The financial reform legislation making its way through Congress has Wall Street executives privately relieved that the bill does not do more to fundamentally change...
"Note how oil, metals, equity indices and corporate bonds have all fallen together recently. Given their inverse correlation with the dollar, there is more of this to come, as the dollar strengthens further in the midst of global turmoil."
The author totally fails in this analysis..How can the dollar strengthen? The debasement of the euro is a move taken right out of the U.S. playbook.. "Just print your way out of it".The dollar is just slightly stronger than the euro for now, But the dollar is still a dirty dog with fleas. Gold, silver and other precious metals will be King.. Bloomberg is already reporting this fact. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a113DCY9KCPs
TeMpTeK: "Note how oil, metals, equity indices and corporate bonds have
Until all the crooks are swept from the financial system, an economic recovery will only be a dream. The structural problem is that we have established a financial system where a downturn can occur based on pure rumor much faster than an upturn. In our current market, unlimited quantities of paper contracts representing real products can be used to manipulate the price of anything. This makes our world one step away from bankruptcy at any moment. In the past, this could never happen based on pure speculation in a matter of 15 minutes. Today, economic paper warfare is a reality and a country can be taken to its knees in a matter of minutes. With this kind of power, who needs nuclear weapons?
guveqzero: Until all the crooks are swept from the financial system,
I wonder why it is that I am seeing more and more well defended arguments that the choices that tempt austerity, or even impose it, are the choices that will punish economies globally, yet it seems that those who control the greater share of wealth seem to favor the austerity position? It seems that the austerity path would damage the prospects of the wealthy who will be left with few to exploit other than each other. Frankly, it makes a lot of business and government leadership seem mathematically incompetent.
There is only one odd argument I can dream up on the other side. If anthropogenic global warming is the daunting threat that we fear, and if the will to respond to it with thoughtful foresight on the part of governments and businesses continues to be obstructed, then the alternative of austerity will crimp a whole lot of that excess consumption and energy use and tend to achieve the same thing without anybody having to agree to it. If it could inspire a whole new/old approach to innovation, where business actually strives to tempt us with what will help us, rather than rob us or entertain us as if we were all rich and leisurely, then that could be a good thing.
Linda_from_Deerfield: I wonder why it is that I am seeing more
There are two schools of economics - the Keynesians and the Monetarists. Like the yellow hats and the red hats in Tibet they both assert that they know the true path and that the other group have been shown to be wrong in their beliefs.
Monetarism is austerity obtained by restricting the supply of money - reducing borrowing to avoid inflation and preserve the value of capital. Keynesianism is stimulus - using borrowing to promote production. Monetarism is trickle down, Keynesianism is trickle (or maybe flood) up.
The one thing we know for sure is that even if you believe the theories worked once neither of them work any longer.
John_Cunningham_Bowler: There are two schools of economics - the Keynesians and
I do wish the Keynesians would be a little more vocal about how stimulus can be made to work when the stimulated economy is bleeding jobs and money to other nations.
Linda_from_Deerfield: I do wish the Keynesians would be a little more
Economics clearly doesn't work - it doesn't have any greater predictive power than, for example, astrology - so it's impossible to justify anything on the basis of economic theories. Follows of Keynes will forever be refuted by what happened in the late 1970's and Monetarists will founder on the abject failure of the last few years.
But we can return to basic principles of human society. Rather than trying to manipulate the economy we should simply follow self evident truths such as those expressed in the Declaration of Independence.
It's clearly the function of government to ensure indivudal life, liberty and health; I find it remarkable that so many people dispute actions by government to do this and advance crazy economic theology or a basic distrust in human good to justify this.
From the libertarian viewpoint the solution is easy, but radical. Simply give every single person the poverty level incomeand universal health coverage. That means everyone is free to work or not to work but anyone who wants a better standard of living must do better. Eliminate the minimum wage.
This is a Keynesian stimulus but done in a stable way: the whole society maintains a constant, reliably, income stream not subject to any manipulation by those who control capital.
Pay for this with a flat rate income, or if you must, value added, tax.
Don't try to manipulate the money supply. Ban short term unsecured credit - people must save to buy. The same ban eliminates foolishness like
John_Cunningham_Bowler: Economics clearly doesn't work - it doesn't have any greater
The root problem is described in one simple word, "oligarchy". When we have politicians colluding with mega-predatory corporate capitalistic elites to game the system so that the wealth pool rises to the top 10%, then we are heading to more disaster.
We need leadership that will stand up against this significant national security risk--CODE RED, but it is not happening as was seen with a soft shoe style financial reform bill dance.
Obama is capitulating with the oligarchs. As he holds hands with Geithner, Gensler, Bernanke, and Summers, they prance down the Road To Serfdom (Hayek).
Germany realized in a New York Minute that short selling and corrupt derivative trading must be banned, but not here, because Geithner has already said that it is the financial sector that is bringing in the bacon to the Treasury. Who cares if it is gotten through computerized corrupt trading practices. Cash is king, right Timmie daG?
What is really needed is for millions of Americans to flow in to DC and protest this corrupt theft and demand real financial reform that shakes the boots of the corporate and financial predatory mobsters.
The root problem here is that "this system can be easily 'gamed' by financial criminals." All it takes is well-placed bribery, which is very easily got.
Another root problem: we have "a hemorrhaging profusion of units of currency," but none of this is connected to physical trade of any kind. The actual trade picture has become extremely concentrated into a few countries (having cheap labor), which means that it has lost all of its redundancy. The "picture" conveyed by "all that cash (sic)" meanwhile bears no resemblance to it. To any of it.
"Money is not an export." Money is only a unit of measure. The moment we lumped "insurance," "finance" and "banking" under one roof, we saw an explosion in the number of units-of-currency even as the actual economic activity began to list and then sink.
Step one? Turn off the computers. Stop the programmed trading. Quit staring slack-jawed at mesmerizing computer screens as though they were stone tablets writ by God's own hand.
Sundialsvc4: The root problem here is that "this system can be
I see the current Financial system much as a bookie taking bets on a game, they don't care who wins as long as the money coming in more than covers the money going out. They make money no matter what.
It has been long said by people much smarter than me, but we don't make anything in this country anymore but debt.
And the idea that the rich are spending money in the States is a joke. They are always looking for that 10% or 12% sure bet return. Why would they invest in a business that makes a product when they might only get 3% or 5%? Especially when they can game the system so they don't have to pay any taxes.
We are headed toward all working for the company store.
BBackSoon: I see the current Financial system much as a bookie
Well, BBack, the trouble here is that "all of that debt" really doesn't exist. Neither does "all that money," the root problem being that they're being thought of as one-and-the-same thing.
There are no checks, no balances. There's nothing keeping the owners of those "trading" (sic...) computer programs from turning them up as fast as they can go. The faster they turn, the more profits they spew out, either in the form of commissions or simply in the phantom multiplication of a phantom "number of shares" by an equally-phantom "price." (And that's only one of the many forms of financial phantom that exist.)
But let us go to a warehouse and look at them. Let us open the cargo holds of any ship. Walk me to a production line and show them to me. What box can I open?
It's a chimera. It's a fantasy ...
... it's a fraud.
... it's a swindle.
We pursued that wisp of empty fog with the earnestness that we should have reserved for "vigorously MAKING THINGS" in the shuttered factories throughout this world which, not too long ago, did just that. Our elected leaders fell for it, and having fallen for it, helped it along. And so did we. So did all of us.
Sundialsvc4: Well, BBack, the trouble here is that "all of that
Thank you DK for this overview. I life in California and touch on venture , technology and global economy . My hope to the future is business models that go back to local business , family business , family gardens and farms and community. I want to look at venture business models that allow the consumer to be more self sufficient and engaged in their local community; I like the village model. The model of creating capital off of intangible financial structures and bets have imploded the retirement and stability of the global community. I believe big business can look to creating community jobs and business models that can take the emphasis on large cities to redirect to other parts of the country. The destruction of small business has to be reversed thus the financial engine of this country and world will be restored and the benefit of a happier public will be restored. The apathy of a public with no hope is the cancer of this crisis.
Cheray: Thank you DK for this overview. I life in California
Big Business and big Government eventually become entities unto themselves. Once a week they send someone to empty the quarters out of the gumball machines but they have no concept who put those quarters in so they don't care what kind of product they get for their quarter as long as they keep putting in quarters.
Several of us in Hawaii have begun the process or, in my case, completed it, of being entirely self-sufficient. It's not quite to the point of 'chickens for checkups' but if the economy goes it won't affect us much. But most people don't believe anything like that could ever happen, so there are no investors....just what we each can afford to do. If you would like to discuss that sort of model...which starts as a subsistence/barter economy and progresses, I am tc96749 on Twitter.
tc399: Big Business and big Government eventually become entities unto themselves.
DK Matai fails to advance a hypothesis for the underlying structural problem.
Sure, saying the system is unstable and uncontrolled is valid, but it is a symptomatic description. We've known it was unstable for many years, we've even known that the instability is a direct result of the coupling between what should be uncoupled investments.
However there is a structural problem that underlies this: the undervaluation of raw materials. This leads to the price paid by producers (consumers of raw materials) being set by distributors and, most significantly, speculators while the people who own or make raw materials (mineral rights owners, farmers, fishermen etc) get underpaid and have to be supported by subsidies.
The situation arose out of US and European foreign trade policy as net consumers of raw materials in the last century. The US and Europe forced raw material prices down, both internally and externally, increasing the margin for profit at home. Markets speculated to an increasing extent on the degree to which the margin could be moved about - margins are highly volatile/liquid. There could only be one result; mounting instability, massive swings and, eventually, destruction as the oscillations get out of control.
The system was stabilised in the last century by the enormous US raw material wealth, but even US raw material producers have now had all the profit squeezed from them. Now the only stabilizer in the system is Chinese government policy, which controls the fiinal raw material; cheap labor.
John_Cunningham_Bowler: DK Matai fails to advance a hypothesis for the underlying
"Robbing the vast majority of humanity of their sense that the global economy based on free market economics is basically well-functioning" - is on par with losing ones livelihood and home? Well, maybe for the finance sector.
But I imagine a lot of Americans would happily put up with their disillusion in return for a job and home.
Angelaaaa: "Robbing the vast majority of humanity of their sense that
The current economic hypothesis is that the yuan is vastly *under* valued - that the government holds the value down to make Chinese exports cheap.
Bush asked the Chinese to do this and the Chinese, like parents whose child wants to play with fire, did it once for demonstration purposes. The US fell apart as the yen rose only very slightly:
I suspect the previously respected Chinese economics experts who said the 2-3% rise would be ok are now trying to be enthusiast rice farmers in the north.
The underlying economics are simple - the money China gets paid for its exports to the US is about 4 times what it pays for its import of raw materials from the US. The Chinese government know that this is undervaluing the raw materials and they know that the US and Europe have traditionally undervalued raw materials to maintain control and hence profit over third world countries. They should be laughing all the way to the bank; very very happy to see the Yuan go up in value.
They aren't because they know the result will further destablise the system. They must have been extraordinarily surprised at how much just the 3% rise destabilised everything; I imagine comments like, "**** another lousy capitalist tool that breaks the first time you use it."
John_Cunningham_Bowler: The current economic hypothesis is that the yuan is vastly
" Who would have thought that Greece, a country that accounts for 2% of the GDP of the European Union, would be able to derail the mighty euro"
Exactly. This is what happens when you have enormous concentrations of wealth chasing a return in casinos. Bets are made that exacerbate the problem out of all proportion. The Euro should not be under such pressure, but it is because of shorts. Distortions of this type have plagued the global economy for nearly a decade. As a global economic community, we need to tamp down the placement of giant bets. Germany is already on it. The U.S.A. and the EMU need to follow suit. The destruction of capital in unfettered speculation is already epic.
hp_blogger_Stephen Herrington: " Who would have thought that Greece, a country that
Great writeup as usual, DK. Damage of this scale makes us want to find those fault lines. The danger I see though is in us socially misplacing causes. We can't correct problems when we don't know their true causes. Problem is, it's extremely difficult to see a clear picture of what has happened and what is going on. The complexity of systems now is high. Worse, agendas are far-reaching and particularly invasive at this point, and there aren't many that sincerely support us, everyday people. It underscores the grave importance for us socially to continue questioning things, to dig deeper. It takes a lot nowadays to get our minds around all of the facts and see the whole picture. It's work and it's time-consuming...in a world where time is precious. News from just a few sources is not nearly enough. There are endless sources of information and many don't accurately expose reality. Questioning things and digging deeper is extremely important now...it seems to amount to civic duty at this point. Even more critical though is keeping an open mind and listening to each other. We have to get better at this socially, no one of us can see the whole picture. Focusing social interaction on these issues is powerful. I may not share views with everyone around me, but for example this site opens my eyes a lot. I may not always agree, but I always come away with something. My take on things continually evolves.
mr3: Great writeup as usual, DK. Damage of this scale makes
I agree with your post - we need deeper, more genuine dialogue globally! In terms of understanding causes - look to the post just above you. It really is not that complicated. There are many complicated aspects, but the root is pretty simple - GREED. As a collective human community we are in the unfolding process of choosing whether or not we are going to continue to allow this greed to exist amongst us - make no mistake about it - everything that is unfolding is directly from our choices. WHAT CHOICES WILL WE MAKE GING FORWARD?
GlobalCtzn: I agree with your post - we need deeper, more
The biggest mistake the country has made in the last 70 years was electing a B movie actor and a shill for GE as the president of the US. His economic theories, as laid out by his corpoate sponsors have about ruined the country. The Bushs especially Bush II by extending his policys have gotten the country almost into a place where we need to reset everything and start over. It should be obvious to anyone that what we need to do is return to the tax structure that we had when Reagan took office. Note: the top tax rate then was only 50%. If we do that our economy will take off just like it did under Clinton. Since we will be seen as the country that is getting its house in order, everyone in the world will try to get into the action here. Within 5 years the deficit problem we face will go away.
wmnorton: The biggest mistake the country has made in the last
You sir are clearly a thinker! You are spot on in my opinion. Just look at how much time Hannity spends trying to turn Reagan into the hero of our nation - this process is as much in play today as it was when Reagan was in office - the SPIN levels are astounding!
GlobalCtzn: You sir are clearly a thinker! You are spot on
99% think you jest! I think you may be a prophet. My 3 1/2 acres with a spring in northern Thailand is the one thing that feels real to me right now as I watch this world grow increasingly more ????????? Fruits and veggies and a lot of hard work - I'll take it.
GlobalCtzn: 99% think you jest! I think you may be a
Loading comments… 
The author totally fails in this analysis..
There is only one odd argument I can dream up on the other side. If anthropoge
Monetarism is austerity obtained by restrictin
The one thing we know for sure is that even if you believe the theories worked once neither of them work any longer.
But we can return to basic principles of human society. Rather than trying to manipulate the economy we should simply follow self evident truths such as those expressed in the Declaratio
It's clearly the function of government to ensure indivudal life, liberty and health; I find it remarkable that so many people dispute actions by government to do this and advance crazy economic theology or a basic distrust in human good to justify this.
From the libertaria
This is a Keynesian stimulus but done in a stable way: the whole society maintains a constant, reliably, income stream not subject to any manipulati
Pay for this with a flat rate income, or if you must, value added, tax.
Don't try to manipulate the money supply. Ban short term unsecured credit - people must save to buy. The same ban eliminates foolishnes
But he won't.
We need leadership that will stand up against this significan
Obama is capitulati
Germany realized in a New York Minute that short selling and corrupt derivative trading must be banned, but not here, because Geithner has already said that it is the financial sector that is bringing in the bacon to the Treasury. Who cares if it is gotten through computeriz
What is really needed is for millions of Americans to flow in to DC and protest this corrupt theft and demand real financial reform that shakes the boots of the corporate and financial predatory mobsters.
http://eye
Another root problem: we have "a hemorrhagi
"Money is not an export." Money is only a unit of measure. The moment we lumped "insurance
Step one? Turn off the computers. Stop the programmed trading. Quit staring slack-jawe
It has been long said by people much smarter than me, but we don't make anything in this country anymore but debt.
And the idea that the rich are spending money in the States is a joke. They are always looking for that 10% or 12% sure bet return. Why would they invest in a business that makes a product when they might only get 3% or 5%? Especially when they can game the system so they don't have to pay any taxes.
We are headed toward all working for the company store.
There are no checks, no balances. There's nothing keeping the owners of those "trading" (sic...) computer programs from turning them up as fast as they can go. The faster they turn, the more profits they spew out, either in the form of commission
But let us go to a warehouse and look at them. Let us open the cargo holds of any ship. Walk me to a production line and show them to me. What box can I open?
It's a chimera. It's a fantasy ...
... it's a fraud.
... it's a swindle.
We pursued that wisp of empty fog with the earnestnes
Several of us in Hawaii have begun the process or, in my case, completed it, of being entirely self-suffi
Sure, saying the system is unstable and uncontroll
However there is a structural problem that underlies this: the undervalua
The situation arose out of US and European foreign trade policy as net consumers of raw materials in the last century. The US and Europe forced raw material prices down, both internally and externally
The system was stabilised in the last century by the enormous US raw material wealth, but even US raw material producers have now had all the profit squeezed from them. Now the only stabilizer in the system is Chinese government policy, which controls the fiinal raw material; cheap labor.
But I imagine a lot of Americans would happily put up with their disillusio
Bush asked the Chinese to do this and the Chinese, like parents whose child wants to play with fire, did it once for demonstrat
http://www
I suspect the previously respected Chinese economics experts who said the 2-3% rise would be ok are now trying to be enthusiast rice farmers in the north.
The underlying economics are simple - the money China gets paid for its exports to the US is about 4 times what it pays for its import of raw materials from the US. The Chinese government know that this is undervalui
They aren't because they know the result will further destablise the system. They must have been extraordin
Exactly. This is what happens when you have enormous concentrat
Outlaw all derivative