General Discussion
Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsThe Fed Works for the Very Rich: Why Paul Krugman is Full of Shit + Steve Keen vs Krugman vs MMT
http://www.counterpunch.org/2012/04/23/why-paul-krugman-is-full-of-shit/Late last week Princeton University economist and New York Times columnist Paul Krugman wrote a piece on his NY Times blog that history will view as the best evidence to appear in at least several decades of the utter irrelevance of mainstream economics. The piece purported to respond to a Wall Street Journal editorial by Mark Spitznagel in which Mr. Spitznagel argued broadly the Austrian economists’ line that all government spending favors one group over another and more specifically that the Fed’s Quantitative Easing (QE) programs of recent years favor banks and the rich.
Mr. Krugman could have argued his New Keynesian shtick that government investment can prevent deflationary spirals in economic downturns and all would be as it was. Instead, he chose to argue (Plutocrats and Printing Presses – NYTimes.com) http://krugman.blogs.nytimes.com/2012/04/20/plutocrats-and-printing-presses/ , an astonishing amount of evidence to the contrary, that Fed QE policies have not disproportionately benefited banks and the very rich and were in fact enacted against their wishes and interests.
The basis of his argument has two parts:
(1) conservative economists argue that QE is “printing money,” they also argue that printing money causes inflation, banks hate inflation (because loans get repaid in less valuable dollars), therefore banks opposed QE and
(2) that banks earn profits from the difference between long term interest rates and short term interest rates (NIM, or Net Interest Margin), QE has reduced this difference, therefore the banks have seen their profits fall from QE.
Were these arguments used when writing about a (1) solvent banking system whose (2) profits still came from making prudent loans to creditworthy borrowers and (3) whose shadow banking system was immaterial (couldn’t destroy the global financial system), then Mr. Krugman might have had a point. The facts, however, suggest that if bank loans and other bank assets were fairly valued the big banks would be conspicuously insolvent, that the entire impetus of banking consolidation and deregulation (as explained by bankers) was to reduce the impact of NIM on bank profits, and that building out the shadow banking system was the way that banks intended to accomplish this.
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Related
Paul Krugman vs. MMT: The Great Debate (Steve Keen is NOT an MMT'er btw, he is an expander of Minsky's theories, Dr. Michael Hudson IS an MMT'er )
http://www.cnbc.com/id/46944145/Paul_Krugman_vs_MMT_The_Great_Debate
There’s a tremendously important debate being waged across a bunch of different websites, including Paul Krugman’s at The New York Times, about how banking really works. Unfortunately, it’s probably a bit tough to wade into the debate at this point. So I’ll do my best to summarize what’s going on.
ACT I: Krugman Answers Keen
Last week, a maverick Australian economist named Steve Keen linked to a paper http://ineteconomics.org/sites/inet.civicactions.net/files/keen-steve-berlin-paper.pdf he had written for a conference to be held in Berlin later this month. The paper, entitled “Instability in Financial Markets: Sources and Uses,” starts with a synopsis http://www.economonitor.com/blog/2012/03/a-primer-on-minsky/ of the work on the financial sources of economic instability by the late economist Hyman Minsky. In particular, Keen argues for the Minskyite point that an understanding of banking is central to understanding the economy.
Paul Krugman weighed in http://krugman.blogs.nytimes.com/2012/03/27/minksy-and-methodology-wonkish/ the very next day with a post arguing that Keen’s insistence that banking is crucial was misplaced. Krugman argues that bank lending doesn’t necessarily increase demand in the economy—it just shifts money around. “If I decide to cut back on my spending and stash the funds in a bank, which lends them out to someone else, this doesn’t have to represent a net increase in demand. Yes, in some (many) cases lending is associated with higher demand, because resources are being transferred to people with a higher propensity to spend; but Keen seems to be saying something else, and I’m not sure what,” Krugman writes.
A few hours and scores of blog comments later, Krugman returned to the debate to accuse Keen and the “Minskyites” of engaging in “banking mysticism.” http://krugman.blogs.nytimes.com/2012/03/27/banking-mysticism/ (The Minskyites he most likely had in mind were Modern Monetary Theorists like economist Randall Wray, a former student of Minsky.) Krugman compared Keen and the Minskyites of being similar to Austrian economists in that both assign “unique powers” to modern banks.
Of course, one of the best ways to pick a fight with a Minskyite is to compare him to an Austrian. The typically left-wing Minskyites typically despise what they regard as the right-wing quackery of Austrian economics. (Austrians, as far as I can tell, don’t spend much time thinking about Minsky or MMT at all.) Krugman no doubt knows this, which is why he decided to make the comment in the first place. He wanted to poke the bear.
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http://www.nakedcapitalism.com/2012/04/philip-pilkington-nobel-laureate-paul-krugman-selectively-quotes-rival-to-stitch-him-up-after-losing-argument.html
Nobel Laureate Paul Krugman Selectively Quotes Rival to Stitch Him Up After Losing Argument
Yves here. If comments on this site are any guide, readers appear to have taken considerable interest in a blogosphere debate on the role of money and banking, with Steven Keen and Scott Fullwiler (among others) arrayed against Paul Krugman and Nick Rowe. Krugman’s latest piece http://krugman.blogs.nytimes.com/2012/04/02/oh-my-steve-keen-edition/ not only misrepresents Steve Keen’s argument, as Philip Pilkington explains below, but Krugman also appears to have shut down any discussion at his blog after quite a few of his readers pointed out his sleight of hand.
There were 65 comments from 12:46 PM to 5:22 PM. Krugman put an update (no time marker) at the top of the post”OK, I’m done with this conversation.” Did the last comment, reproduced in full below, hit a nerve?
Paul, at least come clean and admit you misread Keen here and quoted him out of context. It’s obvious.
Your doubling down with each new post is very unbecoming and your [sic] beginning to look like a Republican.
What was that post you wrote awhile back on hypocrisy?
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http://www.nakedcapitalism.com/2012/04/philip-pilkington-nobel-laureate-paul-krugman-selectively-quotes-rival-to-stitch-him-up-after-losing-argument.html
By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil
Oh, its a dark day, my friends. A pall has been cast over the econoblogosphere. Yes, Paul Krugman has just used the New York Times website to undertake a vicious stitch-up on an intellectual opponent who should have, by rights, won the original argument. Here’s how it went down. Post-Keynesian economist and sometimes Naked Capitalism contributor Steve Keen wrote a cogent article http://www.economonitor.com/blog/2012/03/a-primer-on-minsky/critiquing a Paul Krugman paper on Minsky and debt deflation. The key issue was that the so-called money multiplier does not function to restrict credit growth in modern economies operating on a floating exchange rate with a central bank that targets interest rate. We dealt with this briefly the other day http://www.economonitor.com/blog/2012/03/a-primer-on-minsky/ and pointed out the flaw in Krugman’s argument.
Krugman then started to get overwhelmingly negative comments from his usually receptive audience. Many were people who worked in banks trying to appeal to Krugman’s good sense so that he might consider that he failed to understand some fundamental things about modern banking. No luck there.
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Capital Account Interview on the Keen-Krugman Brawl
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Paul Krugman And Steve Keen Got Into A Massive Fight On One Of The Biggest Issues In All Of Economics
http://articles.businessinsider.com/2012-04-09/markets/31311688_1_banking-sector-glass-steagall-act-home-prices#ixzz1tpI93Z3O
During the last few weeks, economists Paul Krugman and Steve Keen have engaged in a lengthy (and ugly) blogger debate http://www.businessinsider.com/krugman-fights-keen-2012-4 about the role of banks in expanding the monetary base. But beyond the jargon, the nitpicking, and the insults (from both sides) the point they debated is a crucial one: Does the Fed have sufficient power to control the monetary system? Or are the Fed and other central banks given more credit than they are due? The impetuses for this debate are the theories of Hyman Minsky, an American economist who wrote that markets are intrinsically in a state of disequilibrium.
According to Keen, Minsky thought that irrational market actors can exacerbate disequilibrium's when they perceive future stability in the markets. For example, banks in the early 2000s continued extending loans to home-buyers with poor credit because they did not foresee (or did not want to accept) that home prices could not continue rising. Even the initially conservative activity of extending loans to creditworthy homebuyers soon became speculative, as home prices skyrocketed out of control because of unsustainable demand in the market. While it is quite conceivable that bank behavior did indeed exacerbate the housing bubble in this manner, Keen argues that this behavior demonstrates a deeper ideology: Fiscal and central bank policy have far less power in controlling credit conditions than we would like to believe. He writes:
We cannot rely upon laws or regulators to permanently prevent the follies of finance. After every great economic crisis come great new institutions like the Federal Reserve, and new regulations like those embodied in the Glass-Steagall Act. Then there comes great stability, due largely to the decline in debt, but also due to these new institutions and regulations; and from that stability arises a new hubris that “this time is different”—as the debt that causes crises rises once more. Regulatory institutions become captured by the financial system they are supposed to regulate, while laws are abolished because they are seen to represent a bygone age. Then a new crisis erupts, and the process repeats. Minsky’s aphorism that “stability is destabilizing” applies not just to corporate behaviour, but to legislators and regulators as well. Banks, Keen insisted, form the crux of the problem since they are in control of the monetary base. Banks' assessments of the risks and rewards to lending grows virtually without reference to the deposits they receive, so banks—and not the government—ultimately determine credit standards.
He wrote in a blog post: http://www.debtdeflation.com/blogs/2012/03/29/krugman-on-or-maybe-off-keen/
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Economist Steve Keen Goes After Paul Krugman With A New Presentation
http://www.businessinsider.com/economist-steve-keen-goes-after-paul-krugman-with-a-new-presentation-2012-4
Post-Keynesian economist Steve Keen really socked it to Paul Krugman in a presentation this weekend in Scotland. http://www.justbanking.org.uk/
If you're just joining the battle http://www.businessinsider.com/paul-krugman-vs-steve-keen-2012-4 this is a good, albeit wonky, starting point.
Keen refutes first the idea that the creation of credit necessarily leads to crisis, and second the idea (Krugman's) that banks have nothing to do with debt crises. Instead he offers a theory of good and bad bank behavior.
We've posted the slides from his presentation. Go to his site http://www.debtdeflation.com/blogs/2012/04/21/just-banking-presentation/ to see a video of the presentation.
Click here to see the presentation >
http://www.businessinsider.com/economist-steve-keen-goes-after-paul-krugman-with-a-new-presentation-2012-4
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http://mikenormaneconomics.blogspot.se/2012/04/marxist-viewpoint-on-krugman-v-keen-and.html
A Marxist viewpoint on Krugman v. Keen (and MMT) It's really an examination of MMT from a Marxist perspective. The author incorrectly seems to think that Steve Keen is MMT.
Read it at Michael Roberts Blog:
Paul Krugman, Steve Keen and the mysticism of Keynesian economics http://thenextrecession.wordpress.com/2012/04/21/paul-krugman-steve-keen-and-the-mysticism-of-keynesian-economics/
But the Marxist theory of money makes an important distinction from the MMT guys. Capitalism is a monetary economy. Capitalists start with money capital to invest in production and commodity capital, which in turn, through the expending of labor power, eventually delivers new value that is realised in more money capital. Thus the demand for money capital drives the demand for credit. Banks create money or credit as part of this process of capitalist accumulation, not as something that makes finance capital separate from capitalist production. I would not say that there is an enormous gap here. It is an established fact that investment has been and remains the primary use of credit in capitalist economies and that interest rates are the cost of obtaining capital through acquiring debt. Most economists would agree with this, I believe, including MMT economists.
And they would also point out that consumer credit was virtually unknown in the day of Marx, other than for the wealthy and powerful. Since the introduction of the credit card and widespread home ownership made government policy, credit extended to workers rather than the ownership class has soared. So when Marx was writing industrial capital was paramount, whereas now finance capital is becoming dominant, with the financial sector responsible for a growing share of GDP. Michael Hudson has observed that Marx never expected that industrial capital would be challenged by finance capital. This is a new phenomenon that is characteristic of a stage of capitalism that Marx did not anticipate, since "capitalism" for him meant industrial capitalism. Financial capital served industrial capital at that time. This is no longer the case as finance capital becomes an ever bigger player.
But according to Roberts, the largest divergence between MMT-PKE and Marxism is that the former focuses on Minskian financial instability and Keynesian "animal spirits," which he sees as entangled in the mysticism of expectations, i.e., subjective, whereas the latter is based on falling rate of profits, which is objective. On the other hand, Wynne Godley was able to accurately predict the coming crisis based on his three sector model, which finds antecedents in the work of Keynes, Kalecki, Kaldor and Robinson on prices, wages, profit and capital accumulation. Godley attempted to "objectify" the Keynesian narrative in stock-flow consistent modeling based on accounting principles and national accounting identities in developing a fresh approach to macroeconomic modeling.
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Further Background:
The Most Important Econoblog Post This Year: The Steve Keen/MMT Convergence
http://www.angrybearblog.com/2012/01/most-important-econoblog-post-this-year.html
Neil Wilson has done yeoman’s duty to (perhaps) achieve a convergence that has been too-long delayed.
A Double Entry View on the Keen Circuit Model. http://www.3spoken.co.uk/2011/12/double-entry-view-on-keen-circuit-model.html
Steve Keen is, to my knowledge, the only person who is actually encoding a Godley-esque, MMT-style, accounting-based, stock-flow-consistent dynamic simulation model of how economies work. But many MMTers have been quite hostile or at least resistant to Steve’s work, based on some different concepts of endogenous/exogenous money, and — this may seem trivial but it isn’t, at least as it has played out over time — based on details of single- versus double-entry accounting.
The debate has been quite acrimonious at times, and that acrimony has greatly hindered a convergence that in my eyes would be the most salutary event possible in the development of economic thinking and practice. You can read the details in Neil’s post, but in short he’s re-jiggered Steve’s accounts to make them conform better to (at least Neil’s view of) standard bank-accounting practices. I’m not qualified to evaluate his new formulation, but I am excited to read Neil’s comment on the post, replying to uber-MMTer Scott Fullwiler:
We need to get all this pulled together into a coherent overall model. Steve’s up for it. I hope you are too. I’ll just say: I’m very much up for watching it happen. Also: run don’t walk to read Steve’s Debtwatch Manifesto, http://www.debtdeflation.com/blogs/2012/01/03/the-debtwatch-manifesto/ posted last week.
Cross-posted at Asymptosis. http://www.asymptosis.com/?p=4747
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Dr. Michael Hudson (a conventional MMT'er) on The Federal Reserve System
http://michael-hudson.com/2012/03/federal-reserve-system/
What is the place of the Federal Reserve System in the American financial and economic structure?
Prior to the Federal Reserve’s founding in 1913, U.S. monetary policy was conducted by the Treasury. Like the Fed, it had district sub-treasuries that performed nearly all the financial functions that the Fed later took over: providing credit to move the crops in autumn, managing government debt, and so forth.
But after the severe 1907 financial crisis, a National Monetary Commission was reformed. Under the then-Republican administration, it recognized a need for more active government intervention to prevent future financial crises. It also recognized the desirability of moving away from the Anglo-Dutch-American system of “merchant banking” based on short-term lending against collateral in place, or for shipping of goods already produced. The National Monetary Commission’s longest volumes were on the great German industrial banks, and Republican policy aimed at bringing banking into the industrial era, to provide long-term funding after the model of German and other Central European banks.
However, the leading bankers sought to use the crisis as an opportunity to grab power for Wall Street, away from the Treasury. In this sense, the Fed was founded in large part to take monetary control away from Washington’s elected officials and appointees, and privatize the supply of money and credit. So its place in the U.S. financial and economic structure is to allocate credit, primarily to serve Wall Street financial interests. That explains the insistence on the financial class here and abroad in insisting on an “independent” central bank. It means that instead of serving the public interest, it serves the interests of the banking class. The hoped-for transformation of commercial banking into long-term industrial banking was not achieved.
Can we imagine the global economic system without Federal Reserve today? If yes/no, why?
As David Kinley’s book for the National Monetary Commission pointed out a century ago, nearly all the financial functions performed by the Fed already were performed by the national Treasury. In more recent times, Milton Friedman and his University of Chicago colleagues suggested that the entire Fed could be reduced to a single desk inside the Treasury. The “Chicago Plan” of the 1930s urged Treasury control, as does Congressman Dennis Kucinich’s current bank reform. There is no inherent need for a monetary agency to exist outside of the national government, except to serve the interests of the financial class as distinct from those of government, industry and labor. And the banking sector’s business plan is to load down real estate, labor, industry and the government with as much interest-bearing debt as possible.
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Dr. Michael Hudson Employs MMT To Refute Peter Schiff's Austrian Lunacy
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TheWraith
(24,331 posts)Right, because apparently anonymous internet bloggers know a lot more than Krugman does. 
Riftaxe
(2,693 posts)his NAFTA advocacy among other things.
HiPointDem
(20,729 posts)most of the discussants have similar credentials.
Fumesucker
(45,851 posts)Would it be possible to summarize for those whose eyes glaze over reading economic treatises?
ProSense
(116,464 posts)
aquart
(69,014 posts)And made formerly illegal derivatives legal.
Economists have a sustained gift for idiocy.
HiPointDem
(20,729 posts)I've not trusted him since.
On the Road
(20,783 posts)I thought the program was purchasing government bonds with newly-printed money. You can criticize the "printing money" part, but how is that "giving money to the banks"? Even for the minority of bonds acutally held by banks, it's an even trade that they could get on the open market.
If you look at the comment section, a lot of the harshest criticism is coming from posters who quote Ayn Rand and seem to be astonished Krugman would disagree with her. One example cites her criticism that the "govt is consuming this country's stock seed...of industrial production: investment capital, ie, the savings needed to keep production going." That quote is an indirect way of criticizing the government for excessive taxation and other policies which will lead to the rich having smaller bank accounts, which in turn will lead to less job creation.
Now under some circumstances it might reach the point where it would hurt the economy, but the opposite has been true for the last couple of decades --- way too much money is tied up in bank accounts of people with more money than they will ever spend. If the commenters can't see that, they're blind.
This type of debate is technical and hard to follow, which leads people to follow their team, so to speak, rather than think for themselves. As far as the political spectrum goes, nations of all stripes got into trouble with too much debt -- western European socialism and authoritarian China, as well as the US and more libertarian third-world nations. The biggest problem now by far is debt and how to deleverage without ruinous austerity measures or runaway inflation.
stockholmer
(3,751 posts)QE and TARP both expanded the Fed's balance sheet, and also vastly increased the overall money supply, regardless of where it is held. Sooner or later that money will flow out like a river (it is now only a marginal stream and already the world is staggering under the US's exporting of inflationary pressures, ie. we are getting HAMMERED here in Sweden and the rest of the EU, in China the rate is extraordinary in certain key sectors, etc etc etc).
http://www.sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3
The Fed Audit
The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression. An amendment by Sen. Bernie Sanders to the Wall Street reform law passed one year ago this week directed the Government Accountability Office to conduct the study. "As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world," said Sanders. "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."
Among the investigation's key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland, according to the GAO report. "No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president," Sanders said.
The non-partisan, investigative arm of Congress also determined that the Fed lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse. In fact, according to the report, the Fed provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans.
For example, the CEO of JP Morgan Chase served on the New York Fed's board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed. Moreover, JP Morgan Chase served as one of the clearing banks for the Fed's emergency lending programs.
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GAO FULL REPORT
http://www.sanders.senate.gov/imo/media/doc/GAO%20Fed%20Investigation.pdf
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http://www.urbansurvival.com/blog/?p=4003
Bernie's Bombshell
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If this hasn't raised your blood pressure high enough, how about clicking over to the official GAO report which suggest that "...opportunities exist to strengthen polices and processes to manage emergency assistance..."
A nice way of explaining we've been screwed again by the privately controlled not really Federal Reserve and it's about the most disgusting account of financial raping and pillage as you'll find.
Yet, Congress, on the corporate dole, especially with the growing "throw the bastards out" cries increasing around the country, is unlikely to do anything more than weasel and waffle. But, come to think of it, why am I not surprised? Gold star for Sanders for being forthright..bit he's got 99 colleagues left to work on....
Now to see how the financial universe REALLY works, couple in this next story...
TARP and the Great Circular Reference
We're all supposed to be happy as hell that banks are paying back their TARP money, right? All the hype and hoopla about what a grand and glorious thing this is just won't stop. Except according to this article here, http://finance.yahoo.com/blogs/daniel-gross/banks-pay-back-tarp-funds-borrowing-treasury-205658852.html the way theses banks have paid back the 'right pocket' is by borrowing from the left!
You got it: Take TARP money, they borrow more money from the Fed, then pay back TARP (cue the spin machine to rerun Happy Days) and while the public attention is distracted, they borrow from el Fed and pretend the situation is fixed. Ah, the foxes are still in the hen house just the same. But, I repeat myself too much. We need some financial Charmin to clean such bs happy talk up..
Depressions are like enemas for the rich and it may be getting on time for one to clean up the malinvestment, now being papered over with promissory notes which indenture our children and their children, too....
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http://www.telegraph.co.uk/finance/financialcrisis/8811210/Quantitative-easing-by-the-Bank-of-England-printing-more-money-wont-work-this-time.html
Quantitative easing by the Bank of England: printing more money won’t work this time
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When QE was tried in 2009, the Bank of England overwhelmingly used it to buy gilts, while the US Federal Reserve purchased private sector assets (especially mortgage-backed securities of the sort that had blown up just before the crisis). The US form has come to be called “credit easing”, because its function was to intervene in specific credit markets – believed to be causing blockages in the monetary transmission mechanism arising from market failures – and reduce interest rates.
Credit easing was regarded as a failure in the US. So the “QE2” programme switched instead to the buying of government bonds, just like British QE. Oddly, many commentators are now urging that the Bank of England should go in the other direction, from gilts purchases to credit easing. Gilts purchases are a better form of QE than “credit easing” would be. In credit easing, the government inevitably ends up choosing to intervene in specific sectors or even purchasing the bonds of specific companies. This creates distortions in economic activity. Buying gilts increases the money stock in a much more economically neutral way.
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ProSense
(116,464 posts)wanted to audit the Fed, not get rid of it.
Ron Paul says Bernie Sanders 'sold out' on Fed amendment
http://thehill.com/blogs/on-the-money/banking-financial-institutions/96587-ron-paul-says-bernie-sanders-qsold-outq-on-fed-amendment
Bernie Sanders on Ron Paul: He's 'out to lunch' (on FEMA)
http://politicalticker.blogs.cnn.com/2011/08/29/bernie-sanders-on-ron-paul-hes-out-to-lunch/
"The Fed Audit" was included in Wall Street reform.
http://www.sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3
On the Road
(20,783 posts)which traded bonds for newly printed money. How is a market-based sale equivalent to "looting"? You could criticize the practice of printing money, which is a major departure for the US, but your criticism was that they "looted" the money.
The criticism that expanding the money supply will lead to inflation has not happened. Your are using your speculation that it must happen in the future as evidence. It is not evidence, and the prediction has not in fact been borne out since August 2010, and in fact casts doubt of whatever theory you were using to make that prediction. Economic activity is money times velocity, and if velocity is down, money must go up to avoid a contraction.
You also refer to the loans the Fed made to domestic and foreign banks as "looting." That is contradictory -- a loan is not equivalent to distribution of stolen property.
You are also attributing motives to the various players, especially the Fed, that are not shown by any record of the events. Don't look at what the various parts of the financial industry were putting out for mass consumption, or what various commentators were saying to each other. Look at what they were saying to each other. None of it resembles the picture you are painting -- it is a cartoonish view of the world.
tiny elvis
(979 posts)it is giving banks the money they pretended to have
it is changing reality to match crooked books
it is cartoonish absurdity
wiki begins without criticism
http://en.wikipedia.org/wiki/Quantitative_easing
On the Road
(20,783 posts)The Wiki article primarily discusses government debt. I guess that other bank-owned assets were included at some point, but from the discussion it doesn't appear to be what's usually disccused under QE, QE1, QE2, etc. Quantitative easing, as presented by the Wiki article, is primarily an effort to stimulate the economy when interest rates are near zero. The bit about valuing bank assets was done at the height of the financial panic and is not really what's being discussed any more under that name. No proportions are given, so it would take some research to break down.
I understand Bernie Sanders's comments much better now. However, the anti-bank and anti-Fed crowds are missing the effect of NOT doing something like this. The result of those institutions failing would not only be massive FDIC insurance payments, but cratering tax revenues, massive small business failures (those accounts are not insured), employees of those companies losing wages, higher unemployment, and a host of ripple effects. In comparison, buying those assets would seem to be a comparatively cheap way of avoiding the worst effects of the crisis.
I swear, if the "looting" people were in charge they would let the whole damn thing fail, let 905 of us lose everything, and then look around for someone else to blame. The fact that the TARP loans were repaid and almost all the sizable institutions saved shows the success the policy. Given the debt problem the country already had, it's difficult to think of a cheaper or more effective way than the one that Bernanke used.
Blue_Tires
(55,445 posts)
On the Road
(20,783 posts)http://thenextrecession.wordpress.com/2012/04/21/paul-krugman-steve-keen-and-the-mysticism-of-keynesian-economics/
I didn't understand the Marxist and Minsky positions either, and still don't very well. In Economics everything is interconnected. Expanding money (which means expanding credit) depends upon an individual applying for a loan, a bank accepting that application, and on a larger scale the Fed deciding whether to increase or decrease those loans via controlling the interest rate. That is why I think part of this is a matter of emphasis. Or more to the point, it is a matter of minority economists trying to gain publicity and put themselves on the same plane as a Nobel Prize winner.
On the Road
(20,783 posts)If anything, monetary policy is the achilles heel of Marxism.
Forget for a minute the economic performance over the last century of the US vs any Marxist economy. Forget the relative value of money in the US vs the ruble, the zloty, or the currency of any communist country.
The focus of Marxism is on the worker. Over the last 95 years, how have workers in communist countries fared economically vs those in the US -- either in the buying power of their salaries or the value of whatever savings or assets they have?
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I went back and read that Michael Roberts article and was actually surprised at how basic it was, not to mention ahistorical. A lot of the disagreements seem to be verbal or matters of emphasis.
This was the only good point that Roberts backs up with data:
It shows that the US corporate rate of profit as measured against all assets, was lower in 2002 than it was in 1982, while it was higher against just physical assets. Once conventional profitability also turned down in 2006, the crisis began....
His theory predicts that a % decline profits trigger a recession, and expands the definition of what should be included in the base. However, if I understand his argument correctly, his answer undercuts his own argument. According to his theory, that was true in 2002, but the effect he is forecasting didn't happen until several years later. That is more in line with the time conventional economics would have predicted.
Roberts believes in cycles of "about 32-36 years," as described in this article from July 2010:
https://sites.google.com/a/socialistbulletin.com/socialist-bulletin/economics/causesofthegreatrecession
However, even in this article, Roberts's model does not seem to reflect experience during a couple of other periods:
(1) His argument predicted a much longer recovery from the Great Depression. If we extend the data back to 1929, there is a significant rise in profitability from 1938 to 1944. After that profitability falls to 1964, which does not match my argument that this was an up phase for profitability!
(2) He seems to have predicted a much more delayed recovery from the current recession: If right, this suggests that we are in what the investment houses call a secular ‘bear market’ that won’t end until about 2018, a couple of years after the trough in profitability, having peaked in 2000 in the last bull market phase.
This controversy seems to have many arms, and it's difficult to absorb all of them. A lot of it seems to be emphasis and semantics. But to be convincing, it ought to be a better predictor of both the upturns and downturns than Roberts has demonstrated.