history, the President in the USA did very little for the first 2 years of the depression and let it get worse.

An uncontrolled depression could last 20 years. Earlier MRC & Co mentioned the multiplier effect. In a Depression it becomes the opposite, a divider effect.
I agree that governments can't hold it up but they can cushion the effects, especially if they had of being run in surplus. Unfortunately most haven't been so it has got much harder.

I think of government intervention - DONE Properly - like Tamiflu for the flu. It will lessen the effects of the sickness and may speed up the recovery. We have to go through the sickeness to clean out the financial system unfortunately.

I agree the money is not being spent as well as it should and people in the US government seem to be doing their best to help vested powerful interests instead of spending the money wisely. They should have been spending the money at a lower level and let the finaciers go to hell. They are starting to realise that at present and are changing tack. I don't see why the government can't moderate a recession. The economy is made up of a lot of feedback loops and as an engineer I know that damping of the system can stop runaway. That is what a depression would be, runaway. The Austrian route would lead to socialism.

History doesn't repeat but is sure does rhyme - Mark Twain

 

[Buckeroo]

Nicely rounded up Temjin.

Obviously, as has been in the last 12 months, there are two camps on how to fix this mess. Interventionists & Market believers.

At the moment, the interventionists have the court, but I hope our leaders eventually wake up & allow the market to correct the past excesses regardless of consequence. I don't see any other way back.

During the last depression Knobby22, capitalism didn't die and democratic countries didn't revolt. In hard times, societies like ours pull together & help each other out.

Where as Socialism & communism is a creeping disease that spreads via Government mis-information and buying up or controlling important institutions. The propping up of insolvent individuals is also beginning to happen (unemployed people with mortgages) and their vote in the next election is thus given for fear of financial collapse.

Cheers

 

[Buckeroo]

I think of government intervention - DONE Properly - like Tamiflu for the flu. It will lessen the effects of the sickness and may speed up the recovery. We have to go through the sickeness to clean out the financial system unfortunately.

Bad analogy there Knobby22 - I heard Tamiflu is becoming less affective - its pretty close to useless now & we are stuck with the bill for the 15 million doses still in storage. No sign of recovery either.

Cheers

 

[Knobby22]

But Government did intervene, Buckaroo. It was called the New Deal. And Australia has similar programs. It had faults but it did help.

From 1933 to 1936 President Roosevelt argued a reconstruction of the economy would be needed to prevent another, or avoid prolonging, the current depression. New Deal programs, such as the National Recovery Administration (NRA), sought to stimulate demand and provide work and relief for the impoverished through increased government spending. A series of panels comprising business leaders in each industry set regulations which ended what was called "cut-throat competition," which kept forcing up prices and profits for everyone.[8]

The NRA, which ended in 1939, had these roles:[9]

Setting maximum prices and wages and competitive conditions in all industries. (NRA)
Encouraging unions that would raise wages, to 93% increase the purchasing power of the working class. (NRA)
Cutting farm production so as to raise prices and make it possible to earn a living in farming (done by the AAA and successor farm programs).
These reforms (together with relief and recover measures) are called by historians the First New Deal. It was centered around the use of an alphabet soup of agencies set up in 1933 and 1934, along with the use of previous agencies such as the Reconstruction Finance Corporation, to regulate and stimulate the economy. By 1935, the "Second New Deal" added social security; the Works Progress Administration (WPA), a national relief agency; and, through the National Labor Relations Board, a strong stimulus to the growth of labor unions. Unemployment fell by two-thirds in Roosevelt's first term (from 25% to 9%, 1933 to 1937) but then remained high until 1942.[10]

 

[MRC & Co]

Yeh, I agree with nearly all you say Knobby.

'Free markets', do not work. There was too much freedom allowed in this mess, which is what caused it in the first place. But it is very hard to find any kind of balance, regulatory authorities really do need to be more proactive, automomous and dynamic.

 

[It's Snake Pliskin]

Yeh, I agree with nearly all you say Knobby.

'Free markets', do not work. There was too much freedom allowed in this mess, which is what caused it in the first place. But it is very hard to find any kind of balance, regulatory authorities really do need to be more proactive, automomous and dynamic.

MRC,
To what extent do you feel government control should be allowed in a general sense?

 

[Sean K]

Yeh, I agree with nearly all you say Knobby.

'Free markets', do not work. There was too much freedom allowed in this mess, which is what caused it in the first place. But it is very hard to find any kind of balance, regulatory authorities really do need to be more proactive, automomous and dynamic.

The Fed leaving interest rates at extremely low levels for too long might not have helped but.

 

[MRC & Co]

MRC,
To what extent do you feel government control should be allowed in a general sense?

Obviously the collection of taxes and distribution of public goods.

But the main Government intervention as far as the financial sector, should be in the control of bubbles. The derivative and credit expansions are really the main problems here and could have/should have been contained in the first place.

Why weren't they contained? There is no excuse, except that guys like Greenspan believed that even after a bubble bursts, the economy would have generated enough growth (in the bubble phase) to offset the negative impact of that burst (at least that is how these guys justify it after the fact).

Then you have protectionism allowing 'sunrise' industries. Such as South Korea and their shipping industry. In a traditional sense, that would be blocking comparative advantage, but perhaps that is needed at times, if an economy has the potential to eventually hold a comparative advantage in a given industry.

In my opinion, there are many more reasons for Government intervention in an economy, but of course, there is also a fine line before you cross to the other end of the spectrum of too much intervention.

In the end though, there are multiple ways of a Government aiding to run an economy, the means and ends need to be determined by the society. Amongst it all, you have complex industrial relations systems, which can dramatically effect the entire process and outcome.

No right or wrong, but pure 'free markets' would be a disaster scenario IMO and is one reason this crisis crossed the point of no return.

Many I am sure will disagree, but I can't really be bothered debating it. Each to their own.

 

[Smurf1976]

Perhaps many didn't miss the signs at all, but it simply wasn't in their interests to warn people.

It's human nature that people tend to expect the recent past to continue into the indefinite future. We see that everywhere from whatever happens to be the current growth industry at a state / national level (mining boom will never end, house prices will keep rising at 10% pa foreve and so on) to personal situations.

Very few will, in any situation, predict a turn for the worse. Witness for example the outright denial of most over peak oil despite it having actually happened in a majority of oil producing countries. People don't like change and they especially don't like forecasting "bad" change no matter what the actual issue.

Ask most people what everyday life will be like in 50 years time and they'll predict a few technological advances but that's about it.

If you'd asked the same question 50 years ago then few would have predicted that casual employment, defacto relationships and obesity would be common in 2009 since all mark a major change from the prevailing situation in 1959. Even fewer would have predicted a black US president, Green politics or the increased acceptance of homosexuality.

Humans always seem to miss the major turning points.

 

[Buckeroo]

But Government did intervene, Buckaroo. It was called the New Deal. And Australia has similar programs. It had faults but it did help.

From 1933 to 1936 President Roosevelt argued a reconstruction of the economy would be needed to prevent another, or avoid prolonging, the current depression. New Deal programs, such as the National Recovery Administration (NRA), sought to stimulate demand and provide work and relief for the impoverished through increased government spending. A series of panels comprising business leaders in each industry set regulations which ended what was called "cut-throat competition," which kept forcing up prices and profits for everyone

Your right Knobby22, they did intervene eventually. But the difference is that the free market correction had already occurred. Bankruptcies had wiped out much of the debt, so by that stage, economies were ready for stimulus.

We still haven't got rid of the underlying causes of last years market fall - nothing has changed except higher Government debt.

That's why I reckon no one has yet come up with a viable exit plan except hope & pray that extraordinary economic growth occurs for the next 10 years.

Cheers