Comments on: Mr. Minsky Moment Calls for Rate Cuts http://www.nakedcapitalism.com/2007/12/mr-minsky-moment-calls-for-rate-cuts.html Sun, 22 Nov 2009 22:11:10 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Anonymous http://www.nakedcapitalism.com/2007/12/mr-minsky-moment-calls-for-rate-cuts.html#comment-2432 Anonymous Sat, 15 Dec 2007 06:56:00 +0000 http://www.nakedcapitalism.com/2007/12/mr-minsky-moment-calls-for-rate-cuts/#comment-2432 Magnus is right, of course -- and those who confidently dismiss the threat of deflation because "savers don't outnumber debtors" need to reflect upon a China that can finance a domestic investment rate equal to something like 40% of GDP and still run an enormous current account surplus with the USA. It's this globalization thing. Maybe you've heard of it?<br/><br/>The real "last war" is the battle against inflation, and the assumption that a 4% CPI as opposed to a 2% CPI is the worst case economic scenario. <br/><br/>It's been such a long time since the developed world suffered a really serious deflationary slump that the possibility no longer inspires the terror it once did for those who came of age in the '30s -- or even the mid-70s. And so the gospel according to Andrew Mellon ("liquidate labor, liquidate real estate, liquidate the farmers, liquidate, liquidate, liquidate.") is back in fashion, at least among those who have no idea what kind of hell the process might involve.<br/><br/>Fortunately, the Wall Street greedheads are temporarily on the side of the angels here. To save their own greasy hides, they're pushing the diehards to get down off their "moral hazard" high horses and man the water pumps. Timid and half hearted steps, yes, but at least moving away from the policy insanity normally prescribed for every OTHER debtor country by the Treasury/Fed/IMF iron triangle.<br/><br/>Of course, if the greedheads succeed in containing the crisis, the needed regulatory reforms (and I'm sure the hell not talking about DEregulation) will never be made -- leaving the US financial system in roughly the same position as the farmer who never fixes the whole in his roof because "when it's raining it's too dern wet to work, and when it ain't raining, the roof don't leak."<br/><br/>But that's just par for the course in this decaying hulk of a republic. And it's still better than the return of Mellon's ghost. Magnus is right, of course — and those who confidently dismiss the threat of deflation because “savers don’t outnumber debtors” need to reflect upon a China that can finance a domestic investment rate equal to something like 40% of GDP and still run an enormous current account surplus with the USA. It’s this globalization thing. Maybe you’ve heard of it?

The real “last war” is the battle against inflation, and the assumption that a 4% CPI as opposed to a 2% CPI is the worst case economic scenario.

It’s been such a long time since the developed world suffered a really serious deflationary slump that the possibility no longer inspires the terror it once did for those who came of age in the ’30s — or even the mid-70s. And so the gospel according to Andrew Mellon (”liquidate labor, liquidate real estate, liquidate the farmers, liquidate, liquidate, liquidate.”) is back in fashion, at least among those who have no idea what kind of hell the process might involve.

Fortunately, the Wall Street greedheads are temporarily on the side of the angels here. To save their own greasy hides, they’re pushing the diehards to get down off their “moral hazard” high horses and man the water pumps. Timid and half hearted steps, yes, but at least moving away from the policy insanity normally prescribed for every OTHER debtor country by the Treasury/Fed/IMF iron triangle.

Of course, if the greedheads succeed in containing the crisis, the needed regulatory reforms (and I’m sure the hell not talking about DEregulation) will never be made — leaving the US financial system in roughly the same position as the farmer who never fixes the whole in his roof because “when it’s raining it’s too dern wet to work, and when it ain’t raining, the roof don’t leak.”

But that’s just par for the course in this decaying hulk of a republic. And it’s still better than the return of Mellon’s ghost.

]]> By: Anonymous http://www.nakedcapitalism.com/2007/12/mr-minsky-moment-calls-for-rate-cuts.html#comment-2418 Anonymous Sat, 15 Dec 2007 01:01:00 +0000 http://www.nakedcapitalism.com/2007/12/mr-minsky-moment-calls-for-rate-cuts/#comment-2418 FT: <i>"a nasty deflationary credit crisis is just starting"</i><br/><br/>As they say, "generals always prepare for the previous war".<br/><br/>Japan and the Great Depression notwithstanding, deflation simply isn't going to happen. Those were times and places where savers outnumbered debtors. Today it's the opposite: everyone from the federal government on down is drowning in debt. Deflation's not going to happen, full stop.<br/><br/>I claim no great expertise in economics, but this isn't even a matter of economics, it's just straight politics. Sometimes democracy is a matter of two wolves and a sheep voting on what's for dinner. Consequences be damned (and they will be severe), the helicopters will fly. Why does anyone doubt this? FT: “a nasty deflationary credit crisis is just starting”

As they say, “generals always prepare for the previous war”.

Japan and the Great Depression notwithstanding, deflation simply isn’t going to happen. Those were times and places where savers outnumbered debtors. Today it’s the opposite: everyone from the federal government on down is drowning in debt. Deflation’s not going to happen, full stop.

I claim no great expertise in economics, but this isn’t even a matter of economics, it’s just straight politics. Sometimes democracy is a matter of two wolves and a sheep voting on what’s for dinner. Consequences be damned (and they will be severe), the helicopters will fly. Why does anyone doubt this?

]]> By: Edgar http://www.nakedcapitalism.com/2007/12/mr-minsky-moment-calls-for-rate-cuts.html#comment-2414 Edgar Fri, 14 Dec 2007 18:11:00 +0000 http://www.nakedcapitalism.com/2007/12/mr-minsky-moment-calls-for-rate-cuts/#comment-2414 It seems to me that no matter how many losses the IBs take they will not sell any assets which they perceive have any real value. No-one in authority wants to force them to balance the books because that would cause a market crash. Meanwhile the pensioners get to over-pay for investments, which is exactly how they want it. How is this not a leverage fueled monopoly? It seems to me that no matter how many losses the IBs take they will not sell any assets which they perceive have any real value. No-one in authority wants to force them to balance the books because that would cause a market crash. Meanwhile the pensioners get to over-pay for investments, which is exactly how they want it. How is this not a leverage fueled monopoly?

]]> By: a http://www.nakedcapitalism.com/2007/12/mr-minsky-moment-calls-for-rate-cuts.html#comment-2411 a Fri, 14 Dec 2007 08:56:00 +0000 http://www.nakedcapitalism.com/2007/12/mr-minsky-moment-calls-for-rate-cuts/#comment-2411 "Too many observers want to believe that there is a solution."<br/><br/>Amen. Sometimes you're in enough doo-doo where there isn't a solution. Americans are spending too much for what they can produce. They have to get poorer. Monetary policy isn't going to change that; it's only going to change who gets poorer and by how much(and also how much bag foreigners get caught holding). “Too many observers want to believe that there is a solution.”

Amen. Sometimes you’re in enough doo-doo where there isn’t a solution. Americans are spending too much for what they can produce. They have to get poorer. Monetary policy isn’t going to change that; it’s only going to change who gets poorer and by how much(and also how much bag foreigners get caught holding).

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