dagblog - Comments for "Monetary Power to The People"

Just fixed broken link

EmmaZahn — Wed, 01 Jun 2011 04:45:52 +0000

In reply to OK, thanks. That's thought

Just fixed broken link --nothing new

Sorry it has taken so long to get back to you. Had some personal stuff to take care of and then blogger ate my homework. Glad to see you all continued without me. :)

My initial thought was that the chief differences between then and now are demographics and timing. Early boomers were just reaching mid-life and beginning to think about saving for retirement and a 20+ year bear market bottomed out:

A couple of investment discussions among institutional investors were memorable. Then at least, they thought long-term 30+ years out, especially the pension funds. The healthcare sector* was expected to do well as were technology stocks including or maybe especially biotech. There was some excitement in telecommunications too about what breaking up AT&T might mean.

Lots of creative destruction in real time. And it was not just new stocks in which to invest but new mediums as well. Fidelity Select began offering sector funds and index derivatives were just beginning. Technical analysis with its emphasis on market timing offered both brokers and professional investors a rationale to invest in more and more volatile products. And the deadly combo of index derivatives and programmed trading was being born.

Enough nostalgia for now. Almost. While surfing around to refresh my memory I realized Reagan* was maybe right: 1984 was Morning in America. A bright new dawn after the long-fitful night that was the 60s and 70s. Found this discussion as a sort of backup to that claim. Revisiting 1984 at kottke.org.

*Always remember: there is a reason companies prefer former cheerleaders to staff their marketing and sales departments.

I see us transitioning onward

EmmaZahn — Sat, 14 May 2011 03:35:14 +0000

In reply to Emma,I am curious, what type

I see us transitioning onward to complete state finance capitalism not that that is my preference.

For a variety of reasons I am quite alone just now and a few months ago I realized that between my automatic bill pays, direct deposits and overdraft protections, it might be years before anyone found me dead. Meanwhile those who profit from me now would continue to do so. They really do not need the actual me at all. They just need the flow of my funds. Surreal, no?

These guys could care less whether or not we have jobs as long as we have incomes they can financialize and monetize. There is a lesson for us there if we pay close enough attention.

Emma,I am curious, what type

Saladin — Sat, 14 May 2011 01:59:07 +0000

In reply to Oy! Can I get back to you?

Emma,

I am curious, what type of economy do you see us transitioning to?

I think the traditional

Saladin — Sat, 14 May 2011 01:58:08 +0000

In reply to OK, thanks. That's thought

I think the traditional economics answer is that the recession in 83 was induced by the Fed when Volker raised interest rates to quell inflation. This choked off credit, but as the Fed lowered inflation everybody went back to work relatively quickly. This time the catalyst was a massive worldwide financial crisis that has come with a prolonged debt overhang (housing is huge componet of our economy, although our overhang extends to all forms of credit). This will take much longer to work out, and nobody is really sure. Even the most optimistic economists understand that housing/real estate will continue to fall for some time (without inflation), they need to return to affordable rates. We are more like 1935, than 1983, and it was the late 40's before household's had accumalted enough savings to spend on consumer goods again (with the WW2stimulus inbetween).

Inflating our way out of the debt might actually be a viable solution, but, as Emma points out, the current difficulty of getting money to circulate in our topdown fractional reseve model is preventing the effectiveness of any Monetary expansion. You need to increase Agregate Demand, and that is where some of the other unorthodox solutions might work (like having the fed send money directly to households), this would solve the problem of leakages to foreign markets (where QE2 has lead to inflation) and corporations simply sitting on cash. Alternatively you could set up an infrastructure bank as Donal would like, and than stuff it with cash. However that is poltiically very difficult, as congress appears unwilling to give up the power of the purse strings. But many economists think very highly of an infrastructure bank.

I think that Emma is right to point out the demographic difference between now and the 80's. Babyboomers were just starting to hit peak earning years, and they were not burdened by debt. (in contrast to Today's echoboomers). The Computer productivity revolution was just getting going, today computers remember everybodies debt forever, and the easy productivity gains have evaporated. The internet has not actually created many jobs.

I would go farther and state that many new upper class jobs are things that actually add siphon off productivity, rather than creating them, think of scores of well paid bankers,consultants, lawyers, etc. They are basically well paid middleman. They make more money by controlling information, creating barriers that you need them to navigate, raising costs--frankly not really delivering much value. They are scores of examples, but the financial innovation sector is by far the most dangerous, and it touches everything. Our system requires it for nearly everything, and they know it.

To return to C's orginal article, I think he introduces an important philosophical point. If we don't believe in democracy enough that we can trust it to handle our economic system, maybe we should reevaluate.

The Economist says we'd

Donal — Fri, 06 May 2011 15:11:13 +0000

In reply to Sure, and had they nuked

The Economist says we'd better find the money somewhere. An Infrastructure Bank like the EIB is a possibility.

Sure, and had they nuked

Michael Wolraich — Fri, 06 May 2011 14:34:59 +0000

In reply to Unfortunately QE2 is driving

Sure, and had they nuked Pakistan, they could have killed Osama 8 years ago.

As I wrote before, go find me a serious economist who thinks that it would be a good idea for the government to print more money to fund infrastructure projects.

Unfortunately QE2 is driving

Donal — Fri, 06 May 2011 13:50:18 +0000

In reply to Yes, the -10 percent

Unfortunately QE2 is driving inflation, or speculation, overseas more than here. Had they printed money to work on our infrastructure instead, we could have put people to work and bypassed the banks that would rather speculate than lend.

Btw, what people are calling

Michael Wolraich — Fri, 06 May 2011 13:04:06 +0000

In reply to Well, I'm guessing that -10%

Btw, what people are calling wage deflation is not the same as deflation. It basically means falling wages relative to the inflation rate. Usually, that happens when wages stagnate and so don't keep up with the rate of inflation. With high inflation, you could have wages that are going up and yet still have wage deflation.

Yes, the -10 percent

Michael Wolraich — Fri, 06 May 2011 12:55:09 +0000

In reply to Well, I'm guessing that -10%

Yes, the -10 percent inflation rate during the Great Depression represents the most severe deflationary spiral the U.S. has experienced in 100 years, probably ever.

The current U.S. inflation rate is 2.7, up from around 1 percent last fall and buoyed, as some have noted, by QE2. At the peak of the recession in summer 2009, it was around -2 percent.

My original point was that printing additional currency is very inflationary. Clearly, the U.S. needs some inflationary pressure. That's why the Fed executed QE2. But printing money is a very blunt instrument for achieving that, and it can have very bad consequences.

Well, I'm guessing that -10%

Donal — Fri, 06 May 2011 12:17:17 +0000

In reply to Right, but the point is that

Well, I'm guessing that -10% inflation is the same as deflation, and as others have noted, though the official line is that we are in inflation right now, we actually have a lot of wage deflation.