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So the Savings Glut model makes sense if and only if you assume that Markets Always Know Best?

Because then anything the government might do to regulate derivatives would already be anticipated by the market and priced into the derivatives?

Meaning that a form of derivatives that would pose a significant risk of systemic collapse (i.e. a risk that isn't thermodynamically small) would be priced prohibitively?

Meaning that what we're seeing right now before our very eyes Cannot Happen(TM), any more than all the air molecules in my living room can spontaneously gather under my table, thus choking me of air?

Now, if something actually happens that your model has assigned a thermodynamically small probability... Normally, you'd chuck that model out, right?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Oct 17th, 2008 at 03:45:00 PM EST
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Its in the universe of a well-connected complete market system, including implicit valuations of what would be happening in the complete network of forward markets if they existed, that savings and investment as an equilibrium process makes sense.

In the real world, an equilibrium between aggregate saving and aggregate investment then proceeding to drive national income just doesn't make sense ... out here, investment is one of the drivers of income and income one of the drivers of saving.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Oct 17th, 2008 at 03:56:02 PM EST
[ Parent ]

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