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Old 11-07-2008, 05:45 AM   #16
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True enough for now. At some point when the recession really takes hold, they may stop pointing fingers at each other and start pointing west.
They initially pointed west a bit last year when they took losses on US MBSs. However, the big EU banks themselves were reckless in lending to emerging markets (some of which are going bankrupt now), and built up huge leverage ratios. These leverage ratios are several times the GDP of their home countries, meaning the banks are to big to rescue as well as too big to fail. So they can no longer blame the US.
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Old 11-07-2008, 08:17 AM   #17
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Right, their debt levels are their own doing. When political pressure starts coming from the general population though (rather than the current storm still affecting mainly the financial community) leaders won't be accepting responsibility, they'll find a convenient scapegoat.
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Old 11-07-2008, 10:33 AM   #18
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Right, their debt levels are their own doing. When political pressure starts coming from the general population though (rather than the current storm still affecting mainly the financial community) leaders won't be accepting responsibility, they'll find a convenient scapegoat.
The general population won't buy a false scapegoat. Look at the current Iceland protests - they are against the Icelandic government and banks. They know they have only themselves to blame.
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Old 11-07-2008, 10:59 AM   #19
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That's probably true. I still believe the pressure will likely force greater cooperation among the EU countries, not immediately of course but as the recession drags on with no end in sight.
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Old 11-08-2008, 11:46 AM   #20
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What will really help the economy more than anything government does is what individual people do.

http://www.slice.ca/Slice/Watch/Defa..._referrer=staf

"Til Debt do us part" is a good show that lays it out for what people need to do. They need a budget and they need to get out of debt and start saving for retirement.
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Old 11-08-2008, 11:46 PM   #21
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Paul Krugman thinks this theory is kind of bullshit.

New Deal economics - Paul Krugman - Op-Ed Columnist - New York Times Blog
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Old 11-09-2008, 12:11 AM   #22
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Paul Krugman thinks this theory is kind of bullshit.

New Deal economics - Paul Krugman - Op-Ed Columnist - New York Times Blog
Yeah but Keynesian economics failed in the 1970's because stagflation wasn't supposed to happen when priming the pump.

Keynesians ignore the role of savings in the economy. Low interest rates and priming the pump created an incentive for people to borrow lots because the interest rates are low. When people deleverage that's when a recession occurs.

Thanks for showing Krugman's article because he is one of the most influential Keynesians and it's important to get his view.
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Old 11-09-2008, 12:14 AM   #23
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Krugman is a politicised economist.

He got some award recently, I can't understand why he merited it.

They should have given it to Taleb or Roubini.
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Old 11-09-2008, 12:19 AM   #24
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He sure is politicized.

What has he been wrong about? I've actually asked that question of several people who are very strong critics of his. Nobody could find anything really substantial, so my quest continues.
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Old 11-09-2008, 12:58 PM   #25
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He sure is politicized.

What has he been wrong about? I've actually asked that question of several people who are very strong critics of his. Nobody could find anything really substantial, so my quest continues.
The problem with Krugman is that he thinks low interest rates are the answer. Low interest rates have been used by Greenspan for over a decade and all it did was get people into huge debt. Savers get low rates so they invest in riskier investments to hold off the inflation (which leads to big losses on risky investments) that comes natural with low interest rates. Many people just don't bother saving. In Japan low interest rates pervaded for years and Japanese just invested elsewhere to get higher interest rates and the low interest rates didn't really stop the recession, but prolonged it. BTW most economists are Keynesians in practice and politicians will be getting advice from them which makes it even harder for politicians to know what to do.

What libertarians get is that when you have low interest rates for a long time a lot of crappy businesses that wouldn't exist do so because of cheap debt and labor starts working on products and services that people don't really want. This distorts the economy.

Krugman also likes the FDR make work projects but that is just the same as bailouts where companies that make products like (junky Ford cars) keep working making products nobody wants to buy. This also distorts the economy. Eventually when people elect conservatives (with a libertarian bent) because they are tired of sluggish growth and impediments to growth eg. more taxes and trade barriers, the shock of eliminating fluff jobs becomes even bigger and recession steeper to get people back on track with REAL jobs based products and services people REALLY want. It's unpopular but necessary. The more tinkering there is the more cleanup will be necessary. Who does the cleanup will be blamed for it politically because the population doesn't understand who's at fault and will never blame themselves.

People also disagree with Krugman because he assumes that government is the main reason for the recovery of the depression (due mainly from labor demand for WWII) and so they think government should be everywhere. Yet the Soviet Union showed that government is more inefficient than the private sector by its actual results. Also WWII is a life or death situation. When the war was over there were lots of children and demand for infrastructure like houses and trade barriers were relieved. It's always good to sell products to other countries than just relying on your own population. The reason for the recession of the 30's was the indebtedness and stock market gambling in the roaring 20's. The depression was exacerbated by trade barriers, farm drought, and increased taxes.

Ultimately when people get into so much debt and can't purchase anymore, those companies that create the supply find that they can't count on the consumer to keep spending so their supply is really "oversupply", hence a distortion of the market. Companies can't keep producing supply as if the escalating demand is forever. This has to be corrected by labor moving to other areas. This means unemployed people will have to use their savings or employment insurance benefits to wait out the cycle and those rich people who have savings need confidence in the system to start investing again to start the process again.

The best way to avoid all these problems is to do what politicians of all stripes avoid and that is to raise interest rates during a boom and lower them during a bust. This reduces the size of the boom (distortion and increasing indebtedness) and reduces the fall of the bust because people aren't so indebted and the correction happens faster and involves less people. Booms aren't really good. Booms cause the eventual bust. Politicians don't want to raise interest rates during a boom because of political fallout. Therefore expect these cycles to continue your entire existence and start saving money during a boom so you have a cushion during a bust. Eventually when your 65 hopefully you have been saving most of the time and you have enough for retirement so you have more than just your labor to sell or minimal government benefits.

That's why I harp on savings.

I recommend economics in one lesson by Henry Hazlitt and his philosophy book Foundations of Morality (because without morality and trust free markets don't thrive as well). Hazlitt writes in a manner that average people can understand.

Austrian Economics Literature :: Mises Institute

There's tons of free books here so you can absorb more. The left have people like Marx, Keynes, Galbraith for other points of view. Thomas Sowell is a newer economics writer from the right that can explain things for the averange non-economist in his economics books. If you get interested in economics from different points of view you will be free from relying on TV soundbites and know what's missing on economic news reports.

http://www.mises.org/books/critics.pdf

Here's a book that directly criticizes Keynesian economics from the libertarian point of view. Now Krugman is a Neo-Keynesian so I don't know what he takes from Keynes and adds, but I'm sure he has books you can read.

My other advice is that you do the reading and research yourself because most of the population won't be able to tell you which is better economics and will stick with very rudimentary and erroneous beliefs because reading is too much trouble for them. It's difficult to illustrate politics and economics from simple posts on U2 posting sites. You will need to know both points of view so when news shows up on the economy you will be independent minded and will understand what's happening.

My two cents
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Old 11-09-2008, 01:21 PM   #26
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T
My other advice is that you do the reading and research yourself because most of the population won't be able to tell you which is better economics and will stick with very rudimentary and erroneous beliefs because reading is too much trouble for them. It's difficult to illustrate politics and economics from simple posts on U2 posting sites. You will need to know both points of view so when news shows up on the economy you will be independent minded and will understand what's happening.

My two cents
I get that you're being helpful, but you do have a tendency to patronize people. For example, here you have assumed that I haven't read Krugman's work or criticisms of him or that I need to be told how to educate myself to think critically. None of those things are true. The very basis of my profession is being able to give weight to both sides of a coin, even if you have to commit to one eventually.

My simple point was that I have yet to come across something substantive that he has advocated that I believe he's been dead wrong about. I also haven't managed to find one strong critics of his who has really had pressing issues with his economic ideas; they all seem to object to him on the basis of his social and political views, which he has made quite obvious.
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Old 11-09-2008, 02:19 PM   #27
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It looks like China has opted for intervention - a $586 billion stimulus package. It's easier to do, of course, when you don't have a huge national debt. IMO markets will rally big tomorrow.

Quote:
BEIJING – China unveiled a $586 billion stimulus package Sunday in its biggest move to inoculate the world's fourth-largest economy against the global financial crisis.

The Cabinet approved a plan to invest the money in infrastructure and social welfare by the end of 2010, a statement on the government's Web site said.
China announces $586 billion stimulus plan - Yahoo! News
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Old 11-09-2008, 07:14 PM   #28
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Krugman also likes the FDR make work projects but that is just the same as bailouts where companies that make products like (junky Ford cars) keep working making products nobody wants to buy. This also distorts the economy. Eventually when people elect conservatives (with a libertarian bent) because they are tired of sluggish growth and impediments to growth eg. more taxes and trade barriers, the shock of eliminating fluff jobs becomes even bigger and recession steeper to get people back on track with REAL jobs based products and services people REALLY want. It's unpopular but necessary. The more tinkering there is the more cleanup will be necessary. Who does the cleanup will be blamed for it politically because the population doesn't understand who's at fault and will never blame themselves.
The "bailouts" vary widely in terms of return on investment. If Ford is given billions just to keep their assembly lines churning out big pickups that will go unsold, that is a waste. If they use the money to retool their plants in order to make the next generation of green vehicles (and r&d), that will produce a good return in the future. The same positive returns on investment exist for health and education spending. I think Obama will invest wisely in a new infrastructure, and this will create new industries with good long-term employment prospects.
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Old 11-09-2008, 11:02 PM   #29
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I get that you're being helpful, but you do have a tendency to patronize people. For example, here you have assumed that I haven't read Krugman's work or criticisms of him or that I need to be told how to educate myself to think critically. None of those things are true. The very basis of my profession is being able to give weight to both sides of a coin, even if you have to commit to one eventually.

My simple point was that I have yet to come across something substantive that he has advocated that I believe he's been dead wrong about. I also haven't managed to find one strong critics of his who has really had pressing issues with his economic ideas; they all seem to object to him on the basis of his social and political views, which he has made quite obvious.
If it looks like I'm patronizing that's unfortunately how my posts look without that intention. You don't get much "tone" like when you speak face to face. I don't know you so some of my posts will make certain assumptions based only on what people have posted.

I think what I wrote was substantive enough. The links I provided show others who are much better at explaining than I am and they have large disagreements with Keynesian economics. Ultimately as I posted before Keynesian economics fits better with what politicians want. They hate unemployment even if it's needed in the long run. They will debase the currency and throw money at make work projects to try and stop it but it ultimately needs to happen. The great thing is that individuals who are thrifty and plan for the future will do better even if the economics aren't ideal. As long as you have a job there is opportunity for investment. Western democracies are in the hole and need to get out and low interest rates or make work projects won't mean much unless people start paying back their loans and throwing as much money as humanly possible on their mortgages. Once the debt in the population is more manageable they will have more disposable income for consumption. My guess when the next boom comes people will probably do the same thing and get in the hole again. That's how the cycles have been for the longest time.
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Old 11-12-2008, 04:25 PM   #30
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Newsmax.com Bailout Bunk: We&#39ve Been Had

Whoa Ed Koch is getting pissed of at the Fed Reserve.
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