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Bubbles Greenspan: "Mission Accomplished"

by Jerome a Paris Wed Dec 12th, 2007 at 09:33:11 AM EST

Alan Greenspan has a long article in today's WSJ, trying to justify his past policies at the Fed (Bubbles cannot be safely defused by monetary policy before the speculative fever breaks on its own).

This article manages to say at the same time "Mission Accomplished" (we successfully fleeced the middle classes) and "It's not my fault" (that this will cause a major recession), which is quite fascinating. Here goes:


Bubbles cannot be safely defused by monetary policy before the speculative fever breaks on its own.

Over the past five years, risk had become increasingly underpriced as market euphoria, fostered by an unprecedented global growth rate, gained cumulative traction.

The [August 9] crisis was thus an accident waiting to happen. If it had not been triggered by the mispricing of securitized subprime mortgages, it would have been produced by eruptions in some other market. As I have noted elsewhere, history has not dealt kindly with protracted periods of low risk premiums.

The root of the current crisis, as I see it, lies back in the aftermath of the Cold War, when the economic ruin of the Soviet Bloc was exposed with the fall of the Berlin Wall. Following these world-shaking events, market capitalism quietly, but rapidly, displaced much of the discredited central planning that was so prevalent in the Third World.

So:

  • there was a bubble and it had to burst at some point;
  • I did warn about it
  • it's all the commies' fault - by demonstrating the superiority of our model, it made us ... er, I'm stuck here..; it made us even more successful? Yeah that's it.
Or - it's not my fault, not my fault, not my fault. But it worked!

:: ::

The surge in competitive, low-priced exports from developing countries, especially those to Europe and the U.S., flattened labor compensation in developed countries, and reduced the rate of inflation expectations throughout the world, including those inflation expectations embedded in global long-term interest rates.

In addition, there has been a pronounced fall in global real interest rates since the early 1990s, which, of necessity, indicated that global saving intentions chronically had exceeded intentions to invest. In the developing world, consumption evidently could not keep up with the surge of income

Greenspan, like Bernanke, is pushing the theory of the "savings glut" (the excess of savings from the developing world that "forced" the West, and in particular Americans, to consume more and to go into debt to do so) as a way to avoid the responsibility that the origins of these imbalances were on the borrowing side.

Also, in a highlt significant sleight-of-hand, he presents the fact that consumption "could not keep up with income" as a fact of life, and not as a feature. Consumption did not keep up because incomes did not grow as fast as GDP did, and companies captured an increasing share of it in profits. The universal requirement for Return On Investment aplied over there too and helped keep wage increases lower than they might have been. That, in turn, kept wages in the West low, as Greenspan notices, and inflation similarly low. But what he fails to say is that (i) low inflation was the overriding goal of policy (because inflation eats into financial returns) and (ii) inflation became increasingly defined as increasing labor wages, the idea that higher wages caused higher cosnumer prices having been "proven" in the 70s. So stagnant wages was the goal, and the entry on world markets of a new group of emerging countries with low wages and fewer pesky regulations was a godsend and was taken massive advantage of. But that was a policy choice, not just something that happened to happen.

Yet the actual global saving rate in 2006, overall, was only modestly higher than in 1999, suggesting that the uptrend in developing-economy saving intentions overlapped with, and largely tempered, declining investment intentions in the developed world.

Yeah, declining investment just happened, and was not at all caused by the fact that companies could squeeze more profits in the short term by not investing, and boost their share prices by using their cash for share buybacks rather than investment...

Equity premiums and real-estate capitalization rates were inevitably arbitraged lower by the fall in global long-term interest rates. Asset prices accordingly moved dramatically higher. Not only did global share prices recover from the dot-com crash, they moved ever upward.

Translation: lower interest rates allowed people and companies to borrow more, and thus to pay more for assets. Thus asset prices increased. Again, that somehow "just happened."

(...) The Economist's surveys document the remarkable convergence of more than 20 individual nations' house price rises during the past decade. U.S. price gains, at their peak, were no more than average.

Translation: "see, it's not really the US's fault, we did the same as everybody else, don't blame us." Which glosses over the influence that US trends, in particular financial trends in dollar, the currency of the world, have on other economies...

After more than a half-century observing numerous price bubbles evolve and deflate, I have reluctantly concluded that bubbles cannot be safely defused by monetary policy or other policy initiatives before the speculative fever breaks on its own. There was clearly little the world's central banks could do to temper this most recent surge in human euphoria, in some ways reminiscent of the Dutch Tulip craze of the 17th century and South Sea Bubble of the 18th century.

This is the heart of it. His argument is that bubbles cannot be prevented (the other side being that monetary policy can be used to help to mop up after the fact). Beyond the belated acknowledgement that we are in a major, major bubble (I mean, he IS comparing it to centuries' old bubbles, presumably because there is no comparison in more recent history...) this is, how shall we say?, self-serving and, naturally, absurd. But given that the only voices that would be given credibility to destroy that theory are in the financial world (because this is where the serious people are - those that know how to make money and manage it) and that the financial world is not an interested party in this theory, there is very little criticism of this theory. The financial world is partial to it because it means that it is safe for them to take more risk to make more money, in the knowledge that they will be bailed out if things turn sour. That's what's been called the "Greenspan Put" by the lonely voices that have criticised it - the notion that financiers can have all the fun they want, make crazy bets with other people's money, keep their - large - gains for as long as it pays off (and this lasts quite a while, as it is initially self-sustaining), and do not need to take the losses when things turn sour, as thei invitably do eventually, because then the Fed comes to the rescue.

So the common wisdom that this is insane has not come through the noise yet, because each bubble of the past 25 years, when it burst, has been "solved" by a bigger bubble. Until the last one. But as the scale of the ongoing crash is not yet absorbed by the markets, the common wisdom has not changed yet.

But it will, Mr Greenspan, it will.

I do not doubt that a low U.S. federal-funds rate in response to the dot-com crash, and especially the 1% rate set in mid-2003 to counter potential deflation, lowered interest rates on adjustable-rate mortgages and may have contributed to the rise in U.S. home prices. In my judgment, however, the impact on demand for homes financed with ARMs was not major.

That's all the atonement we'll get from him. "May have." "Not major." Yeah right.

We will never know whether the temporary 1% federal-funds rate fended off a deflationary crisis, potentially much more daunting than the current one. But I did fret that maintaining rates too low for too long was problematic. The failure of either the growth of the monetary base, or of M2, to exceed 5% while the fed-funds rate was 1% assuaged my concern that we had added inflationary tinder to the economy.

Translation: "it solved a bigger problem, and, anyway, I did worry about it". So it's okay, I guess. But this argument actually undermines the rest: this paragraph reflects his acute awareness that what he did was insane. But the lack of wage growth gave him cover to say there was no "real" inflation.

Of course, not a word about the Bush tax cuts for the rich that took place at the same time, and the record deficits they caused.

He then muses about what he then called the "conundrum" - the fact that long term interest rates remained low as short term ones were increased by the Fed.

Of course, the very simple explanation that US consumers borrowing on a massive scale to consume, creating both the need for debt and a captive source to assuage it (the surpluses of the exporters, whether industrial producers in Asia or oil producers in the Middle East and elsewhere), ensured that prices for US securities remained low is ignored. Because that would mean acknowledging the underlying objective to favor profits at the expense of wages, and the diversion created to hide that fact by dingling cheap and plentiful debt in front of consumers which would otherwise need to curtail their spending.

No, better to blame that on outside forces, rather than on the underlying policy of moving money from the middle classes to the rich.

In retrospect, global economic forces, which have been building for decades, appear to have gained effective control of the pricing of longer debt maturities.

Translation: "it's not my fault, it's long term trends I have nothing to do with" (apart from being one of its chief ideologues, cheerleaders and enablers when in power).

Although central banks appear to have lost control of longer term interest rates, they continue to be dominant in the markets for assets with shorter maturities, where money and near monies are created. Thus central banks retain their ability to contain pressures on the prices of goods and services, that is, on the conventional measures of inflation.

Translation: we can't (or rather: won't) do anything against financial inflation, but we can - and will - act against labor inflation.

25 years of neoliberal policy in a nutshell.

So you ARE respnsible, Mr Greenspan.

Display:
http://www.dailykos.com/story/2007/12/12/9275/2315

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Dec 12th, 2007 at 09:37:05 AM EST
I really want your autograph soon, J.

Am I missing something? Why can Greenspan now communicate seemingly coherently?

by Nomad on Wed Dec 12th, 2007 at 10:46:41 AM EST
[ Parent ]
He's spinning coherently, not communicating, because he wants to and it serves him now.  On the job, he carefully spun incoherence as a public image of intellectual pinnaclehood because it served him then.

Our knowledge has surpassed our wisdom. -Charu Saxena.
by metavision on Thu Dec 13th, 2007 at 11:53:29 AM EST
[ Parent ]
to save the debt markets, but it's likely too late:


Central banks step in to attack credit crisis

The world's central banks on Wednesday unleashed a co-ordinated assault on the liquidity squeeze in global capital markets.

The Federal Reserve, European Central Bank, Bank of England, Bank of Canada, and the Swiss National Bank all announced measures to attack the liquidity crisis.

The Fed said it was creating a temporary credit auction facility, as revealed in today's FT, and entering into foreign exchange swap agreements with the ECB and the Swiss to tackle the shortage of dollar funds in Europe.

The move comes after several weeks of mounting tension in the global money markets, due to a combination of normal, year-end funding pressures and deepening gloom among banks about the impact of the losses on subprime-linked securities.

Until recently, some bankers had hoped that these money market pressures would be short-lived. However, in recent days some of the money market indicators have started to move in ways that suggest banks are now worried that funding problems will last into the New Year, or even the summer. This appears to have prompted the central banks to launch their joint action - a step which is unprecedented in terms of the degree of co-ordination that it implies between the leading central banks.

Panic, desperation, or something else again?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Dec 12th, 2007 at 09:41:44 AM EST
Reuters: Euribor money market rates fix at near 7-year high (December 4, 2007)
Benchmark interbank lending rates in the euro zone rose to near seven-year highs on Tuesday, showing strong demand for liquidity early next year as well as around year-end.

Two-month Euribor an average of daily quotes offered by banks to lend money to each other, rose to 4.856 percent, from 4.840 percent on Monday, the highest since the end of December 2000.

Three-month funding fixed at 4.858 percent from 4.839 percent, also the highest since late 2000, and one-month Euribor fixed at 4.848 percent, from 4.834 percent on Monday, the highest since April 2001.

Still, with inflation slightly above 2%, inflation expectations below 3%, and the ECB base rate at 4%, things are not that bad for the Eurozone, are they?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Wed Dec 12th, 2007 at 09:50:48 AM EST
[ Parent ]
http://www.capital.fr/cotations/taux.asp

Going up, up, up...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Dec 12th, 2007 at 10:10:48 AM EST
[ Parent ]
It seems to me that this credit crisis can only end after a few more bank failures. Central banks should be prepared to guarantee deposits and intervene to prevent cascading failures. But I think this was said by LondonYank before.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Wed Dec 12th, 2007 at 12:50:45 PM EST
[ Parent ]
Even central banks run out of money eventually.

And if they're being managed by mini-me Greenspan clones, it shouldn't be taken for granted that they want to avoid a melt-down.

I think you're right about the bank failures, however. If a few banks vomit and die it will steady the rest, because they'll be left feeling that a few sacrificial victims are enough atonement - and they can get back to raping and pillaging with a clear conscience.

Which is why I think I think the fraud angle is the most interesting response, politically. It would enforce accountability, of sorts, and shock the banks and financial houses into the realisation that they're not above the law.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Dec 12th, 2007 at 01:50:45 PM EST
[ Parent ]
Central banks cannot run out of money, but they can trigger hyperinflation.

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Wed Dec 12th, 2007 at 04:17:53 PM EST
[ Parent ]
True, if this money is paid out as wages etc (Zimbabwe), or used to pump up asset prices.

But not if - as with Northern Rock - the Central Bank is printing money which is being used to pay off existing bank loans.

The monetary effect in that case is neutral, and the "tax-payer" makes a small fortune from the "seignorage" arising from the privilege of money creation. In this case receiving 5.5% plus penalties for something that costs nothing to create.

So the truth of it is that the longer that the Northern Rock saga goes on, and the more the Bank not the "tax payer" pumps in - the better off the tax-payer will be....

Although it was interesting to see Tim Congdon letting the cat out of the bag, we are also seeing FSA's Hector Sants beginning to think the unthinkable.

These thoughts are essentially financial pornography.  No decent newspaper has for generations printed anything that exposes the reality - and redundancy - of the banking system.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Dec 12th, 2007 at 04:48:29 PM EST
[ Parent ]
The BoE creates money to lend to NR for paying off debt owed to bank A this doesn't really change the money supply but it shifts the loan from A's assets to the BoE's assets.

Now, why is it not a problem for the BoE if NR then defaults on that debt to the BoE?

We have met the enemy, and he is us — Pogo

by Migeru (migeru at eurotrib dot com) on Wed Dec 12th, 2007 at 05:02:12 PM EST
[ Parent ]
There has been some interesting stuff on the Gang8 Yahoo list of late and this little snippet came a week or so ago in response to my questions re Northern Rock.

The author is Geoffrey Gardiner - one of the "founders" of Gang 8 - who has probably forgotten more about banking than most people, including me, will ever know.

If the loans to the Rock go sour (for instance because the penal rate of interest has made the Rock unprofitable and it has to be liquidated), the Bank of England will still have a liability to the other banks, but reduced assets as counterparty.

If it merrily invents the money there will be no great harm to the taxpayer. The situation is reminiscent to what happened in 1914. The start of the Great War bankrupted all British Banks because the German and Austrian bills of exchange they had  bought became worthless.

The Bank of England bought all the bills at face value, inventing the money to do it. The war went merrily on, unfortunately. The bills may still be in the Bank of England's archives perhaps.

My point in relation to Northern Rock is that in a default the Bank of England would lose no more from the destruction of this freshly minted money than they would if they burnt a few more skiploads of time-expired bank-notes.

What they would lose - as they do with the retirement of bank-notes in circulation - is the Seignorage on this virtual Money.

Difficult to get your head around, maybe, but the reality of Central Bank credit creation is that there can be no "loss" when there never was any value in the first place.

Central Bank money is a Chimera.

So you will understand that I find it difficult to characterise as "tax-payers' money" something that has been created ex nihilo and has never been anywhere near a tax-payer.


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Dec 12th, 2007 at 07:42:09 PM EST
[ Parent ]
Nice inverted curve, too! Has the peak been at a fixed future date (March) or has it been at 3 months for the past three months?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Wed Dec 12th, 2007 at 04:30:56 PM EST
[ Parent ]
Jerome, on a tangent, did you see Martin Wolf's column in the FT today?
by Metatone (metatone [a|t] gmail (dot) com) on Wed Dec 12th, 2007 at 09:57:45 AM EST
[ Parent ]
Thanks for pointing it out.


Why the credit squeeze is a turning point for the world

First and most important, what is happening in credit markets today is a huge blow to the credibility of the Anglo-Saxon model of transactions-orientated financial capitalism. A mixture of crony capitalism and gross incompetence has been on display in the core financial markets of New York and London. From the "ninja" (no-income, no-job, no-asset) subprime lending to the placing (and favourable rating) of assets that turn out to be almost impossible to understand, value or sell, these activities have been riddled with conflicts of interest and incompetence. In the subsequent era of "revulsion", core financial markets have seized up (see charts).



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Dec 12th, 2007 at 11:50:25 AM EST
[ Parent ]
Rhetorically, it's not a great leap from "Anglo-Saxon model" to Anglo-Saxon disease".

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt št gmail dotcom) on Wed Dec 12th, 2007 at 11:52:58 AM EST
[ Parent ]
I've just sent the LTE to the FT further to their Monday editorial (as discussed in this story) and have copied Martin Wolf on it.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Dec 12th, 2007 at 12:31:52 PM EST
[ Parent ]
As always, excellent post about Greenspan. Please look at the following link which is a report from a California mortgage broker stating the sub prime is only 25% of the mortgage meltdown at least in California, Florida and other states which have 'real estate bubbles'. I am impressed with his explanation of how all real estate mortgages have been part of the increase in the real estate values and how a 50% reduction in home values is the only way there will be a viable real estate market unless wages go up significantly which we all know won't happen. Sounds like the central banks don't realize what is coming or realize it is coming but are putting a 'bandaid' on the problem when 'major surgery' is required.

The link is:
http://blogs.marketwatch.com/greenberg/2007/12/straight-talk-on-the-mortgage-mess-from-an-insider/

by An American in London on Wed Dec 12th, 2007 at 12:31:09 PM EST
[ Parent ]
that post was quoted earlier on ET, it's chilling.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Dec 12th, 2007 at 12:32:29 PM EST
[ Parent ]
Sounds like the banking sysytem is on life support and the only solution at this time is to print,print,print not knowing when to stop and when the crisis will be over. Real estate prices will continue to implode. In California back in 1982; selling real estate was so bad that the owner of individual homes would take back unrecorded seconds as the down payment. I can see this happening again. It is not a panacea as the combination of mixing sub prime etc into investment packages plus all the other manipulations were not present in 1982. Could be a total meltdown of the system with the only recourse being keep printing.
by An American in London on Wed Dec 12th, 2007 at 12:46:25 PM EST
[ Parent ]
The world's central banks...
The Federal Reserve, European Central Bank, Bank of England, Bank of Canada, and the Swiss National Bank

All others are irrelevant, ´of course´...

tackle the shortage of dollar funds in Europe.

What would happen if we had to pay for trade in euros?  That scenario is hard to follow.

Our knowledge has surpassed our wisdom. -Charu Saxena.

by metavision on Thu Dec 13th, 2007 at 12:05:06 PM EST
[ Parent ]
What you see here is one of the characteristics of libertarians like Greenspan. The ability to hold mutually contradictory ideas simultaneously.

I've mentioned this before, but it's worth repeating: psychologist Robert Altemeyer's free online book:
http://theAuthoritarians.com

He finds a correlation between the "authoritarian" personality and conservative political viewpoints. Libertarians are not in the same class, but they do share these key psychological characteristics.

The other one is their immunity to facts that disprove their beliefs.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Wed Dec 12th, 2007 at 09:53:23 AM EST
I do not doubt that a low U.S. federal-funds rate in response to the dot-com crash, and especially the 1% rate set in mid-2003 to counter potential deflation, lowered interest rates on adjustable-rate mortgages and may have contributed to the rise in U.S. home prices. In my judgment, however, the impact on demand for homes financed with ARMs was not major.

Should this read "was not as much as I hoped for"?
After all, Greenspan kept advising people to get variable rates for their mortgages just before the collapse.

Somehow, with less information than Greenspan had access to, I did what Krugman did: having started with a variable rate, I switched to fixed. Too bad I'll have to sell in 9 months, or I could have bragged about that for 14 more years.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Wed Dec 12th, 2007 at 10:13:51 AM EST
Geee. I jsut do not udnerstand..

I just do not get anything... It seesm like Greenspan is saying this stuf because it can.. but one could make another narrative, as the one Jerome is doing.. but there is actually not fundamentals to support one or the other.

Economics is void of any of the scientific fundamentals.. it does not even have a set of standard data features whcih could be analyzed.

While the economy at the Gilled Age and depression could be at least addressed by using Keynnes economics and udnerstaning the things that were not known and the facts that could be know, now, the finantial markets have distorted the GDP, inflation and a lot of otehr stuff of its meaning.. maybe it is more than jsu the finantial dostrtion... but I think it is time to rethink economics.. it just does not work anymore... one could say as Krugman.. there is only a  small set of stuff that you can certainly NOT say.. other than that.. narratives are equally valid..

IN other words..we may guess that the morgage scheme in the US made no sense as Krugman points out in his blog, just by looking at numbers of rental vs selling.. but knowing how and how deep would a crash of the bubble happen was impossible to know... so you can perfecy apply dogma or political visions to explain it and to deal with it..a dn ahrdly noone will eb able to tell you anyhing for sure.

Add to this the contamination of non-enquiring scientific minds with no freaking idea about maths and you get a very awful picture... economic articles keep on sounding as other purely symblic knowledge ... like astrology...being everythign reduce to a competition of naraatives (which is not small featrue but still...).

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Wed Dec 12th, 2007 at 10:23:45 AM EST
to deal with the crash. Otherwise, the already existing institutions, such as American Enterprise Institute, will win by default.

For further reading:

The Economics of Outsourcing: How Should Policy Respond?, the title is self-explanatory,

and,

The Fallacy of the Revised Bretton Woods Hypothesis: Why Today’s System is Unsustainable and Suggestions for a Replacement is a call for replacing the current system of a totally "free market" of currency exchange rates, with a system of managed exchange rates. Remember, the foreign exchange markets are now trading trillions of dollars EACH day, compared to a world GDP of $48.2 trillion.

by NBBooks on Wed Dec 12th, 2007 at 10:40:50 AM EST
Well, my favourite policy would be a large government (federal in the US, concerted at EU level here) program in sustainable development.

And long term. If the State committed to buying this kind of equipment on a grand scale for a couple of decades, then small companies would get created to provide the supply (especially if we guarantee them a large share of the orders). Which would then make it possible for individuals to join in the purchase, help technology get better...

We have, regrettably, let complacency build up huge State debts which do limit what can be done. But I'm very happy to help finance that through a carbon tax.

Think. Whatever capital would join in that program would be truly productive. It would make economies more competitive than those not doing it in a world where primary resources are going to be increasingly expensive. It would reduce healthcare costs. It would provide jobs unlikely to disappear with a bubble bursting...

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Wed Dec 12th, 2007 at 10:59:19 AM EST
[ Parent ]
exchange rates may be a feature of some kind of New World Order - not necessarily a bad thing - but that is a form of window-dressing in the current situation (hey, look - we're doing something). Assuming that such a system (and concomitant bureaucracy) could be negotiated and implemented, the Chinese (and Japanese) are not going to approve a substantial revaluation of their currency. So an agreement would try to perpetuate a relationship that is already skewed.

Jerome's article is about the games that have been played (in the U.S. particularly) by the oligarchy's frontmen to the detriment - intended - of working people. Policy change is certainly needed, as you have written above, but there are particular steps that need to be taken to get to policy change.

In the U.S. we have to elect a majority of Congresscritters and a President who support the working class, rather than the super-rich, ruling class. Lacking a revolution, this is the level at which the game is controlled. If we can achieve this control, then we need:

    1.   higher taxes on the super-rich to support:
         1a) Cyrille's renewable-source-energy-generation project;
         1b) infrastructure maintenance and creation;
         1c) repair of the social 'safety net' (which is currently full of holes);
         1d) nationalized health-care 'insurance';
         1e) port security and a whole bunch of other things.

  1. to get our butts out of all of the places where our noses are currently stuck in;

  2. establish fair-trade, rather than 'free' trade, agreements with all trading partners;

  3. re-establish regulatory control (if not nationalization) of energy-related, "defense"-related, and communications-related industries.

The results of two special elections yesterday may be somewhat disheartening in this regard. However, both elections were in Republican-dominated districts. Moreover, the Ohio Democrat is being criticized on DailyKos for downplaying her opposition to the Iraq occupation. In other words she did not differentiate herself from her opponent on an important issue.

The Virginia election was a different matter in a way that is instructive. Less than 20% of the electorate voted in total. If Democrats cannot generate more support than that on their own side of the ballot, well then - here we are, talking about how Greenspan screwed us for the last 25 years.

The good news may be that progressives - defined as Democrats who oppose international aggression and who support policies that work well for working people - have a whole lot of potential electorate out there.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Wed Dec 12th, 2007 at 12:29:34 PM EST
[ Parent ]
Salon Magazine's view of Bubbles is not that favorable either.

"When the abyss stares at me, it wets its pants." Brian Hopkins
by EricC on Wed Dec 12th, 2007 at 11:58:41 AM EST
I'm curious:

But what he fails to say is that (i) low inflation was the overriding goal of policy (because inflation eats into financial returns) and (ii) inflation became increasingly defined as increasing labor wages, the idea that higher wages caused higher cosnumer prices having been "proven" in the 70s.

Is this a shift in your view here, on bias of monetary policy, inflation, wages and income distribution?

We've had a number of arguments on this subject, and it seems to me your disposition here is a bit of a shift.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Wed Dec 12th, 2007 at 12:08:46 PM EST
I don't think I've changed my position, in that I think that the fight against inflation is a good policy in general.

What I'm critiquing is the slow drift of the notion of inflation to focus almost exclusively on wage inflation, to the extent that all wage increases are bad (and not just, as theory would have it, increases that are higher than productivity increases and push the share of value going to labor higher), and the simultaneous abandonment of any worry about asset inflation. This has been less true of the ECB, which I expect will emerge out of this mess with its reputation enhanced, both for a pragmatic policy in the past few years, and for its no-nonsense response to the current crisis.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Dec 12th, 2007 at 12:36:01 PM EST
[ Parent ]
If costs remain the same, and a company finds it is able to increase prices because of increased demand, or decreased competition, then isn't that de facto "inflation"?

In other words isn't profit - virtually by definition -  the principal direct "cause" of inflation?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Dec 12th, 2007 at 03:41:51 PM EST
[ Parent ]
Greenspan was a primary author of several redefinitions of the Consumer Price Index and other inflation-rate indices. Interestingly, his revisions to CPI reflect more of the inflation rate that is applicable to upper-income folks. And this is the rate that he claims to have controlled by his policies.

For inflation as it affects the vast majority of us, I return to John Williams' site, www.shadowgovernmentstatistics.com . The idea that the rate of inflation for most U.S. citizens is 2 to 3 times as high as the official CPI fits in with Jerome's theme, too, in that the super-rich have transferred more debits (increased prices) to the 'middle class', which in true accounting fashion reappear as credits on the corporations' profit lines.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Wed Dec 12th, 2007 at 12:42:57 PM EST
[ Parent ]
Jerome, if you use quotation marks around serious people, an outsider would get the idea clearly, without rethinking the tone, or the message.

Remember you are posting for a ´world audience´ that is not familiar with (y)our snark and you don´t want obstacles to get through to these useless dorks.

Our knowledge has surpassed our wisdom. -Charu Saxena.

by metavision on Thu Dec 13th, 2007 at 12:35:21 PM EST


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