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The world economy is heading towards a black hole unless bold action taken

economist.com

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Re: The world economy is heading towards a black hole unless bold action taken

#91

Post by crag »

palish wrote: post #42
dmix wrote: post #38

Earlier quoted context omitted.

It's not as black and white (ex suffering or no suffering). It's possible there will be much more suffering as a consequence for not acting now - by letting the core problem persist. It could have major implications that last for decades versus a few years of hardship. Most complex problems can't be fixed from constantly patching the top surface. They need to be broken down and rebuilt into something better.

For what it's worth, you're 100% spot-on correct. Don't feel bad that no one else believes it, heh. Throughout history, the world has been literally insane -- this is just another example of an insane view that's spread into popular culture. ("The system is too big to fail" / "Postponing the disaster is better, because the pain will be distributed over a longer period, rather than shocking us all at once" / whatever…

The herd (group think) never changes direction unless it has no choice.

We may, individually feel the need to break it all down. But most people don't care or understand. Not until bread cost $250 a loaf. Then the herd stomps it's feet and waves it hands screaming, "OMG what happened? Whose to blame?".

Then something might get done.

The bigger problems are the bankers themselves. Bankers NEVER change unless they have no choice. And our government (the US) had that chance, to force them in a different direction. For one moment Bush and Obama had the chance to really change things. They didn't.

Actually Bush had two chances to shake things up; 9/11 was his other. For one moment, he had the attention of the entire planet. Everyone. And what did he say? "SHOP".

Re: The world economy is heading towards a black hole unless bold action taken

#93

Post by crag »

My god this article is spot on:

"If Democrats and Republicans fail to hash out a compromise on the deficit, draconian spending cuts will follow in 2013. For all the tirades against the Europeans, America’s economy risks being pushed into recession by its own fiscal policy—and by the fact that both parties are more interested in positioning themselves for the 2012 elections than in reaching the compromises needed to steer away from that hazardous course."

Says it all right there.

Re: The world economy is heading towards a black hole unless bold action taken

#94

Post by anigbrowl »

jpdoctor wrote: post #46
anigbrowl wrote: post #14

Earlier quoted context omitted.

letting the banks fail, recapitalizing new banks, and basically rebooting the financial system Please tell us how that works in practice rather than in theory. I really, really want to know how you just 'reboot' the financial system without massive disruption to retail banking or the payments system. How do you 're'capitalize a new bank? If you just mean create new banks, who is running these banks? I mean, I'd like…

> I really, really want to know how you just 'reboot' the financial system without massive disruption to retail banking or the payments system. There will be massive disruption in any case. It can come in the format of recapitalization (Iceland) or inflation due to inflating their insolvency away (Latin America). > How do you 're'capitalize a new bank? OP meant recapitalize the failed banks. Short version: 1. Fire th…

Total time is probably 1 week for the BoA sized guys

You're telling me the government could have rebooted BofA, AIG, Wells Fargo, CitiGroup and Chase (to name just the top 5 - http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program#P...) in the space of a week or two. I would love if that were possible, but I don't see how it is. Proposals like this were debated at some length back in 2008, after all, and I distinctly remember them being decried as Communism, for understandable reasons.

Re: The world economy is heading towards a black hole unless bold action taken

#95

Post by anigbrowl »

z92 wrote: post #70
anigbrowl wrote: post #14

Earlier quoted context omitted.

letting the banks fail, recapitalizing new banks, and basically rebooting the financial system Please tell us how that works in practice rather than in theory. I really, really want to know how you just 'reboot' the financial system without massive disruption to retail banking or the payments system. How do you 're'capitalize a new bank? If you just mean create new banks, who is running these banks? I mean, I'd like…

Look at Iceland.

I'm looking at it. It's 1/1000the the size of the US, has 2 exports worth talking about, and it has to offer an 8% coupon in the bond market. This does not strike me as a useful model for the US or EU.

Re: The world economy is heading towards a black hole unless bold action taken

#96

Post by trevelyan »

OstiaAntica wrote: post #8

"Bold" action by the politicians and the central banks created much of the current mess. If we'd just cleared the pipes by letting the banks fail, recapitalizing new banks, and basically rebooting the financial system, we'd be much further along. Instead, we got bailouts and crony capitalism and ad hoc intervention, and today the global system is in many ways in worse shape now than in 2008. (Banking is more concentr…

"Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system."

-- Andrew Mellon, Secretary of the Treasury, 1929

Once he had become the most hated president in American history, Herbert Hoover wrote caustically of advisers like Mellon whose "prediction that it would right itself was not based on any studies he did or any evidence he presented."

Krugman was right to call this the return of Depression Economics. Note the conservative obsession with debt and US credit worthiness at a time US borrowing costs are FALLING to about 1% over 30 years (!!!), a figure at which there is basically no cost to pursuing fiscal stimulus and at which the spending pays off immediately in greater tax revenues and less spending on social services for the unemployed. Run the numbers yourself:

http://www.project-syndicate.org/commentary/delong118/Englis...

Re: The world economy is heading towards a black hole unless bold action taken

#97

Post by aptwebapps »

anamax wrote: post #72
michaelochurch wrote: post #56

Earlier quoted context omitted.

"Bold" action by the politicians and the central banks created much of the current mess. The problem is a lack of boldness. Bold regulation on banks and insurance companies is necessary. If we're going to do bailouts, we had better make sure the same misbehaviors can't happen again. In the U.S., we're fucking up my trying to fix failing institutions in-place. No management changes. No meaningful regulations. Often th…

> Bold regulation on banks and insurance companies is necessary. What about bold regulation on the regulators and the politicians? You remember them - they thought that subprime mortgages were a good idea, that everyone should own a house, so any bank that wouldn't play ball didn't get to play. You remember Fannie and Freddie - they lied about the fraction of the market that was subprime, so everyone's risk calculati…

You're right that Hoover ran a deficit. There's a common misconception that he was all for austerity when he in fact increased spending with a variety of stimulus programs.

However, his stimulus programs were tiny compared to the size of the hole. FDR's programs got progressively bigger over time, until he blinked in 1937, but were still quite small compared to what was required. When WWII came along is when things got serious.

Here's a nice table:

http://www.presidency.ucsb.edu/data/budget.php

That's the basic Keynesian view as I understand it. I find it credible, but the fact is that I don't actually know that much about economics. One thing that I am quite sure of, however, is that nearly no one else talking does either. Or if they do then they usually have got several axes to grind and are selective in their data, disingenuous in their arguments, or too emotional to be trusted.

Wow, I'm getting pretty cynical about the whole thing.

Re: The world economy is heading towards a black hole unless bold action taken

#100

Post by usaar333 »

jussij wrote: post #86
yequalsx wrote: post #24

Earlier quoted context omitted.

The are numerous examples of countries having a larger debt to GDP ratio than the United States who recovered nicely from such debt ratio. In the U.S. taxes are around 24% GDP which is quite low relative to the rest of the industrialized world and quite low relative to our recent past (50 years). Raising taxes will counteract any hyper inflationary forces. Increasing the debt for the U.S., given that the borrowing ra…

> The are numerous examples of countries having a larger debt to GDP ratio than the United States who recovered nicely from such debt ratio. The US debt to GDP ratio is rapidly approaching 100% http://www.usgovernmentspending.com/federal_debt_chart.html Once it hits 100% it's only a short walk to becoming a country not a lot unlike Greece: http://www.tradingeconomics.com/greece/government-debt-to-gd...

1) 140% is a long way from 100%

2) Take a look at Japan: http://www.tradingeconomics.com/japan/government-debt-to-gdp

220% of GDP and no one is worrying. Why? It's bond yield is so low: http://www.tradingeconomics.com/japan/government-bond-yield (unlike Greece: http://www.tradingeconomics.com/greece/government-bond-yield)

The US incidentally has a bond yield roughly double Japan http://www.tradingeconomics.com/united-states/government-bon... Even though it has a much lower debt to GDP, it is paying almost the same interest per GDP!

And that's the funny thing about solvency. As long as investors give you low interest rates, all is well. If they decide you will be insolvent, bond rates rise, resulting in a self-fulfilling prophesy where you actually become insolvent.

Solvency is of course inversely correlated to debt to GDP ratio, but there are tons of other actions at work.

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