Tiger Moth Posted March 24, 2009 Report Share Posted March 24, 2009 The following could have been posted under the category of news, since it comes from a newspaper, The Nation. However, being a US citizen retired in Thailand and having enough time on my hands to read many newspapers and magazines in the internet, I thought this was as good a summary of the present economic state that I have seen. http://blog.nationmultimedia.com/thanong/2009/03/23/entry-1 Granted, there are some language deficiencies, but, I feel the message is basically accurate. And, the US economy has enormous global impact. I had to laugh when the US stock market went up almost 7% after the plan for toxic bank holdings plan was announced. I remember the old adage, "you can pay me now or pay me later". Pay me later is not a solution. Here is an article referencing the IMF's view. http://www.reuters.com/article/bondsNews/idUSLN31921620090323 Personally, I think we are headed, perhaps delayed for a year or so because of the "US pay later philosophy", for an econmic disaster greater than the Great Depression. I am in the process of buying a townhouse for cash, my car was paid for in cash. So, in the worst case, I will just have to manage food, which doesn't seem to be a problem in Thailnd. I tend to be pessimistic. Any optimists see a different scenario? Link to comment Share on other sites More sharing options...
drogon Posted March 24, 2009 Report Share Posted March 24, 2009 I see a different scenario which seems to have started already. In the short term the markets will continue to fluctuate a bit but with an upwards trend. -> because, no matter how much people wish it otherwise -> the "real economy" health depends on the market's recovery. Many measures have been taken and will be taken to help the financial sector recover, even China has realized the need to support the financial market -> hence its anouncement to continue to buy American bonds... Confidence has been shattered . Now, what after? (and if the credit card bubble doesn't explode now) There is certainly a need for a global financial regulation system with real power to stop the disastrous financial "schemes" which led to the crisis. The USA? I agree there is no free lunch and the US will lose more and more their role as "financial first power", furthermore, countries like China will also push slowly but surely for a global economy which relies less on the USD. (slowly simply because China is the first creditor of the US -> hence "killing the USD" is not in their interest -> but diversify risk by relying less on the $ is a good thing). The USD? It will undoubtly pay the price, quantitative easing, in the end, only increases one's debt (in this case a country) which has to be "paid" one way or another... The ECB might be nuts, too slow to react but at least I am grateful they don't rely, for now, on "printing money".... Keynes was right on one thing at least, economy is a cycle... Tiger Moth: For us, mortals, what you did is the right thing -> have a house/roof and then "only" having to pay your meals. Sadly, many people don't do the same -> they prefer to get debts/credits/loans to do so... I might be completely wrong but I hope not. Cheers Link to comment Share on other sites More sharing options...
BelgianBoy Posted March 24, 2009 Report Share Posted March 24, 2009 Keynes was right on one thing at least, economy is a cycle... Economy is a cycle ? Any link to that theory ? I know the the 'deficit spending' theory and the 'circular money flow' theory, but not the 'cycle theory'. BB studied economy as a hobby, and willing to learn more..... Link to comment Share on other sites More sharing options...
drogon Posted March 24, 2009 Report Share Posted March 24, 2009 Read: The General Theory of Employment, Interest and Money... Boring, as boring and wrong as all the books written by theoricians of economy....From Marx to Max Weber and Keynes.... Keynes has been proved mostly wrong, like most economy theories...but some of his ideas/thesis make sense. Economy is a cycle -> is not one of Keynes theories -> this is more like a postulate to him. Although what he means by this is mostly wrong too (economy is not a nice logical cycle) I allowed myself to kind of "quote" him... Link to comment Share on other sites More sharing options...
HeartThais Posted March 24, 2009 Report Share Posted March 24, 2009 The ECB might be nuts, too slow to react but at least I am grateful they don't rely, for now, on "printing money".... Keynes was right on one thing at least, economy is a cycle... Why are you so grateful if you can't really articulate the pros and cons of printing money? And who said the ECB isn't printing money? And Keynes didn't say the economy was a cycle (his ideas were on how to deal with them) and his ideas haven't been proven wrong. Monetarism took over as the preferred approach to dealing with cycles but as we have now approached zero interest rates, monetarists are stuck with quantitative easing. So you think Keynesians are wrong and you are also against the only tool left in the Monetarist bag (QE). Link to comment Share on other sites More sharing options...
drogon Posted March 24, 2009 Report Share Posted March 24, 2009 HeartThais: Pro of printing money: Helping the consumption to resume...simply said Con: Inflation -> exactly what happened to Japan in the nineties and hyperinflation is really the worst thing which could happen and when a country enters the cycle it can't get out easily... ECB: is not using quantitative using exactly like the FeD or the BOE... The FEd is basically expanding its balance sheet... The ECB: is only accepting to expand the assets from banks that can be used as collaterals. To me this is a major difference: In the fed case it is printing money in exchange of "nothing serious" while the ECB just widens its criterias. All right, you obviously want me to read again the uni courses about the Keynes so I can provide more arguments. Why do I say (like quite a few journalists) that Keynes is wrong? Simply because although his theories about international coordination of monetary policies and institutions are great but....now is too late. I do realyl think that although the world would be best with a powerful IMF, harmonized international fiscal and monetary policies like he advocated -> the multinationals/financial companies etc...have grown too powerful to be restrained... The crisis will be forgotten to start again a next time. Interventionism government formula is a thing of the past...mitigation has also not worked. I tend to agree with my uni economy teachers who were enthusiastic about Keynes ideals but who recognized his model wouldn't work on the long term... Now, to make you happy, I will go get next week my courses about Keynes -> so as to provide something else than what I vaguely remember. PS: I was wrong about the economy cycle which proves that I need to find back my courses. Link to comment Share on other sites More sharing options...
BelgianBoy Posted March 24, 2009 Report Share Posted March 24, 2009 Read: The General Theory of Employment, Interest and Money...Boring, as boring and wrong as all the books written by theoricians of economy....From Marx to Max Weber and Keynes.... I did, but did not find it boring as it is a hobby of mine. Keynes has been proved mostly wrong, like most economy theories...but some of his ideas/thesis make sense. No, he has not been proven wrong at all, his theory still stands today. Economy is a cycle -> is not one of Keynes theories -> this is more like a postulate to him. Although what he means by this is mostly wrong too (economy is not a nice logical cycle) I allowed myself to kind of "quote" him... He stated that 'business is a cycle', but that is another story. BB Link to comment Share on other sites More sharing options...
HeartThais Posted March 24, 2009 Report Share Posted March 24, 2009 HeartThais:Pro of printing money: Helping the consumption to resume...simply said Con: Inflation -> exactly what happened to Japan in the nineties and hyperinflation is really the worst thing which could happen and when a country enters the cycle it can't get out easily... ECB: is not using quantitative using exactly like the FeD or the BOE... The FEd is basically expanding its balance sheet... The ECB: is only accepting to expand the assets from banks that can be used as collaterals. Japan started their QE program in 2001, not the 90s. During the 90s, they were using conventional monetary measures of cutting interest rates. They didn't suffer from hyper-inflation as a result of their massive QE. In fact, they suffered deflation. They didn't suffer from inflation in the 90s either. See chart: http://www.fundsupermart.com.my/main/articleFiles/webarticles/63/MY/2008AugJapan4.jpg Also you think hyperinflation is the worst thing that can happen. And yet, the Great Depression was about deflation. Japan's lost decade was about deflation. In today's climate, which do you think is the bigger threat, hyperinflation or deflation? Also, whether a CB loans money to a bank or purchases securities outright, it is still printing money and expanding the balance sheet. Money is a CB liability. Any transaction where a CB increases their assets must also increase the liability. AKA printing money - the ECB is already doing it. The question isn't whether to print money but how much. When I look at the history of Japan, it suggests the ECB isn't printing money fast enough. Here is a good explanation of printing money: http://blogs.ft.com/maverecon/2009/01/quantitative-and-qualitative-easing-again/ Anyway, I expect ECB to announce a big QE program within the next 2 months. Link to comment Share on other sites More sharing options...
Hugh_Hoy Posted March 24, 2009 Report Share Posted March 24, 2009 [ In today's climate, which do you think is the bigger threat, hyperinflation or deflation? How about a third choice: stagflation? HH Link to comment Share on other sites More sharing options...
bangkokrover Posted March 25, 2009 Report Share Posted March 25, 2009 A really good presentation of what's probably going on in the US. economy can be found here. http://www.chrismartenson.com/crashcourse Link to comment Share on other sites More sharing options...
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