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What is new and sounds scary to me is the massive withdrawal of foreign capital from emerging countries (and probably developing countries as well). It could trigger a complete collapse of the world economy, with social and political consequences we cannot easily foresee...

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Tue Dec 23rd, 2008 at 01:33:02 PM EST
Its not entirely new to the world, but its definitely the risk generated by the policies that the IMF has insisted on for the past thirty years.

The lack of recognition of the IMF's culpability in that state of affairs is dizzying.


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 Tue Dec 23rd, 2008 at 06:41:43 PM EST
[ Parent ]
What worries me is the herd mentality about it all.  Now every state is borrowing heavily to staunch the losses and provide stimulus - but if everybody is doing it - does that not simply devalue the currencies it is done in - i.e. not relative to each other, but relative to real goods and services.  We may not have inflation on the Zimbabwe model, but the value of money itself is being devalued.

At some stage the real economy has to bottom out. Oil and commodity prices have gone down dramatically.  Interest rates are approaching zero.  The real cost of doing business should be declining rapidly.  At some point people will start buying again - and then the herd mentality will go in  reverse, and everyone will join a mad scramble to buy up hugely cheap assets.

Anglo Irish Bank is worth 1% of what is was worth a few months ago.  Huge businesses are available for almost nothing.  The over-correction could be as bad as the current slump resulting in extreme boom and bust cycles.  Governments will have to be much more nimble if they are not going to be caught again on the rebound...

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Dec 23rd, 2008 at 06:53:42 PM EST
[ Parent ]
What worries me is the herd mentality about it all.  Now every state is borrowing heavily to staunch the losses and provide stimulus - but if everybody is doing it - does that not simply devalue the currencies it is done in

Why would it? We (it should be obvious) are not at full employment of either labor or productive equipment ... more borrowing for more spending only devalues the purchasing power of money if it results in substantially higher prices ... however, if it primarily results in more production, then there's no loss of purchasing power.


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 Tue Dec 23rd, 2008 at 07:36:37 PM EST
[ Parent ]
I have no problem if it actually results in more production.  But it seems to me that it has up until mow been borrowed almost solely to staunch losses due to following asset values and the damage this has done to corporate (not individual!) balance sheets.  Production is actually falling quite dramatically - in Ireland at least - and as far as I can see, else where as well.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Dec 23rd, 2008 at 08:44:55 PM EST
[ Parent ]
Yes, it is wrong to conflate the two.

The proposed "borrowing" for the stimulus, at least in the US, hasn't actually taken place yet. The argument over whether the proposed stimulus will create inflation is what I addressed above.

The "borrowing" that has taken place, to staunch the losses, is in the face of a massive de-leveraging and drop in liquidity ... it will be inflationary for a nation if it fails to staunch the losses at the same time that other nations succeed, but that is the risk of exchange rate collapse set to one side above.

Either the liquidity constraint continues, in which case there's no prospect of any inflationary impetus from the borrowing, or it doesn't, and the funds can be refunded, so there's no debt outstanding. Or, more likely, partway between the two, which would seem to be non-inflationary for the mix of reasons.


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 Wed Dec 24th, 2008 at 12:38:49 AM EST
[ Parent ]
It's not looking like it's creating more production.

There are empty houses, and homeless people, and yet there's no easy way to put the homeless people in the empty houses because for some godforsaken insane reason the rules don't allow it.

That's a microcosm of the entire depressed economy. There's stuff which should be happening, and stuff which could be happening, and people who want either or both kinds of stuff.

But the rules say you can't get from A to C without going through B. And the bridge is out at B.

Why worry about 'purchasing power' when nothing else that's happening makes any sense at all anyway?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Dec 23rd, 2008 at 08:46:16 PM EST
[ Parent ]
... the way it went away was with a massive creation of purchasing power in a grossly wasteful world war.

If we could get the increase in purchasing power without the blowing people and stuff up part, and get it more quickly, that would be nice.

Indeed, getting the purchasing power in people's hands is the "B", the bridge to which has been blown up by the bonus babies and their half-baked get richer quick schemes.

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 Wed Dec 24th, 2008 at 12:42:42 AM EST
[ Parent ]

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