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kevin1981
2011-Nov-30, 07:19 PM
Before i ask some questions about the world financial crisis, which is going on at the moment, I would like to know how
it started.

I have very limited knowledge as i have not really looked into it in much detail. What i sort of know is, banks stopped lending to each
other and the U.K tax payers brought out Northern Rock. A big company in America, which i have forgotten the name, started it
all off.

The "banking crisis" started around 2008 ish, why did it start and what happened ?

Thanks.

PraedSt
2011-Nov-30, 07:42 PM
The company in America was Lehman Brothers. Its collapse caused/had nothing to do with/triggered/accelerated (depending who you talk to) the crisis. It collapsed because most of its assets lost value; and since many other banks had the same, or similar types of assets on their books, no-one wanted to lend them money because they were worried they wouldn't get it back. Hence, banking crisis.

peteshimmon
2011-Nov-30, 08:13 PM
In the beginning the Earth cooled...

profloater
2011-Nov-30, 09:01 PM
In the old days banks took deposits and lent them very carefully to businesses and house buyers in their neighbourhood. They were annoyingly cautious and expected borrowers to have good jobs and reputations. Then banks discovered they could make much more money by investing in other countries where they had no control. Next they found they could find other banks often in other countries, who would actually buy the debts they were holding for more money than they expected to earn from those debts. That was very clever. Then doubts crept in and some of the old fashioned cautious types asked for their money back and discovered it was all tied up in complicated deals. Some of it had been lent to people who could never possibly pay it back. That was 2008, its still the same today only more people are worrying about it now.

PraedSt
2011-Nov-30, 09:08 PM
Clarke and Dawe explain it better than anyone. They're talking about Europe here, but you can generalize to banks and over-spending credit card holders with no loss of accuracy.

http://www.youtube.com/watch?v=tfbIZ1L9z3c

jfribrg
2011-Nov-30, 09:08 PM
The timing of this thread is very interesting because just today I was searching for a book to explain what happened. We probably need to let more time pass before a consensus will be formed about what exactly caused the crisis, but there were many different companies/people/organizations who bear some responsibility. It also seems that there are many politically motivated accounts of the crisis. These accounts are usually simplified and distorted to show one particular organization (usually one of the two major US political parties) caused all of the problems despite the valiant efforts of another organization ( usually the other major US political party). The reality is that there is a tremendous amount of blame to go around. I did hear good things about the book Too Big to Fail (http://www.amazon.com/Too-Big-Fail-Washington-FinancialSystem--/dp/0143120271/ref=sr_1_1?ie=UTF8&qid=1322687253&sr=8-1).

publius
2011-Nov-30, 09:28 PM
What's the root cause of it. This:

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=TCMDO&scale=Left&range=Max&cosd=1949-10-01&coed=2011-04-01&line_color=%230000ff&link_values=false&line_style=Solid&mark_type=NONE&mw=4&lw=1&ost=-99999&oet=99999&mma=0&fml=a&fq=Quarterly%2C+End+of+Period&fam=avg&fgst=lin&transformation=lin&vintage_date=2011-11-30&revision_date=2011-11-30

Rate of change:

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=TCMDO&scale=Left&range=Max&cosd=1949-10-01&coed=2011-04-01&line_color=%230000ff&link_values=false&line_style=Solid&mark_type=NONE&mw=4&lw=1&ost=-99999&oet=99999&mma=0&fml=a&fq=Quarterly%2C+End+of+Period&fam=avg&fgst=lin&transformation=pc1&vintage_date=2011-11-30&revision_date=2011-11-30

which when compared to GDP growth, produced this:

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&id=TCMDO_GDP&scale=Left&range=Max&cosd=1947-01-01&coed=2011-07-01&line_color=%230000ff&link_values=false&line_style=Solid&mark_type=NONE&mw=4&lw=1&ost=-99999&oet=99999&mma=0&fml=a%2Fb%2A100&fq=Quarterly&fam=avg&fgst=lin&transformation=lin_lin&vintage_date=2011-11-30_2011-11-30&revision_date=2011-11-30_2011-11-30

Torsten
2011-Nov-30, 09:38 PM
Clarke and Dawe explain it better than anyone. They're talking about Europe here, but you can generalize to banks and over-spending credit card holders with no loss of accuracy.

http://www.youtube.com/watch?v=tfbIZ1L9z3c

:)

From late 2008, Bird and Fortune explore investment banking in George Parr - Subprime (http://www.dailymotion.com/swf/k2GEzYKbv1P6IUHSpY)

profloater
2011-Nov-30, 11:17 PM
so you see clever people work out how to make money from most of the other people and they will get away with it. Now we are in a period where hard work will help to pay off past borrowing and "welfare" will get harder to find. The big institutions will crumble and hard working individuals will get by. Democracy will be challenged for its built in short termism but nothing there will change. People will work for themselves instead of for big corporations. Secular society will come into conflict with belief systems. In the past these conflicts led to wars but now it will lead to a feeling of the individual against the system, aided by the new communication media. Cynicism with institutions will lead to more self reliance and more pathetic failures. It will be tough but there are opportunities for enterprise at the individual level. Large organisations will break down into smaller units. more competition. It will become difficult to trust the state. City states will re-emerge as the logical focus for loyalty. City politics will become more important than national. Or I could be wrong. We will live as the chinese curse says, in a time of interesting change.

kevin1981
2011-Dec-01, 01:43 AM
In the old days banks took deposits and lent them very carefully to businesses and house buyers in their neighbourhood. They were annoyingly cautious and expected borrowers to have good jobs and reputations. Then banks discovered they could make much more money by investing in other countries where they had no control. Next they found they could find other banks often in other countries, who would actually buy the debts they were holding for more money than they expected to earn from those debts. That was very clever. Then doubts crept in and some of the old fashioned cautious types asked for their money back and discovered it was all tied up in complicated deals. Some of it had been lent to people who could never possibly pay it back. That was 2008, its still the same today only more people are worrying about it now.

That makes a lot of sense, cheers. Basically then, banks lent people money. Other banks brought the debts, thinking they could get the money back and still make a profit, everybody wins. But, when the banks started to want the money back, people did not have it, so there was a collapse. And this has happened world wide.

My next question was about the financial problems at the moment. I heard on t.v, that, these are unprecedented times. Why, are we in big
trouble?

Though, this pretty much answers it ! http://www.youtube.com/watch?v=tfbIZ1L9z3c

Cougar
2011-Dec-01, 03:53 AM
Basically then, banks lent people money.....

Well, you're missing a component. Banks lent people money to buy a house. The bank essentially bought the house on the promise the people would pay it off (plus a bundle of interest). Then, due to a relaxing of regulations, there was a lot of transferring and re-packaging of that same loan among the banks and other "players" around the world. Reportedly, packages of poorly qualified loans were fraudulently sold as solid loans. Banks started ending up with a lot of houses when the poorly qualified people couldn't keep up with their house payments and stopped paying altogether. Was that what burst the housing bubble? That's what really sent the banks reeling, not to mention people who recently bought houses.

kevin1981
2011-Dec-01, 04:49 AM
Thanks. I do understand banks were lending people money for houses. So i understand better now about why banks went bust, the
borrowers could not pay back the lenders, in short.(I know it is a little more detailed but i do not want to keep repeating what i have already said)

EDIT: I see, and, the banks are left with houses that have gone down in value, so when sold on,(if they can sell them) they are
making a loss.

So what is happening with the world economy at the moment? Banks are not lending to each other at the moment, why ? Growth in major
economy's has slowed, the eurozone looks to be rocky, Greece, Italy, Ireland and probably others owe billions to each other...

What is going on and why is it unprecedented ?

kevin1981
2011-Dec-01, 05:16 AM
The company in America was Lehman Brothers. Its collapse caused/had nothing to do with/triggered/accelerated (depending who you talk to) the crisis. It collapsed because most of its assets lost value; and since many other banks had the same, or similar types of assets on their books, no-one wanted to lend them money because they were worried they wouldn't get it back. Hence, banking crisis.

I missed this earlier. The assets being, houses ? Or a better name would be "Mortgage deals"?

PraedSt
2011-Dec-01, 05:37 AM
Yes, mortgages.



So what is happening with the world economy at the moment? Banks are not lending to each other at the moment, why ? Growth in major
economy's has slowed, the eurozone looks to be rocky, Greece, Italy, Ireland and probably others owe billions to each other...

What is going on and why is it unprecedented ?The first asset to cause problems were mortgages. The assets that are causing problems now are government bonds. Specifically European government bonds. Same reason- borrowed too much, can't pay back.

This crisis isn't really unprecedented. For our generation perhaps, but if you have a quick look at world economic history you'll find its happened many times before.

publius
2011-Dec-01, 05:49 AM
This crisis isn't really unprecedented. For our generation perhaps, but if you have a quick look at world economic history you'll find its happened many times before.

"No one could have foreseen", they like to say to alleviate blame. :lol: Those who don't study history are doomed to repeat it, or however it goes. There's a book I think I've mentioned before entitled "This Time It Will Be Different: 8 Centuries of Financial Folly" or something like that. Doing the same thing over and over again expecting different results. (It's a generational thing, really. One generation learns that fire will burn and it hurts, and learns their lesson. But they die off and that lesson is lost on their children and especially the grandchildren, who, not knowing failure and ruin, go off playing with fire again).

The last time it happened was in the '30s and known as the Great Depression. The oft heard and paraphrased line "I've got some swampland in Florida" comes from the real estate fraud boom back in the '20s.

To the OP, as I tried to illustate with the FRED graphs, the problem is debt. For 20-30 years, we went on a debt boom of living beyond our means fueled by cheap credit. Debt was growing much faster than GDP (production) and that is unsustainable. It will come to an end at some point. And that point is now upon us.

The ridiculous housing bubble was sort of the last hurrah, the last orgy of that debt decadence. And now governments are being consumed by the same fire.

HenrikOlsen
2011-Dec-01, 11:10 AM
Thanks. I do understand banks were lending people money for houses. So i understand better now about why banks went bust, the
borrowers could not pay back the lenders, in short.(I know it is a little more detailed but i do not want to keep repeating what i have already said)

EDIT: I see, and, the banks are left with houses that have gone down in value, so when sold on,(if they can sell them) they are
making a loss.
Plus the complication, at least the way it was done in the US, that because the bank had sold the loan to another bank, they didn't actually have a legal right to take the house anymore in case of a default because that right was sold along with the loan, and that the house"owner", even after the loan was paid back in full, didn't actually get the rights to his house back because they'd been sold off to someone other than the ones he'd been paying to.

BTW, that stuff about the bad loans being fraudulently sold off as good, the buyers of those loans were to a large extent in good faith as the packaged loans where top-rated by the same Moody's, S&P, etc. that people are still looking to for knowing what's good credit, even though their disastrously bad judgment then was a large part of what led the banks to dig themselves into such deep holes.

Delvo
2011-Dec-01, 11:11 AM
the borrowers could not pay back the lenders, in short....which leads to the questions of why they were borrowing more than they could pay back, and why lenders would lend them money that wouldn't be paid back. For the first question, the easy answer is that people get greedy and will often try to get more stuff than they should/can. But part of the problem also has been that they were tricked into thinking they could afford more than they could, and in some ways it was ironically the lenders who were doing it, which leads back to the second question I just mentioned above anyway: why in the world would they want to give away money that they won't get back? It wasn't once so easy to get a loan bigger than you could pay back. Lenders knew how to tell how likely someone was to pay it back and wouldn't make loans that they'd lose money on. This resulted in some people not being able to get one, or only being able to get a small one. Usually, those were poor people (which also means they were disproportionately likely not to be white). To try to help the poor (and the un-white) become home owners more easily, government decided to change things to make lenders more likely to give them bigger loans, partly by issuing direct orders/regulations about it and partly by essentially pitching in on bad mortgages and backing them so the lenders wouldn't worry about losing money when borrowers defaulted. So standards were lowered and more people could borrow more money even though their ability to pay back hadn't increased. This set off a positive feedback reaction, in which the increased demand for houses caused prices to go up, which caused more lowering of standards to help people get loans to cover the higher prices, which led to increased demand, which caused prices to go up, which caused more lowering of standards to help people get loans to cover the higher prices, which led to increased demand...


So what is happening with the world economy at the moment? Banks are not lending to each other at the moment, why ?It's not just home loans. That's the most prominent example, but similar things have been happening throughout the borrowing-&-lending world. Businesses also get mortgages for land and buildings, and those have shown a trend similar to the one in home loans. More and more stuff every year is bought with credit cards, and credit cards are a form of personal loan, but much easier to get and excessively run up (and with no collateral property the lender could seize in case of non-repayment). Students routinely run up large student loans, which are notorious for their easy, generous repayment terms and inadequate enforcement of repayment obligations. And a lot of governments have spent decades spending more money than was in their budgets, and the mechanisms by which they've done so are different but still work effectively the same as a loan (and part of it is by selling bonds, which is borrowing from the bond buyer, pretty literally).

And those various kinds of "bad debt" (loans that would eventually turn out to not be paid off or to be paid off too slowly) are behind other kinds of deals & trades in the "finance" world, where the things that are being bought and sold are often just prior contracts such as loans, or promises to pay some amount of money later, instead of actual merchandise or services that such loans were originally used for. Imagine A agreeing to pay B at some later time for a house or a bike or an apple or whatever... then B making a deal with C based on that agreement with A, in the form of "if you give me some money now, I'll give you the money from A when A pays me"... then C selling a similar agreement to D, and so on. So if A doesn't pay B, it sets off a chain reaction of other non-payments in other contracts down the line. When all of a market's investments and trades have things like this woven into them and nobody can trace them back in a way that separates the ones based on good original loans from the ones based on bad original loans, it makes all investments or trades look bad, because they're all subject to turning out to have no value if A doesn't pay B for the original loan.

Heid the Ba'
2011-Dec-01, 01:59 PM
, Greece, Italy, Ireland and probably others owe billions to each other...


Not to each other, (http://www.bbc.co.uk/news/business-15748696)that is why France and others get dragged down.

HenrikOlsen
2011-Dec-01, 02:30 PM
Greece, Italy, Ireland and probably others owe billions to each other...
The acronym used to be PIIGS: Portugal, Italy, Ireland, Greece and Spain, and it's not just to each other, it's to everyone.

Just like the banks owe billions to the other banks (amongst other ways, by the banks owning stock in the other banks) it a disturbingly incestuous mesh of circular interdependencies.

kevin1981
2011-Dec-01, 02:37 PM
Interesting stuff. It sounds like a bit of a mess. Will it eventually even out ? I am looking for a job at the moment but there is not a lot
about and the jobs i go for, 20 to 30 people are going for the same one.

Daffy
2011-Dec-01, 02:48 PM
One aspect that doesn't get talked about much is that many lenders wanted to foreclose, since they (like many people) assumed prices would continue to rise indefinitely. They used deceptive fine print to issue loans they absolutely knew would end up in foreclosure---then when the housing bubble burst they stood there looking all wide eyed and innocent. For example, I saw one loan that said it was fixed for 7 years, when in fact the fine print said 2---after two years the person's payment jumped from $1,700 to almost $4,000. This barely legal practice was rampant and hardly anyone talks about it.

Swift
2011-Dec-01, 03:22 PM
<snip>
Usually, those were poor people (which also means they were disproportionately likely not to be white). To try to help the poor (and the un-white)
This is an extremely borderline topic for BAUT, because it is so tightly linked to political and social issues. Please try to avoid those aspects as much as possible and please keep this thread as polite as possible. I don't know the intent behind a term like "un-white", but it seems to be a non-polite of phrasing this. Please, everyone, take great care in what you post or we will have to close this thread

HenrikOlsen
2011-Dec-02, 12:19 PM
The regulation Dalvo was alluding to was the result of unfortunate consequences of one of the practices for making credit evaluation easier for lenders.
Geographically a city would be divided into rich and poor areas and people living in a poor area would simply be denied loans because of that fact alone. Due to general city demographics, this resulted in a color-bias in who could get loans which was a large part of why that practice was deemed illegal.
This opened up a large group of people who were really bad risks, at the same time as the credit rating agencies started gilding turds by giving excellent ratings to repackaged high-risk loans, which meant a combination of an influx of bad lenders at the same time as the expansion of a way to safely pass on the risk of their loans to others.

To be frank, there are very few benefits and vast drawbacks for poor people getting loans. Unless it's a loan to start (or expand) a business, the only result is to make their poverty worse.

kevin1981
2011-Dec-02, 05:57 PM
Thanks people, i learnt a lot from this thread.

PraedSt
2011-Dec-02, 07:00 PM
Interesting stuff. It sounds like a bit of a mess. Will it eventually even out ? I am looking for a job at the moment but there is not a lot
about and the jobs i go for, 20 to 30 people are going for the same one.What are you looking for? Have you tried abroad?

Argos
2011-Dec-02, 07:48 PM
'World crisis' is a bit of a stretch. Rigorously, it is a US-Euro crisis.

Grey
2011-Dec-02, 08:28 PM
If you've got some time on your hands, you could read the thread here (http://www.bautforum.com/showthread.php/78866-Is-today-black-Monday) and its successor thread here (http://www.bautforum.com/showthread.php/123950-Black-Monday-2-Economic-Boogaloo), and get some excellent commentary on what's been going on in the world in the past three years or so.

Ronald Brak
2011-Dec-03, 12:57 AM
Kevin, the details of the financial crisis are pretty complex, and I certainly don't understand them. But an interesting question to ask is why did it have such a large effect when, unlike a natural disaster or a war, no factories, homes, or businesses were physically destroyed and no workers were killed? Why did people who had nothing to do with the crisis lose their jobs? Well, it seems that a lot of the problems caused by the crisis could have been avoided. Australia was the only developed country that managed to avoid a recession as the result of the financial crises. Some people have said that this is because of Australia's mining industry, but this isn't true as the mining sector had a larger downturn than the rest of the economy. The reason why is because Australia had the largest stimulus in relation to the economic problem it faced of any developed country. The government gave almost everybody free money. I got $900. This wasn't a tax credit or anything like that, it was just $900 given to me. And the government also spent money on building infrastructure. This stimulus was enough to prevent Australia falling into a rut and Australia is still doing well compared to every other developed country. So it seems clear that while the financial crisis would have caused unavoided disruption in financial markets, it didn't have to result in such high levels of unemployment in most of the developed world.

publius
2011-Dec-03, 01:22 AM
And Australia has some of the lowest debt to GDP ratios. Private debt to GDP is probably around 150 - 160% and public debt to GDP is what, 20% or so. My position is that stimulus might work in a regular recession, but it will utterly fail when you've hit the debt wall. Australia hasn't gone Ponzi (at least in the aggregate) as all the rest of us did.

Incidently that 150% total debt to GDP seems to be the stable mark. We went Ponzi in the 20s, with total debt to GDP peaking at 300% in the early 30s. The Great Depression destroyed that debt with much weeping, wailing, and gnashing of teeth. Even with the build of public debt in WWII, private debt was still coming down, and total debt to GDP stabilized at around 150% from the 50s until the 80s. Then we went Ponzi again, with debt to GDP peaking at a whopping 360%.

That is the root of the problem, growing debt faster than GDP. That is unsustainable. It went on for nearly 30 years, but no matter, it will always end badly. Mathematically, it has to.

publius
2011-Dec-03, 01:35 AM
To be frank, there are very few benefits and vast drawbacks for poor people getting loans. Unless it's a loan to start (or expand) a business, the only result is to make their poverty worse.

What goes on there is a conflating of cause and effect. The affluence of the middle class is an effect, not a cause. Some assumed if you just give the poor the trappings of middle class life, they become middle class, and I remember seeing that thinking articulated a lot in various ways. It is not so, and a deadly fallacy.

That fallacy is based on the idea, true as it goes, that there is no innate difference between a middle class baby and a poor baby. Swap babies at birth and the poor baby would grow up as middle class, and the middle class born baby would grow up as poor. True enough, most likely, but what they fail to see, is there a lot more going on in the middle class environment than just the trappings of affluence, such as nice houses and material comfort.

Ronald Brak
2011-Dec-03, 02:32 AM
And Australia has some of the lowest debt to GDP ratios. Private debt to GDP is probably around 150 - 160% and public debt to GDP is what, 20% or so. My position is that stimulus might work in a regular recession, but it will utterly fail when you've hit the debt wall. Australia hasn't gone Ponzi (at least in the aggregate) as all the rest of us did.

This doesn't make sense. Japan, Germany, Switzerland and other creditor nations suffered recessions as a result of the financial crises and when the financial crisis occured US external debt was about 95% of GDP and Australia's external debt was about 95% of GDP.

publius
2011-Dec-03, 03:57 AM
We're talking apples and oranges now. That figure of 95% is gross external debt. That is the total of liabilities to foreigners. It doesn't include assets from foreigners. Better for what that measures is net position. As of '09, I think Australia's net position, was -60ish% of GDP. The corresponding figure for the US was a meager -17% of GDP as of '09. US was much better than Australia on that measure. And Japan and Germany would show up as creditors, +60% and +40% respectively.

But again, that's apples and oranges. Gross and net external positions are measure of who one owes debt to who, relative to national borders. Consider the whole world as a closed system. Unless there are aliens we're secretly trading with, the world's net external position is 0% of GDP, or GWP, I should say. Yet the world is definitely in a debt crisis. It doesn't matter if an over-indebted entity owes a foreigner or his next door neighbor, he still owes wads of money that he can't repay.

The debt I'm talking about is the total wads of money one owes to GDP, not who owes whom and whether that is internal or external. On that measure Australia is good, US and Europe bad. Japan is bad too.

Consider country A. Why heck it could have gross external debt of 100% GDP, but is owed 120% of GDP by everybody else, making it's net position +20% GDP. Whoopee, it's a creditor nation. But then we look at it's total debt to GDP is 300%. On the whole foreigners owe them more than they owe foreigners, but each component is large, and on the whole, they owe a crapload in toto to everybody and each other.

But consider country B. Say it has a gross external debt of 100% of GDP, and is owed only 50% of GDP by foreigners, making it a -50% net position. Bad debtor nation. But it's total debt to GDP is only 150%.

Country A has far more debt than country B, even though country A is a net creditor and country B is big net debtor in external terms.

What matters for the question of whether there is too much debt in the system is the total debt, not who it is owed to.

publius
2011-Dec-03, 04:16 AM
And and as far as gross and net debt goes, there's an old saying that in a debt crisis/panic, gross becomes net. Suppose I'm Too Big to Fail Bank A. Suppose I've got wads of loans on my asset side, and wads of deposits and bonds on my liability side. My gross external debt, what I owe others is high. But my gross external assets, what others owe me is high as well. And suppose I've got a good capital ratio and all that. On paper, I'm very solvent, my net position is good.

Now it all goes to hell in a crash and crisis. All those assets I've got on paper, which is what others owe me, is now worthless, as they can't repay. That means I can't repay either. My net liabilities are now my gross liabilities. :lol: The people I owe money to are now themselves screwed, even though the various on-paper ratios said I was sitting pretty.

But now consider some podunk entity whose net position on paper is far worse than me. But he doesn't owe that much gross. When it all goes to hell, he may lose a lot, but he's far better off than me because his gross liabilities were far less than mine.

publius
2011-Dec-03, 06:52 AM
Here's a good page from the Economist on total debt of various OECD countries, with an interactive graphic. This went with a larger article, but since it was from over a year ago, the graphic links didn't work, and I found it as a separate page:

http://www.economist.com/blogs/buttonwood/2010/06/indebtedness_after_financial_crisis

Note they don't include Australia in the interactive graphic at all, and that's basically because there's no problem there. Further note they have total US debt to GDP at 300%, less than the peak of 360% in the above graphs from FRED I posted above. The difference is trying to subtract double counting that occurs in certain financial debt. While doing that correctly gets tricky, they are basically subtracting out ABS debt from the financial sector component. The rational is this. Suppose I borrow $100 from the bank, and the bank issues it's own debt to someone else to cover it in the form of an ABS. From the raw numbers, that would show up as $200 of total debt, ie I owe the bank $100 and the bank owes $100. But in reality, there is only $100 of debt because the bank just basically passed it on. If the bank outright sold the loan, it would only show up once, as $100.

So to be as accurate as possible, you've got to try to eliminate that double, and even multiple counting.

From that, you see that Japan is the worst, at a whopping 470% of GDP. The UK comes in second at 466%, and you see Euroland is all over 300%, with Germany just under that and just under the US at 286%.

Basically all of us debt sinners ran debt to GDP up from 200 to 300% since the mid 90s. Click on each and look at the rate of change as well as the total level. While Japan is ridiculously high, it has stablized somewhat since the mid 90s and the spectacular flameout. They built up quite a Ponzi, but managed to stop the growth of the Ponzi. They're just muddling along.

And look at Canada at 250%. They were stable as well. Look at the green countries (Australia would be very much in the green), which includes China. They are dead stable. Well, Russia has been growing, but the absolute level is nothing to worry about. You could say Russia has started going Ponzi, but isn't out of hand.

But look at all the others. The ratio has been increasing steadily. Spain is probably the worst, going from just over 150% around 2000 to 366%.

That's the active Ponzi indicator.

Consider Japan. They've tried stimulus after stimulus, and the BOJ has printed in turbo mode, but all they're doing is spinning their wheels, in the second lost decade. They've stopped the Ponzi (basically swapping private debt for govt debt, but with the total holding fairly constant), but the deadwood of the previous Ponzi is still there holding them down.

That's the best we can hope for, is to just muddle through for decades. That means the least pain at any given time, though. In the long run, a collapse would probably be better, because such a conflagration would burn away all the deadwood debt and finally allow true "green shoots" of real growth to emerge. As long as the deadwood is piled up, there will be no growth.

publius
2011-Dec-03, 06:59 AM
And finally, note their "debt unsustainability" table. All the countries at the top (PIIGS, US, UK, Japan) are the ones suffering the most. Note Australia is included in that table and is near the bottom.

Ronald Brak
2011-Dec-03, 09:50 AM
Thanks for the extensive replies. I now see you regard the total amount of debt liability as an important difference between Australia and the US. Australia's financial position was much less exposed than the United States and so we only expected roughly half the downturn that the United States was expected to have. However, Australia did not experience that downturn and we didn't have a recession. I'm sure this was because of the adequate stimulus stimulus Australia had. I can't imagine what else it could have been. And I think that if Australia had been more financially exposed and had been headed for a larger downturn then I think an appropriately larger stimulus would still have worked. I don't see why if x stimulus is effective against y downturn why 2x stimulus wouldn't be effective against 2y downturn. I don't see why it would only work up to a certain level and then stop. If Australia's exposure was twice what it was and everyone had recieved $1,800 instead of $900 and twice as much infrastructure had been built I don't see why that wouldn't have had twice the effect.

PraedSt
2011-Dec-03, 10:27 AM
I don't see why it would only work up to a certain level and then stop. If Australia's exposure was twice what it was and everyone had recieved $1,800 instead of $900 and twice as much infrastructure had been built I don't see why that wouldn't have had twice the effect.Two reasons it eventually stops. Stimulus is an increase in debt, so (1) the productivity of the extra debt declines with increasing debt and (2) it gets harder and harder to borrow, the more debt you already have.

HenrikOlsen
2011-Dec-03, 11:33 AM
Australia was the only developed country that managed to avoid a recession as the result of the financial crises.
Brazil?
China?

HenrikOlsen
2011-Dec-03, 11:58 AM
If Australia's exposure was twice what it was and everyone had recieved $1,800 instead of $900 and twice as much infrastructure had been built I don't see why that wouldn't have had twice the effect.
Because that doubling, when the money are invested in productivity, don't result in a doubling of increased profits (because the rest of the world isn't magically increasing their ability to use what's produced to follow), so the real result of double the money spent on stimulus is less than double the increase in income.
And because the money spent on stimulus are in effect effect borrowed, double the stimulus does mean double interest to be paid later from less than double the extra income.

In simple terms there's a break-even point of debt at which the interest on $1 of stimulus is the same as the increase in productivity.

PIIGS and the US have been way that point for a while but most are having trouble facing up to that reality.

And when the economic reality is such that the best use people have of stimulus money is to pay off debt rather than buy things, the productivity boost of stimulus is zero.
That's why helicoptering money in over a debt bound country will have very little effect other than devalue the currency. Which is another, gentler, way of defaulting on all debt.

Argos
2011-Dec-03, 02:08 PM
If you've got some time on your hands, you could read the thread here (http://www.bautforum.com/showthread.php/78866-Is-today-black-Monday) and its successor thread here (http://www.bautforum.com/showthread.php/123950-Black-Monday-2-Economic-Boogaloo), and get some excellent commentary on what's been going on in the world in the past three years or so.

You know, I travel [and live in a booming economy]. But thank you.

peteshimmon
2011-Dec-03, 02:52 PM
One point I dont see see made is all this
Keynesian stimulus gets used up in
the good times making them even better
good times. Then the slowdown comes as
it is bound to and nothing is available
except debts. You could say that things
are better all round because of the investment
that has happened but keeping things going
needs restraint from people. If every
country has borrowed then trade becomes
less unfortunately. Asking debt forgiveness
is not want those institutions and individuals
that loaned spare cash want to hear.

Still...less industrial activity means less
carbon emitted. Knew there was a silver
lining somewhere!

publius
2011-Dec-03, 11:15 PM
I don't see why if x stimulus is effective against y downturn why 2x stimulus wouldn't be effective against 2y downturn. I don't see why it would only work up to a certain level and then stop. If Australia's exposure was twice what it was and everyone had recieved $1,800 instead of $900 and twice as much infrastructure had been built I don't see why that wouldn't have had twice the effect.

I see others have nicely responded, but I'll add this.

Well, why do we expect anything to be nice and linear like that? If we've got evidence that something is linear, well there we go, and then if we have theory that predicts it to be linear, well, that's even better. But if we don't have the latter (which we never do in economics -- see "physics envy" someone called it, basically a soft science dependent on ultimately unpredictable human behavior pretending it is hard science like physics). Empirical evidence that something is linear in a certain range doesn't mean it's linear outside of that range, or even that it will remain linear within the range if we don't know all the variables at play. Some other variable could change and make it no longer linear.

Here's an article I remember reading and managed to find after hitting on the right Google terms, about just how *bad* macroeconomic modelling truly is:

http://american.com/archive/2011/september/the-soothsayers-of-macroeconometrics/article_print

He describes using macroeconomic models to predict the effects of fiscal policy as the equivalent of launching satellites with pre-Copernican models of celestial mechanics.

publius
2011-Dec-03, 11:33 PM
And that reminds of something else about how bad all these predictions can be. Note his criticism of the CBO and other official economic agencies, saying they should only predict what they can reasonably predict, and not even try the reading the tea leaves of macroeconomic effects of fiscal policy changes. IOW, the correct answer when a policy maker asks what will be the effect of x of stimulus on the economy, or what should x be if we want to correct a recession and/or get unemployment below y% should be "I'm sorry, but I can't make that prediction. I can tell you how that will likely effect our own budget position, but we have no reliable way of predicting the macroeconomic effect". And no politician wants to hear that, so they still flail around pretending they can answer such questions.

Anyway, did you know that back in 1999, the CBO predicted that by now, 2011, the US government would be running massive budget surpluses and would have paid down all outstanding debt that had matured? There would be $200B per year of surpluses by now, and with the only debt remaining a few hundred billion of long maturity bonds that hadn't matured. Because of that, the Fed was worrying about how they would conduct monetary policy post 2010 with no US debt to monetize, and was brainstorming new ways to do it.

In 1999, macroeconomic modelling said rather than a massive debt crisis, we'd have a massive surplus "crisis". What to do with all that excess money that would be rolling into the Treasury?

Ronald Brak
2011-Dec-03, 11:38 PM
Two reasons it eventually stops. Stimulus is an increase in debt, so (1) the productivity of the extra debt declines with increasing debt and (2) it gets harder and harder to borrow, the more debt you already have.

We had a stimulus in Australia to make up for the expected decrease in spending. I don't see why x stimulus in response to y expected downturn would be 'productive' in making up for that decrease in spending while 2x stimulus in response to 2y expected downturn would not be 'productive' in making up for that decrease. And if by productivity you mean doing more with the same imput, the stimulus didn't need to increase productivity to be effective, it just had to make up for the expected decrease in spending. It was designed to keep things as they were and stop the economy going backwards, not to move it forwards and improve its productivity.

You say stimulus is an increase in debt. Australia did increase its public debt to pay for its stimulus. But Australia was able to borrow that money very cheaply. Interest rates went down to 3% here and would have gone lower if the stimulus hadn't been successful and if the downturn had been larger that would have put even more pressure on decreasing interest rates. So borrowing money would not have been difficult even if the required stimulus had been considerably larger. Also, if Australia didn't want to borrow money to pay for the stimulus it didn't have to. It could simply have created the money. Now normally having the reserve bank create large amounts of money is inflationary, but every now and then, twice in the last 100 years, things are so bad that a considerable amount of money can be created without inflation resulting. The Great Depression was one of these times and the recent Global Financial Crisis was the other. And fortunately, if higher than desired inflation resulted from this, it could be stopped by reducing the stimulus. Reserve banks are allowed to do this. It's generally considered part of their job to stop inflation getting out of hand. So (1) difficulty in borrowing should not be a problem, and (2) if it was difficult to borrow for some reason, things were so bad that the money for the stimulus could have been created.

Ronald Brak
2011-Dec-03, 11:51 PM
Brazil?
China?

Well Brazil isn't isn't classified as having a 'high' HDI. It's not on the IMF list of 'Advanced Economies'. It's not a Development Assistance Commitee member. And it's not a high income OECD member. So I wouldn't say it's a developed country. But as there is no hard and fast definition of developed, if you say Brazil is developed I won't argue with you. But the citizens of China are appreciably worse off than the citizens of Brazil on average (particularly with regards to industrial pollution).

Personally I prefer the term 'rich nation' to 'developed nation' but just what a rich country is isn't clear either.

publius
2011-Dec-03, 11:56 PM
I don't see why x stimulus in response to y expected downturn would be 'productive' in making up for that decrease in spending while 2x stimulus in response to 2y expected downturn would not be 'productive' in making up for that decrease.

I've got a power transformer here rated 120:12V, 60Hz, 1KVA. It draws a minimal exciting current and the insulation is rated for 600V (and would probably stand up to 1kV in a pinch), so I don't see why I can't run it at 240V, and get 24V output. If I do that, I'll saturate the core, the exciting current will go through the roof and I'll burn it up. If it's a very efficient design with little margin, if I took to your 50Hz neck of the woods down under, I'd burn it up trying to operate even at the 120V RMS rated input, and to be safe I need to reduce voltage by 5/6.

The reason is the core isn't linear, flux(I) is only approximately linear in a certain range and if I exceed it, those nonlinearities produce very different results that linear assumptions would predict. Fortunately, EM is hard science and we've got some good theory that explains all that behavior. Not so with economics.

Ronald Brak
2011-Dec-04, 12:28 AM
Because that doubling, when the money are invested in productivity, don't result in a doubling of increased profits (because the rest of the world isn't magically increasing their ability to use what's produced to follow), so the real result of double the money spent on stimulus is less than double the increase in income.

As I mentioned above, the goal of the stimulus was not to increase productivity. It didn't need to improve productivity to be successful. It's goal was to make up for the expected decrease in spending and keep the economy going more or less as it was.


And because the money spent on stimulus are in effect effect borrowed, double the stimulus does mean double interest to be paid later from less than double the extra income.

The Australian government was able to raise the money very cheaply. (There was and is a great demand for investments that were deemed safe.) The cost of borrowing was low and was considered well worth the benefit of avoiding a downturn in the economy and increased unemployment. And as I mentioned previously, if there had been a problem with borrowing the money it could have been created.


In simple terms there's a break-even point of debt at which the interest on $1 of stimulus is the same as the increase in productivity.

The stimulus did not need to increase productivity to be effective. The cost of borrowing was and is low. If Australia had faced twice the expected downturn it could have raised twice the stimulus at low cost. Also, for a severe downturn such as was expected from the GFC money can be created instead of borrowed without resulting in undesirable inflation.


And when the economic reality is such that the best use people have of stimulus money is to pay off debt rather than buy things, the productivity boost of stimulus is zero.
That's why helicoptering money in over a debt bound country will have very little effect other than devalue the currency. Which is another, gentler, way of defaulting on all debt.

Again, the stimulus doesn't need to boost productivity to work. The danger in Australia was that many people would all decide to reduce their debts at the same time. Normally people living sensibly within their means is a good thing, but when many people decide to do it at once it can be bad for the economy as a whole. When people reduce their consumption to pay of their debts they buy less things such as Akubras. This result in overtime being cancelled at the Akubra plant which results in the workers there being worried about paying off their car loans which results in them spending less and saving more. This effect can spread through the economy and result in an economic slowdown and high unemployment. However, if at the start of the crisis people get handed say $900 free money as they were in Australia, then they can use this money to reduce their debts and feel more secure and so not feel the need to reduce their spending in order to reduce their debts. In Australia many people used their $900 stimulus money to reduce their debts and that was still effective at simulating the economy because it made it less likely that these people would reduce their spending.

jfribrg
2011-Dec-04, 01:16 AM
The danger in Australia was that many people would all decide to reduce their debts at the same time. Normally people living sensibly within their means is a good thing, but when many people decide to do it at once it can be bad for the economy as a whole. When people reduce their consumption to pay of their debts they buy less things such as Akubras. This result in overtime being cancelled at the Akubra plant which results in the workers there being worried about paying off their car loans which results in them spending less and saving more. This effect can spread through the economy and result in an economic slowdown and high unemployment. However, if at the start of the crisis people get handed say $900 free money as they were in Australia, then they can use this money to reduce their debts and feel more secure and so not feel the need to reduce their spending in order to reduce their debts. In Australia many people used their $900 stimulus money to reduce their debts and that was still effective at simulating the economy because it made it less likely that these people would reduce their spending.

FYI, this is known as The Paradox of Thrift (http://en.wikipedia.org/wiki/Paradox_of_thrift).

publius
2011-Dec-04, 01:47 AM
Reading over this, I think we need to clarify just what we're arguing about. I think there may be a slight language issue as well with "productivity" vs "production" as in real production or something as well. Economically, "productivity" is the efficiency of production. I think Henrik means production, but you may have understood it that way anyway, but I'm not sure.

And then mainly, I'm not arguing that the stimulus didn't work in Australia. I'll even stipulate that for the purpose of discussion. What I'm arguing is that because stimulus worked in Australia it doesn't mean it will work in the US or Euroland because of vastly different conditions. The system is in a far different state. My argument is that overall debt levels are the main concern, and are the root cause of the crisis. We simply ran up too much debt. When you hit that debt wall, a stimulus isn't going to work.

To use another rough analogy, I think too much debt is sort of "coffin corner" of the economic flight envelope as it were. The importance of debt is something that economists have overlooked, and it has been a critical oversight. Steve Keen, an Australian economist, has done some good work on this, and I recommend his scatching critiques of economics on this point.

He's trying to model the coffin corner behavior, using very non-linear and highly non-equilibrium models. His conclusion is that when an economy piles on too much debt, it becomes very unstable and will crash spectacularly. To avoid that unstable mode, you've got to keep debt under control.

publius
2011-Dec-04, 03:07 AM
I've just been looking at some of Steve Keen's work. I've read him and liked it, but now I'm looking at some of his actual papers. It's utterly fascinating. He's doing some serious modelling of non-linear economic equations, using chaos theory concepts (attractors in phase space and all that).

He introduces what he calls a Ponzi factor/function, which is basically a propensity to borrow for speculative purposes (this would be the "satanic debt" I mentioned in the other thread) into his models, and the effect of that is most impressive. Without Ponzi finance, stable solutions exist. And guess what? It's standard boom/bust cycles, booms followed by recessions. It's possible to get unstable solutions with wild initial conditions, but stable cyclical solutions exist. Debt ratios are stable.

Add in the Ponzi, and debt ratios grow exponentially and produce a crash. The funny thing is the Ponzi factor increases the period of the cycles (if I'm reading it right), the amplitude gets stronger, and then it crashes.

Economists call the period of the 90s until now "The Great Moderation" a period of steady growth, low inflation, and unicorns defecating free skittles for everyone. That thought it was going to go on forever. Keen actually gets such a thing from his Ponzi model. That's just the lull before the storm. The Ponzi makes you feel good right before it kills you -- it drags out the last cycle before ulitimate collapse with a nice long period of steady growth (but with debt increasing like crazy) and then it collapses.

publius
2011-Dec-04, 03:16 AM
The implications of this are quite staggering. It means the boom/bust cycle is necessary. Indeed, it's a indicator of a stable economic system. Two steps forward, one step back. That's a sign of health, not something to be avoided. And indeed, trying to avoid it (which is what economists have been after for years) is probably what adds the Ponzi factor in there in the first place.

And it means that a long period of steady economic growth and low unemployment (along with steadily rising debt levels, and rising faster than that steady growth rate) is a bad thing, indicating the system is to going to collapse. IOW, the "Great Moderation" was the indicator that collapse was coming.

PraedSt
2011-Dec-04, 07:18 AM
We had a stimulus in Australia to make up for the expected decrease in spending. I don't see why x stimulus in response to y expected downturn would be 'productive' in making up for that decrease in spending while 2x stimulus in response to 2y expected downturn would not be 'productive' in making up for that decrease. And if by productivity you mean doing more with the same imput, the stimulus didn't need to increase productivity to be effective, it just had to make up for the expected decrease in spending. It was designed to keep things as they were and stop the economy going backwards, not to move it forwards and improve its productivity.

You say stimulus is an increase in debt. Australia did increase its public debt to pay for its stimulus. But Australia was able to borrow that money very cheaply. Interest rates went down to 3% here and would have gone lower if the stimulus hadn't been successful and if the downturn had been larger that would have put even more pressure on decreasing interest rates. So borrowing money would not have been difficult even if the required stimulus had been considerably larger. Also, if Australia didn't want to borrow money to pay for the stimulus it didn't have to. It could simply have created the money. Now normally having the reserve bank create large amounts of money is inflationary, but every now and then, twice in the last 100 years, things are so bad that a considerable amount of money can be created without inflation resulting. The Great Depression was one of these times and the recent Global Financial Crisis was the other. And fortunately, if higher than desired inflation resulted from this, it could be stopped by reducing the stimulus. Reserve banks are allowed to do this. It's generally considered part of their job to stop inflation getting out of hand. So (1) difficulty in borrowing should not be a problem, and (2) if it was difficult to borrow for some reason, things were so bad that the money for the stimulus could have been created.I wasn't talking about Australia. We were talking about a debt limit for the US, Europe and Japan. You asked why there is a limit. I told you. Now if Australia can successfully borrow nx now and not keel over in the future, great, do it.

PraedSt
2011-Dec-04, 07:25 AM
I've just been looking at some of Steve Keen's work.Did you get his work from this site? Steve Keen's Debtwatch http://www.debtdeflation.com/blogs/
I've been meaning to read his stuff for a while now, but I hadn't gotten around to it.

HenrikOlsen
2011-Dec-04, 10:03 AM
Well Brazil isn't isn't classified as having a 'high' HDI. It's not on the IMF list of 'Advanced Economies'. It's not a Development Assistance Commitee member. And it's not a high income OECD member. So I wouldn't say it's a developed country. But as there is no hard and fast definition of developed, if you say Brazil is developed I won't argue with you. But the citizens of China are appreciably worse off than the citizens of Brazil on average (particularly with regards to industrial pollution).
Ok, just checked some statistics, I may have been led slightly astray by the number of people and the massive growth (6.5% annual increase in GDP per capita), I see the GDP per capita is only a fifth of Denmark, so there's still a long way to go. China has half the per capita GDP of brazil and is topping the growth chart amongst the big nations (9.7% annual increase in GDP per capita).

BTW, all of this looking at statistics have led me to the conclusion that GDP is an almost useless indicator of anything other than GDP itself.

Ronald Brak
2011-Dec-04, 11:22 AM
I see others have nicely responded, but I'll add this.

Well, why do we expect anything to be nice and linear like that? If we've got evidence that something is linear, well there we go, and then if we have theory that predicts it to be linear, well, that's even better. But if we don't have the latter (which we never do in economics -- see "physics envy" someone called it, basically a soft science dependent on ultimately unpredictable human behavior pretending it is hard science like physics). Empirical evidence that something is linear in a certain range doesn't mean it's linear outside of that range, or even that it will remain linear within the range if we don't know all the variables at play. Some other variable could change and make it no longer linear.

I said, "I don't see why if x stimulus is effective against y downturn why 2x stimulus wouldn't be effective against 2 downturn. I don't see why it would only work up to a certain level and then stop." And I still don't have a reason not think that a larger stimulus couldn't be effective at preventing a larger downturn. I know things don't always turn out the way we expect them too, but given that I know that x prevents y and I have no good reason to think that 2x won't prevent 2y, I will continue in my assumption that 2x will more or less prevent 2y. (I say more or less because I know things are rarely cut and dried in practice.)

And I will mention that we have models for how the economy will react to a stimulus. They are of course not perfect, but the Reserve Bank of Australia was able to predict the effect the stimulus would have on the economy and their predictions were more or less correct.

Ronald Brak
2011-Dec-04, 11:35 AM
I wasn't talking about Australia. We were talking about a debt limit for the US, Europe and Japan. You asked why there is a limit. I told you. Now if Australia can successfully borrow nx now and not keel over in the future, great, do it.

I was talking about Australia. That's why I used the word Australia. But the points I made about Australia hold true for the example of the United States. The US can borrow money very cheaply, more cheaply than Australia. They could actually borrow money at around zero percent interest. Also, if the US couldn't borrow money for some reason, or didn't want to borrow money, then they could have financed an Australian sized stimulus (in relation to the size of the expected downturn) by creating money. Because of the size of the economic contraction that was on the way they could have 'printed' a large quantity of money without it causing undesirable levels of inflation. (The results of the last few years have shown this to be true.)

Currently there is no point in Australia borrowing money to stimulate it's economy as the economy is more or less okay at the moment. Hopefully Australia can manage to maintain reasonable employment solely through adjusting interest rates. But if that looks like being inadequate, then Australia would borrow money to provide further stimulus, although we hope that won't be necessary.

HenrikOlsen
2011-Dec-04, 12:07 PM
I said, "I don't see why if x stimulus is effective against y downturn why 2x stimulus wouldn't be effective against 2 downturn. I don't see why it would only work up to a certain level and then stop." And I still don't have a reason not think that a larger stimulus couldn't be effective at preventing a larger downturn. I know things don't always turn out the way we expect them too, but given that I know that x prevents y and I have no good reason to think that 2x won't prevent 2y, I will continue in my assumption that 2x will more or less prevent 2y. (I say more or less because I know things are rarely cut and dried
You're assuming linearity where none exists.

It's a reasonable approximation for limited ranges, but when you're comparing Australia and the US, it's an assumption that's hopelessly broken.

And I will mention that we have models for how the economy will react to a stimulus. They are of course not perfect, but the Reserve Bank of Australia was able to predict the effect the stimulus would have on the economy and their predictions were more or less correct.
That's because Australia is down in the range where the linear assumption is a good fit.

The US isn't.


I was talking about Australia. That's why I used the word Australia. But the points I made about Australia hold true for the example of the United States. The US can borrow money very cheaply, more cheaply than Australia.
Not now it can't, and definitely not at zero percent interest. Note that the yield on bonds is the effective interest paid.

And when the interests on existing debt is already larger than the income available for repaying it, borrowing more money won't help.

Ronald Brak
2011-Dec-04, 01:26 PM
You're assuming linearity where none exists.

It's a reasonable approximation for limited ranges, but when you're comparing Australia and the US, it's an assumption that's hopelessly broken.

It's hopelessly broken? In that case it presume there is a clear and easy to understand explanation of why it is hopelessly broken. I said I don't have a reason not to think that a larger stimulus couldn't be effective at preventing a larger downturn. Can you give me a reason?



That's because Australia is down in the range where the linear assumption is a good fit.

The US isn't.
Let's see. Australia was expected to have an economic downturn. Australia had a large stimulus, the largest in the developed world compared to the size of the expected downturn. Australia avoided the expected downturn. From this I concluded that the stimulus enabled Australia to avoid the downturn and I assumed that a larger stimulus could prevent a larger downturn. And you say that's because Australia is down in the range where the linear assumption is a good fit and the US isn't. How do you know Australia is down in the range where the linear assumption is a good fit and the US isn't?


Not now it can't, and definitely not at zero percent interest. Note that the yield on bonds is the effective interest paid.
US interest rates are now 0.25%


And when the interests on existing debt is already larger than the income available for repaying it, borrowing more money won't help.

With 0.25% interest rates the US is not near that point. But I mentioned that if money can't be borrowed for some reason, or if people don't want to borrow money it can be created.

publius
2011-Dec-04, 10:41 PM
I said, "I don't see why if x stimulus is effective against y downturn why 2x stimulus wouldn't be effective against 2 downturn. I don't see why it would only work up to a certain level and then stop." And I still don't have a reason not think that a larger stimulus couldn't be effective at preventing a larger downturn. I know things don't always turn out the way we expect them too, but given that I know that x prevents y and I have no good reason to think that 2x won't prevent 2y, I will continue in my assumption that 2x will more or less prevent 2y. (I say more or less because I know things are rarely cut and dried in practice.)

And I will mention that we have models for how the economy will react to a stimulus. They are of course not perfect, but the Reserve Bank of Australia was able to predict the effect the stimulus would have on the economy and their predictions were more or less correct.

First recall that article I posted above about how bad macroeconomic models truly are. The author, Arnold Kling is no slouch either. He's a former Fed economist and was an economist for Fannie and/or Freddie back in the early 90s (note to Mr. Kling. Don't put Fannie and Freddie on your resume any more. :lol:) and is now at George Mason. And even the NY Fed itself recently put out a mea culpa on their modelling:

http://libertystreeteconomics.newyorkfed.org/2011/11/the-failure-to-forecast-the-great-recession.html

They released that at 6PM on Black Friday. :) Message: we suck (but we didn't suck as bad as some of the private sell side cheerleaders).

And recall the US gave out free money as well, the Economic Stimulus Act of 2008 which passed in February 2008. That gave out free money to everybody ("tax rebate" check of $600) among other things and was designed to precent a possible downturn. :lol: That really worked out well didn't it?

And then there was the big 'un, the Stimulus of 2009. The best claim anyone can make about that is "it would've been worse without it". Macroeconomic models they used predicted that unemployment would peak just under 8% with that stimulus and we would've been in a "Summer of Recovery" around 2010, with the economy absolutely booming gangbusters now. Actual economic performance was even worse than the model predicted *without any stimulus* at all.

So economic models in Australia agreed with what happened. They didn't here in the US (and I'm sure they failed miserably in Euroland as well. They certainly did in Japan). So is the model right in Australia, or is it perhaps a case of the proverbial stopped clock being right twice a day? You ask a bunch of hypotheticals. I'll ask some of my own?

You say a downturn was predicted. How do you know a downturn would've actually occured without the stimulus? Well, it was highly likely doesn't cut it. Do you know for certain? And if it did, would it have been as bad as the model's predicted? Suppose it did occur and was as bad or worse than predicted. How do you know Australia wouldn't have recovered without stimulus? How do you know it wouldn't have recovered even faster without it?

The only answer is what the models say. And those models suck, demonstrably so. Again, the problem of physics envy. Economics isn't physics and never will be so. And read Kling's point about how bad it is trying to fit models to historical economic data. They discovered all sorts of flaws in what they were doing and doing it correctly reduces the signal to noise to such a low level that it is meaningless. You want to "prove" stimulus works as you model predicts, you can do that. You want to prove it doesn't, you can do that too. You'll see economists all over the map on that score accordingly.

publius
2011-Dec-04, 10:57 PM
US interest rates are now 0.25%


That's the Fed funds rate target rate (actually a range now, 0 - 0.25%). You need to look at the Treasury yield curve to see how much it costs Uncle to borrow:

http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

Looks like the 3-month has actually gone negative again, meaning they're paying Uncle to hold their money again. (What is the explanation for this *irrational* behavior? Fear, pure and simple. Fear that Euroland is going to blow up).

The 2yr note is actually at 0.25% (and that's exactly equal to the coupon, so the price is 100 exactly). 10yr is 2.03%, which is sort of the main benchmark rate for long term debt. WHen Uncle borrows, he borrows across the curve, and must carefully adjust the various proportions (or at least try to to). He certainly can't covert it all to short term, 0.1%.

So yep, Uncle rates are historically low (now does that translate to the private sector? Well, if you were a worthy borrower and actually wanted to borrow, it might). Right now, we've got $15.1T in debt. We'll drop off the intragov, since that is just trust fund accounting fiction with interest paid in more bonds, and look at debt held by the public, the real money Uncle has borrowed outstanding. That is currently at $10.4T.

What is 1% of 10.4T? $104B. Uncle current real money interest cost is about $200B per year. So figure he's paying about 2% on average. But that changes on maturity profile and all that. He has to pay the rate on past debt at what he auctioned it at. Only new and rollovers get the current low rates.

That is historically low by huge standards. If it normalized, Uncle is screwed. His interest costs as a ratio of his budget and revenue skyrocket. That's why crazy loons like me worry we have but a small window to fix things, if we haven't crossed the horizon already.

publius
2011-Dec-04, 11:21 PM
Now, why is Uncle's interest rate at 2% when he's borrowing $1.3T a year? Two reasons. Fear/flight-to-safety (Ts are considered the ultimate safe haven, which is a psychological function, and if Uncle squanders that, it changes) and the fact that the Fed has put the printers in turbo mode. Monetary base went from $850Bish before the crisis to over $2.5T now.

Where is all that free money going? To the banks in exchange for their crap MBS assets, who then pile that money into Treasuries. They sure ain't lending it out into the private sector. The Fed now holds more Treasuries itself that any other signal entity, including China, Uncle's largest creditor. That is, the printing press is now the largest source of funding for US debt.

The Fed just finished QEII, and is now in Operation Twist II mode, where it shifting the maturity distribution of that pile of US debt, which will "twist" or "torque" the long end of the yield curve down even further. They'll probably go QEIII soon enough, already talking about it, although they do have some strong dissent on the FOMC (dissenters are sort the Germans of the FOMC. :) ).

In short, the Treasury market is no longer a real market, but a highly manipulated one, manipulated by an entity with the biggest printing press in the world. If they shut down that press, Uncle's rates are going to be increasing.

Note how Germany's rates had a little hiccup. Germany was a flight to safety as well (and their short end bill rates have going negative recently as well). Bondzilla's recent rampage spiked up their yields pretty good last week with their failed bund auction. They'are all clamoring for the ECB to put their printers in turbo mode, doing what the Fed to force yields low, financing PIIGS debt with the printing press. The Fed sticksaved the day with the swap line crap, printing yet more for Euroland, but since that is dollars, and they ultimately need euros, it won't save the sovereigns. It did however say a big bank, probably Credit Agricole, which was about to blow.

But there's no inflation, they all say. Guess that's true if you can eat iPads (angry response to a member of the FOMC who was giving a speech explaining why inflation was really low). Otherwise, as a recent calculation demonstrated, the cost of a Thanksgiving dinner is up 13% over the year. Nope, no serious inflation anywhere, keep the printers humming.

The BOE has been running the presses in the UK, and note their own official inflation rate is well above target now.

Massive debt and printing presses have never worked out historically. See Weimar. See Zimbabwe recently. But this time it will be different, I'm sure. The models tell us so.

peteshimmon
2011-Dec-04, 11:26 PM
Is anyone going to estimate how much
new technology acts as a stimulus?
Games consoles, digital cameras,
tablets etc. A news feature from a
distant land shows some shanty town,
then around a corner walks a happy
looking woman with shopping AND a
mobile phone being talked into!
How much extra effort among hundreds
of millions of people to afford these
things has happened?

With regards economic stuff, with
billions of textbooks out there
full of linear looking graphs,
who volunteers to issue the
erratum slips needed?

publius
2011-Dec-04, 11:30 PM
And yep the same models, and modellers tell us that above target inflation would be just the thing the doctor ordered. We've got a fever and the only prescription is more inflation cowbell. Yeah, right. So what if screws Grammy and Grandpa out of their savings (Some BOE guy actually said as much, IIRC) when we've got a Ponzi to save.

Ronald Brak
2011-Dec-05, 02:26 AM
Publius, are you seriously suggesting that Australia may not have had a recession if there had been no stimulus? If so, then how did the Australian government manage to inject a stimulus equal to 5% of GDP into the economy without it having an effect? No fall in unemployment below trend, no surge in inflation, and no resulting surge in interest rates? Did the stimulus just disappear?

publius
2011-Dec-05, 03:40 AM
Publius, are you seriously suggesting that Australia may not have had a recession if there had been no stimulus? If so, then how did the Australian government manage to inject a stimulus equal to 5% of GDP into the economy without it having an effect? No fall in unemployment below trend, no surge in inflation, and no resulting surge in interest rates? Did the stimulus just disappear?

No, I'm not suggesting anything. I'm just posing the same type of hypotheticals you were, but from the opposite side. Can you prove Australia would've had a recession without the stimulus? And stipulating that Australia would've had a recession, what would've it have looked like without stimulus? Can you prove it wouldn't have bounced back even stronger? No, you can't, and you can no better prove any of that than you can the statement the stimulus was the salvation. The economic models and theory all this stuff is based on is no better than wild guesses. As someone I forget who quipped, economics is the scientific discipline of not knowing what you're talking about.

As far a stimulus and deficits go, heck we're been running deficits of 8 - 10% of GDP for the past 3 years. The 2009 stimulus was $800B. Nominal GDP back then was about $14T (nominal GDP itself actually declined, not just real GDP). .8/14 = 5.7%.

So yeppers, we tried over 5% of GDP too in 2009, on top of the other one in 2008. That doesn't include TARP, another $700B. Heck I think Japan has pulled 15% of GDP in stimulus. In toto, US federal spending went from 20% of GDP to 25% after the crisis. So there's another 5% of GDP figure for you right there.

And all that fiscal dysentary and debt accumulation has done nothing. All it has done has so far has propped up a Ponzi by transferring the bad debt from the private sector to the public sector (on top of the bad debt the public sector itself had accumulated, but as bad at that was, it wasn't as bad as the private sector's bad debt binge). IOW, the consumer and private sector in general maxed out their credit card, and couldn't consume any more. And to keep that debt Ponzi going, someone else needed to come in and start running up his credit card big time. That was dear old Uncle Sam. He's got a credit limit too. And when he hits his, the stinky stuff hits the fan shore 'nuff.

In a regular ol' recession, the kind we're familiar with after the last debt Ponzi blew up in the Great Depression, a tiny little burst of govt spending could hold things together for brief bit until the private sector took over again. Well, the private is not taking over again. It can't because it is has maxed out its credit card and won't be able to do squat until that debt is gone somehow. Depressions do the job of wiping that debt out.

Australia hasn't run up the debt Ponzi the US, Euroland, and Japan have. You're still good. Your credit cards aren't maxed out. But according to Keen you're own housing bubble is actually worse than ours in relative measures such as how fast it was growing. You're going Ponzi, you just haven't reached the collapse point yet. You're like us in the 90s.

The advice of prudence and example is stop the Ponzi, stop the drinking, stop the drugs. You haven't ruined your marriage and social life yet. You haven't haven't lost your job. You havent' destroyed your liver. Your teeth aren't falling out like ours are. If you stop now it will be painful. You might have one of those regular ol' recessions. But keep the Ponzi going and you'll be like us 10 to 15 years.

Delvo
2011-Dec-05, 05:42 AM
The idea of "stimulus" payments from the government helping an economy doesn't make sense. It's just deliberate inflation. If you gave everybody a billion dollars, they wouldn't all end up living like billionaires; prices would go up to make those billions only as effective at buying stuff as whatever they had before.

But even aside from that, and aside from Australia apparently not having created as much of a credit problem to find a way out of as the USA and Europe have, there's another fundamental difference between Australian and American stimulus programs so far anyway. In Australia, it went to individuals. (One said so in this thread.) In the USA, it went to organizations.

Ronald Brak
2011-Dec-05, 06:56 AM
No, I'm not suggesting anything. I'm just posing the same type of hypotheticals you were, but from the opposite side. Can you prove Australia would've had a recession without the stimulus? And stipulating that Australia would've had a recession, what would've it have looked like without stimulus? Can you prove it wouldn't have bounced back even stronger? No, you can't, and you can no better prove any of that than you can the statement the stimulus was the salvation. The economic models and theory all this stuff is based on is no better than wild guesses. As someone I forget who quipped, economics is the scientific discipline of not knowing what you're talking about.

Australia had a stimulus of about 5% of GDP. So you are saying that it is possible that Australia had a stimulus of 5% of GDP without it having an effect on its economy?

Ronald Brak
2011-Dec-05, 06:59 AM
The idea of "stimulus" payments from the government helping an economy doesn't make sense. It's just deliberate inflation. If you gave everybody a billion dollars, they wouldn't all end up living like billionaires; prices would go up to make those billions only as effective at buying stuff as whatever they had before.

We had a stimulus here in Australia of 5% of GDP with very little inflation. Mind you, this is only possible under special circumstances that rarely occur. Done willy nilly it would do no good.

Ronald Brak
2011-Dec-07, 01:33 AM
Publius, I am interested in finding out if you think that there was a real possibility that Australia could have avoided a recession without its stimulus. What happened was this:

1. Australia wasn't in recession.
2. Australia had a stimulus of about 5% of GDP.
3. Australia's economy continued more or less as normal.

To me it seems clear that Australia avoided a recession due to the stimulus, because if a stimulus of about 5% of GDP was applied to an economy that didn't need it there would be a considerable decrease in unemployment and a considerable increase in inflation and this did not occur. I really cannot see how such a large stimulus could be applied to a healthy economy without it having these effects. Do you think it is possible that the Australian stimulus was applied to a healthy economy without it having these effects? And if you think this is a possibility, how could this have happened?

publius
2011-Dec-07, 04:10 AM
What do you mean by "real" possibility? Is it possible in the sense the probability is greater than zero? Yep. How probable was it? I don't have a clue. You are sure that if such a large stimulus would've occured when "it wasn't needed", then certain things would've happened with 100% probability, like a spike in employment, inflation, and all that. You are basing that on macroeconomic models. And I'm telling you those models aren't very good and the current crisis has made a mockery of all of them.

There are so many confounding variables that you can't say for certain. Heck, you don't even know what all the confounding variables are.

But like I said before, I'll stipulate you that your stimulus did indeed keep you out of recession. What I objected to is what I took to be your argument that because such a stimulus worked for Australia, then it should work for all economies, and the cause of the continuing crisis is that we all haven't done a big enough stimulus (or printed enough new money).

And my counter to that is, a) the rest of us have tried stimulus, multiple times, and it didn't work, and b) you can't be certain it even worked like you think in a case like Australia where it appeared to work. So the answer to the question, "Does stimulus work?" is maybe, maybe not. Some times it seems to work, and in other times it doesn't.

And there are cases where fiscal *contraction* was followed by economic growth, just the opposite of what is expected by the models.

Delvo
2011-Dec-07, 06:31 AM
A "stimulus" is not the creation any new wealth anywhere; it's the creation only of more of the unit by which that wealth is measured (dollars, francs, rubels, yen...). If the number of dollars people have goes up but no new wealth is created for those dollars to represent, then all that happened was the division of the present amount of wealth into a slightly larger number of slightly smaller pieces. How in the world would/could that have any effect on the direction of an economy? What reason is there to even suspect it might?

Sometime between late 2000 and early 2002, something comparable to what you're talking about with more recent Australia was done in the USA: a few hundred dollars apiece were given to individuals (not organizations, as was the case with our recent alleged "stimulus"). In that case, the primary reason was not supposed to be to stimulate anything (although there were predictions that it would), but just because there was a surplus and it was the people's money. As was abundantly reported at the time, it had no effect on the economy.

publius
2011-Dec-07, 11:03 AM
If the number of dollars people have goes up but no new wealth is created for those dollars to represent, then all that happened was the division of the present amount of wealth into a slightly larger number of slightly smaller pieces. How in the world would/could that have any effect on the direction of an economy? What reason is there to even suspect it might?


You're right on spirit, but the details are bit more complex than the part I quoted above. Suppose the Fed printed a bunch of
$1M dollar bills and handed them out like candy. But suppose the people didn't try to spend it at all. There would be no inflationary effect at all. The key is the concept of monetary velocity, and what I like to call monetary momentum, as expressed in the equation of exchange:

MV = PQ --> dP/P = dM/M + dV/V - dQ/Q, or just dP/P = d(MV)/MV - dQ/Q

where M is the quantity of money, V is the velocity, P is the price level, and Q is the goods and services being exchanged. I simply call the product MV monetary momentum. We can thus state that inflation occurs when the momentum increases faster than the goods and services it is chasing.

And that is just simply an equation of state. It implies no causal relationships. That is if we increase M, that tells us nothing about what happens to all the other variables. Those relationships are what the sorry macroeconomic models attempt to predict.

Another trap you'll see people running into with that equation is assuming that PQ = GDP. Not so. Already existing assets are exchanged every day, and they do not contribute to GDP, real new production. Thus the PQ in the equation of exchange includes the recycling as well as the new production, and thus the price level can be affected by something that has nothing to do with real production.

Ie, if we all take our free money and go to the antique store or buy used cars and used equipment, we contribute nothing to GDP, but might affect the price level. Or it's conceivable we might not affect the price level if our activity pulls a bunch of old stuff sitting around out of the woodwork, increasing supply to match increased demand.

Ronald Brak
2011-Dec-07, 11:15 PM
What do you mean by "real" possibility? Is it possible in the sense the probability is greater than zero? Yep. How probable was it? I don't have a clue. You are sure that if such a large stimulus would've occured when "it wasn't needed", then certain things would've happened with 100% probability, like a spike in employment, inflation, and all that. You are basing that on macroeconomic models. And I'm telling you those models aren't very good and the current crisis has made a mockery of all of them.

There are so many confounding variables that you can't say for certain. Heck, you don't even know what all the confounding variables are.

Our knowledge of how economies operate is certainly far from perfect. But there are some things we have learned from observation, experiment, and natural experiment that we can be quite sure about. One of these is that large increases in the monetary supply will result in inflation. But you appear to be saying that we can't know this. If so, then you are arguing against yourself, as more than once you've said that money creation in the United States will lead to inflation but now you are saying that we can't know this. So what do you think at the moment? Do large increases in monetary supply lead to inflation or is this something we can't be sure about?

publius
2011-Dec-07, 11:43 PM
Yep, Ronald, large increases in the money supply tend to result in inflation. Wanton increases tend to result in destruction of the currency involved. Yes. But how am I arguing against myself? Did you see my reply to Delvo about the equation of exchange? Inflation occurs when the rate of change of monetary momentum is greater than the rate of change of the goods and services being bought and sold.

Does deficit based fiscal stimulus mean the money supply increases? No. Only if the govt. directly prints the money. If it borrows it, it is money supply neutral. Indeed, with modern central banking, the control of the money supply is supposed to be indepedent of the govt's budget and fiscal policy so as to remove the temptation to so print. Does said stimulus increase velocity? Maybe, maybe not. Does it increase real production? Maybe, maybe not. Etc, etc.

Did you even read that piece I linked to by Kling about how how bad macroeconomic models are, and just how frought with peril trying to look at so-called "natural economic experiments" vis macroeconomics is?

This historical empirical record is pretty clear than wanton printing of money is a reckless thing to do. But the record on stimulus is something different. Sometimes it appears to work and sometimes it doesn't. Pro-stimulus economists can "prove" it works and anti-stimulus economists can "prove" it doesn't work.

Ronald Brak
2011-Dec-08, 12:08 AM
A "stimulus" is not the creation any new wealth anywhere; it's the creation only of more of the unit by which that wealth is measured (dollars, francs, rubels, yen...). If the number of dollars people have goes up but no new wealth is created for those dollars to represent, then all that happened was the division of the present amount of wealth into a slightly larger number of slightly smaller pieces. How in the world would/could that have any effect on the direction of an economy? What reason is there to even suspect it might?

If right now everybody in Australia was given $1,000 many people would go out and buy stuff. Since there are no more goods than normal in shops retailers would find themselves running low on stock. They would respond by ordering more stock and putting up their prices. Ordering more stock means manufacturers will hire more people. Hiring more people reduces unemployment. The inflation reduces the value of everyone's money and so on average people end up no better than before. The $1,000 will run out and people will cut spending and unemployment will rise. All else being equal giving everyone $1,000 now will do no good and will do harm. The trick is to hand out free money at the point where people in aggregate are reducing their spending and the economy is contracting or about to contract. If the amount is appropriate it can make up for the shortfall in spending and keep the economy functioning as it was. It doesn't make the economy better, it just stops it going bad. Normally handing out free money is a silly way to prevent a recession. Monetary policy, that is adjusting interest rates, is normally much more effective. However, very rarely, once in a lifetime or so, things are so bad that adjusting interest rates either won't work, or is in danger of not working. In these situations a fiscal stimulus, such as handing out free money, is appropriate.

publius
2011-Dec-08, 03:00 AM
Let's put Kling's comments in the record right here

http://american.com/archive/2011/september/the-soothsayers-of-macroeconometrics/article_print



How many jobs will the latest stimulus package create? What will it do to GDP?

For answers to questions like these, the press always turns to the usual suspects: the proprietors of macroeconometric models, which are maintained by some economic consulting firms and by the Congressional Budget Office. (The Federal Reserve Board also maintains a model, but the Fed tries to refrain from injecting its model into fiscal policy debates.)

I think that if the press were aware of the intellectual history and lack of scientific standing of the models, it would cease rounding up these usual suspects. Macroeconometrics stands discredited among mainstream academic economists. Applying macroeconometric models to questions of fiscal policy is the equivalent of using pre-Copernican astronomy to launch a satellite or using bleeding to treat an infection.




In 1976, Robert Lucas suggested that economic behavior could respond to policy changes in ways that would cause macroeconometric models to make systematic errors. Lucas was awarded a Nobel in 1995. It has since become standard in economic research that empirical work must be able to meet “the Lucas critique.” Because traditional macroeconometric models fail to do so, they have disappeared from peer-reviewed journals in economics.




As the import of Leamer's criticisms sank in, the practice of empirical economics changed. Instead of trying to use specifications to control for unwanted confounding factors, researchers look for “natural experiments” that do not require subjective interventions on the part of the investigator. The new approach has been described by Joshua D. Angrist and Jörn-Steffen Pischke as “the credibility revolution in econometrics.” Steven Levitt (of Freakonomics fame) and a host of other young researchers have used these newer techniques to produce more reliable results.

But not in macroeconomics. As Angrist and Pischke point out, macroeconomic data does not lend itself to the same opportunities to avoid specification searches. Sadly, the credibility revolution has passed macroeconometrics by.




What Nelson and Plosser showed is that the then-standard method of adjusting for this, known as “de-trending” the data, was improper. Instead, the data had to be “differenced,” meaning that the researcher should look at the changes from one quarter to the next. Unfortunately, once the data are “differenced,” very little signal remains, and the relationships that macroeconometricians wish to quantify can no longer be found.

The proprietors of macroeconometric models have not taken into account the Lucas Critique. They have done nothing about the influence of specification searches. And they have not ended the improper use of “de-trending” instead of differencing. They persist in using methods that are vulnerable to all of these major criticisms, and more. That is why the models cannot be taken seriously by academic researchers.



Far from perfect indeed. Discredited amongst serious mainstream academic economists.

publius
2011-Dec-08, 03:26 AM
They would respond by ordering more stock and putting up their prices. Ordering more stock means manufacturers will hire more people. Hiring more people reduces unemployment.

And you are so certain of all this. The input will cause this response, this output. How do you know that? Economics is not physics. Economic actors are people, not electrons. Kling has a book out called "Macroeconometrics: The Science of Hubris". He would call that certainty hubris.

So orders increase. How do you know that results in hiring more people, ramping up manufacturing capacity? It depends on if the people in charge, the economic actors behave the way you think it does. And electrion behaves a certain way given certain inputs. People do not. That is, the way people respond to certain inputs is not known with any certainty. You can guess, say it's likely that will do A instead of B, but you don't know for sure, and you don't know all the variables that make them choose A over B.

I'll give you example. Back in '09, I decided to buy some product that was pretty hot at the time, a certain class of rifle. The wait time for an order was going to be 6 months at least. If I wanted it, I would have to pay for it right then and there, and wait at least 6 months, and maybe up to a year. Were the rifle manufactures ramping up capacity and hiring more people? No, the were not. Why? They figured the increase demand was just a temporary bubble and it would be foolish to make the investment. Thus they just ramped up capacity on hand to as much as they could without hiring more people or investing in more equipment. They were going to sell all they could, but they weren't going to expand.

Suppose the govt borrows a bunch and gives out free money to boost spending. Well, the actors know that. They can reason that the boost in demand in just temporary and conclude there is no reason to expand capacity.

Heck I remember reading a recent piece about stimulus that it will work "only if the actors believe it will work". IOW, a pure faith-based process, the kind of thing that human beings can do, but electrons don't. If the actors don't believe a stimulus will work beforehand, they don't respond to it in any positive way. If they do believe it will work, then they go to town. Sort of an economic placebo effect.

HenrikOlsen
2011-Dec-08, 07:23 AM
If right now everybody in Australia was given $1,000 many people would go out and buy stuff.
That's the Helicopter theory, which works when the majority isn't debt ridden to the point where the response won't be to buy stuff but to either pay back debt or hoard the money for later.

Point is that the amount of dept people have influences how many of them will use the money for buying stuff, which means the result depends on other factors as well.

And double the money given per person won't automagically result in double the amount of things bought since the amount shifts the decision on what to use if for.

Delvo
2011-Dec-08, 06:35 PM
If right now everybody in Australia was given $1,000 many people would go out and buy stuff... retailers would find themselves running low on stock. They would respond by ordering more stock and putting up their prices.And what happens when prices go up? People buy less stuff. You're trying to raise the level of water in a pond by tapping the surface to make waves.

Ronald Brak
2011-Dec-08, 11:19 PM
And what happens when prices go up? People buy less stuff. You're trying to raise the level of water in a pond by tapping the surface to make waves.

Did you read the part where I said it wouldn't work?

shriram
2011-Dec-09, 05:24 AM
'World crisis' is a bit of a stretch. Rigorously, it is a US-Euro crisis.

With repurcusions across the world, of course!