Another Recession? [W:94,113]

[jstepp590]

Re: Another Recession?

Easy one. We're in the process of cutting large amounts of government spending during an economic downturn. Keynes must be rolling over in his grave.

The second one is that our fundamentals are not sound. I could go through a whole explanation of it but this writer covers it better than I could.

http://www.counterpunch.org/2013/07/05/bernankes-inflation-problem/

 

[Kushinator]

Re: Another Recession?

That doesn't even begin to address the point I made.

What point?

Prior to 1945, economic downturns were both more frequent severe and longer in duration. This is simply a matter of fact.

Damn right. We need some panic and fear.

Nope. Such sentiment destabilizes the financial sector which is a most necessary aspect of the market orientated economy.

That's the only way the people will wake up and see what the central banking system is promoting. All depositors, checking and saving, should be able to get all their money all the time.

They can.

As it is, government doesn't protect private property and enforce private contracts. Instead, it purposely violates the depositor's property by not letting them get their own money from the banks if a run begins.

Can you provide an example, or is this emotional hyperbole?

If any other business operated the same way it would be Judge Judy time for fraud. The system only works as long as the depositors are ignorant. Once they catch on and want their money, the run begins and can't be stopped. Government and the Fed will do just about anything to keep the people from seeing and understanding what's really going on.

Again, your statement is based on some emotional attachment to the idea that people are unable to get their money in the event of a bank failure. Bank failures happen all the time. Since the implementation of the FDIC, there has never been a run on banks.

Ah, the beauty of it all. We know what happened, but we don't know what would have happened if government had left well enough alone. So, we hear "it would have been worse". Can't prove it one way or the other. A perfect rhetorical dodge.

We can use history as our guide. Liquidationism leads to massive declines in wealth. If the price of an asset declines by 50%, how much would it have to increase (in terms of %) to reach it's previous price level?

 

[Fenton]

CDSs were developed after the Exxon Valdez spill by JP Morgan Chase in 94.

The implementation of CDS's to collateralize the massive amounts of MBSs backed by Sub-Prime loans are Irrelevent to the collapse of the Bubble.

 

[iliveonramen]

The implementation of CDS's to collateralize the massive amounts of MBSs backed by Sub-Prime loans are Irrelevent to the collapse of the Bubble.

I was answering a specific question.

 

[froggigger]

Re: Another Recession?

What point? Prior to 1945, economic downturns were both more frequent severe and longer in duration. This is simply a matter of fact.

Every depression prior to 1929 was over in a few short years. Only when intervention began did we have long, drawn-out depressions.

Why did you put the dividing line in 1945? The Great Depression was the longest, most severe depression in our history. It also happens to be the first one that government decided to "fix" through massive intervention, and it happened after 1929.

Nope. Such sentiment destabilizes the financial sector which is a most necessary aspect of the market orientated economy.

Maybe destabilization is what it will take to wake the people up.

They can.

Only a small fraction of a bank's demand deposits are kept in reserve and available for immediate withdrawal. The rest is lent out to borrowers. That means the bank lends out most of their deposits while guaranteeing that all deposits are available for immediate withdrawal upon demand. It is impossible for both depositor and borrower to be entitled to exclusive control over the same cash resource at the same time. Banks simply can't withstand a sustained bank run and, from a technical standpoint, are insolvent. If a large enough number of depositors demand their deposits at the same time, the bank can not cover them all.

Can you provide an example, or is this emotional hyperbole?

All night lines waiting for banks to open. Banker assurances that all is well. Depositors demanding their money anyway. Government closing the banks to depositors wanting their money because the money runs out, but allowing banks to continue to exist so it can collect due debts from the borrowers. There's your example. The Great Depression.

Again, your statement is based on some emotional attachment to the idea that people are unable to get their money in the event of a bank failure. Bank failures happen all the time. Since the implementation of the FDIC, there has never been a run on banks.

If enough depositors show up at the same time and demand their money, the banks will not have the cash reserves to cover it. Someone is going home empty-handed, FDIC or not.

We can use history as our guide. Liquidationism leads to massive declines in wealth. If the price of an asset declines by 50%, how much would it have to increase (in terms of %) to reach it's previous price level?

Liquidation leads to declines in wealth that has been malinvested. Resources that are left after liquidation are reallocated where they can grow. Government intervention can't stop this process, only delay it. It's like weeding a garden. You pull out the weeds so they don't suck resources away from the good plants. Once the weeds are gone, the good plants use the resources that were previously feeding the weeds and healthy growth can continue.

 

[Kushinator]

Re: Another Recession?

Every depression prior to 1929 was over in a few short years.

Which is roughly double that of the modern era. From 1854-1919, the average duration was 21.6 months. Since 1945, when Keynesian macroeconomic policy was officially adopted by the U.S. government, the average duration has was 11.1 months. Even the depression era (1919-1945) had shorter duration and less frequency than 1854-1919.

Only when intervention began did we have long, drawn-out depressions.

Intervention has existed throughout history.

Why did you put the dividing line in 1945?

The data was established via http://www.nber.org/cycles.html I can care less that it's inconvienent to your position. Best to take it up with them.

The Great Depression was the longest, most severe depression in our history. It also happens to be the first one that government decided to "fix" through massive intervention, and it happened after 1929.

While accounting measures show the GD occurring in late 1929, the pain could be felt as soon as 1926. In fact, it was the unabated deleveraging (what you support!) from the real estate bubble in South Florida that contributed to the general credit contraction that only began to surface on black Tuesday. Once the retail investor spigot started to dry, only then do we witness the magnificence of liqudationism.

Maybe destabilization is what it will take to wake the people up.

Sure, if revolutionary socialism is what you desire.

Only a small fraction of a bank's demand deposits are kept in reserve and available for immediate withdrawal. The rest is lent out to borrowers. That means the bank lends out most of their deposits while guaranteeing that all deposits are available for immediate withdrawal upon demand. It is impossible for both depositor and borrower to be entitled to exclusive control over the same cash resource at the same time. Banks simply can't withstand a sustained bank run and, from a technical standpoint, are insolvent. If a large enough number of depositors demand their deposits at the same time, the bank can not cover them all.

Not the point. The sheer existence of a bank run requires the fear that deposits will be lost to manifest into action. Prior to FDIC insurance, this was a common feature of the market economy.

All night lines waiting for banks to open. Banker assurances that all is well. Depositors demanding their money anyway. Government closing the banks to depositors wanting their money because the money runs out, but allowing banks to continue to exist so it can collect due debts from the borrowers. There's your example. The Great Depression.

Which have not occurred in the U.S. since the FDIC. Like i said, emotional hyperbole.

If enough depositors show up at the same time and demand their money, the banks will not have the cash reserves to cover it. Someone is going home empty-handed, FDIC or not.

THe only reason rational people would all show up and demand their money (at once) would be due to the fear their deposits would be lost; which the FDIC protects against. It cannot happen. I know it gets you all soft inside fantasizing about such a situation, but barring some sort of catastrophic event like nuclear war, alien invasion, or Armageddon, it will not happen.

Liquidation leads to declines in wealth that has been malinvested.

It also spills over into quality investments. This is a specific negative externality which necessarily creates a race to the bottom in all asset prices.

Resources that are left after liquidation are reallocated where they can grow.

Under such conditions, the growth required to reach previous levels eats up the productive capacity of an entire generation. In combination with the political risks associated with such events, it is piss poor policy.

Government intervention can't stop this process, only delay it.

Delay nothing! Government intervention has been shown to soften the blow in terms of severity.

It's like weeding a garden.

It is nothing of the sort!

 

[froggigger]

Re: Another Recession?

Which is roughly double that of the modern era. From 1854-1919, the average duration was 21.6 months. Since 1945, when Keynesian macroeconomic policy was officially adopted by the U.S. government, the average duration has was 11.1 months. Even the depression era (1919-1945) had shorter duration and less frequency than 1854-1919.

Keynesian policy began under Hoover, continued under FDR. They just didn't know it was Keynesianism because the General Theory hadn't been published yet.

Intervention has existed throughout history.

Not to the massive extent that was supposed to "fix" the Depression.

The data was established via http://www.nber.org/cycles.html I can care less that it's inconvienent to your position. Best to take it up with them.

You used it because it matches your position. It doesn't address my position so inconvenience is just something you made up.

While accounting measures show the GD occurring in late 1929, the pain could be felt as soon as 1926. In fact, it was the unabated deleveraging (what you support!) from the real estate bubble in South Florida that contributed to the general credit contraction that only began to surface on black Tuesday. Once the retail investor spigot started to dry, only then do we witness the magnificence of liqudationism.

When the Florida bubble popped in 1925, investors had seen asset prices rise far above their fundamentals because they all expected the rise to continue. After the pop, they transferred their over-leveraged positions into the stock market. Without new investors to keep pushing prices higher, speculators lost interest and demand fell out from under the market. That is what happened in Oct. 1929. The magnificence of liquidation was thwarted by interventionism. In fact, the economy was showing early signs of a natural recovery before Hoover began "fixing" things. Unemployment had peaked at 9% and then fell to 6.3% by June 1930. Then, Hoover began to work his magic with higher tariffs. Six months later, unemployment was in double-digits and stayed there for the entire decade.

Sure, if revolutionary socialism is what you desire.

I want the freedom to do whatever the hell I want to do as long as it doesn't interfere with any other individual's ability to do the same. What our government has become has no place in my desires.

Not the point. The sheer existence of a bank run requires the fear that deposits will be lost to manifest into action. Prior to FDIC insurance, this was a common feature of the market economy.

Let banks live and die by their own actions. If they screw up, they fail. It won't take many failures before the people who use banks and lose money will be a lot more selective and not just deposit their money into any old bank just because their deposit is insured by the government.

Which have not occurred in the U.S. since the FDIC. Like i said, emotional hyperbole.

You asked for an example and I gave you one. Emotional hyperbole has nothing to do with it. Once again, you made it up.

THe only reason rational people would all show up and demand their money (at once) would be due to the fear their deposits would be lost; which the FDIC protects against. It cannot happen. I know it gets you all soft inside fantasizing about such a situation, but barring some sort of catastrophic event like nuclear war, alien invasion, or Armageddon, it will not happen.

You claimed all depositors can get their money back. Now you're saying it doesn't matter because it will never happen. That may be the case but it's irrelevant. The fact is that in a run, all depositors can not get their money back on demand as you originally said.

It also spills over into quality investments. This is a specific negative externality which necessarily creates a race to the bottom in all asset prices.

Without liquidation, the malinvestments remain and continue to be an anchor on growth. Liquidation can be painful, but it's necessary for a speedy recovery.

Under such conditions, the growth required to reach previous levels eats up the productive capacity of an entire generation. In combination with the political risks associated with such events, it is piss poor policy.

It does no such thing. You showed your hand when you mentioned "political risks". For a politician, priority #1 is getting re-elected. Allowing the economy to recover without their interference stands in the way of them claiming that "I did something for you" in their vote-for-me rhetoric. If what they did makes it worse, they just blame it on Bush.

Delay nothing! Government intervention has been shown to soften the blow in terms of severity.

The Great Depression sure proved that. :roll:

It is nothing of the sort!

It's a valid analogy but I don't expect you to agree with it.


This is getting too long...

 

[chromium]

Re: Another Recession?

So you are still unemployed? Geesh man, start looking for a job!

I was 13 when the banks got their massive bailout. I'm aware there's a world outside myself, and what I see is inflation, debt, and underemployment. Same thing as '08.

 

[Kushinator]

Re: Another Recession?

Keynesian policy began under Hoover, continued under FDR. They just didn't know it was Keynesianism because the General Theory hadn't been published yet.

The economic policy under Hoover was contradictory. Yes, he pushed public works projects such as the Hoover Dam, but he also enacted tax increases on both imports and the top income bracket. Anyone who considers this to be Keynesian economic policy does not understand it.

FDR on the other hand provided more in terms of public services and works, but never to the extent necessary to bridge the gap between real and potential economic output... until WWII. Only then was deficit spending large enough to combat the aggregate demand shortfall that persisted throughout the 1930's.

Not to the massive extent that was supposed to "fix" the Depression.

Which did not occur until WWII.

You used it because it matches your position. It doesn't address my position so inconvenience is just something you made up.

I used the data because it is available, and of course it supports my position (that was the point!). You are attempting to create a straw man argument by heralding the GD as Keynesian failure. Yet as was pointed out, Keynesian economic policy was not implemented until WWII. In fact, during WWII, unemployment was at its lowest levels on record.

The magnificence of liquidation was thwarted by interventionism.

Nonsense! By 1932, the stock market (Dow Jones) had fallen by almost 90% from its 1929 high. Must i also present commodity, real estate, and credit market data?

In fact, the economy was showing early signs of a natural recovery before Hoover began "fixing" things. Unemployment had peaked at 9% and then fell to 6.3% by June 1930. Then, Hoover began to work his magic with higher tariffs. Six months later, unemployment was in double-digits and stayed there for the entire decade.

As stated, economic intervention has existed throughout history.

Let banks live and die by their own actions. If they screw up, they fail.

That is what generally happens. However, we as a society cannot allow all of them to fail. To do so is both irresponsible and counterproductive.

It won't take many failures before the people who use banks and lose money will be a lot more selective and not just deposit their money into any old bank just because their deposit is insured by the government.

The recipe for frequent financial panics; a common occurrence during the 19th century.

You asked for an example and I gave you one. Emotional hyperbole has nothing to do with it. Once again, you made it up.

Your example is purely hypothetical. It has zero basis of reality.

You claimed all depositors can get their money back.

They can. Show me one instance where they have not been able to get their money back outside of keeping accounts that exceed the insurance limit (for which the occurrence is even more rare)?

Now you're saying it doesn't matter because it will never happen.

It cannot happen. That is the point!

That may be the case but it's irrelevant. The fact is that in a run, all depositors can not get their money back on demand as you originally said.

I am not sure why you are struggling so much with this concept. Deposit insurance prevents bank runs from occurring by eliminating the risk that people's deposits will be lost with a bank failure. What actually happens when a bank does fail? The FDIC takes it over and covers the withdraws of all intending parties.

Without liquidation, the malinvestments remain and continue to be an anchor on growth. Liquidation can be painful, but it's necessary for a speedy recovery.

The experiences from the Great Depression show otherwise!

It does no such thing. You showed your hand when you mentioned "political risks".

A revolutionary populace is in fact a political risk; the type that redefine the mechanics of how politicians come to power.

The Great Depression sure proved that. :roll:

The complete lack of intervention surely did! Keynesian economic policy was not fully instituted until WWII. Then, and only then, do we see sustained economic recovery.

This is getting too long...

It is tough defending a point of view that cannot be supported by the evidence. Instead, a series of heroic assumptions is all you have....

 

[froggigger]

Re: Another Recession?

It is tough defending a point of view that cannot be supported by the evidence. Instead, a series of heroic assumptions is all you have....

The bottom line is that we disagree and, obviously, no amount of debate will change that. You think you're right, I know I'm right, so it's pointless to keep going. eace