I have been holding on to this long rant deciding whether to include my substantial rants that are quite out... In the simple desire to move on I decided to just put it all out there...
This writing is a response to the publicized back and forth between Larry Summers and Ben Bernanke through their respective blogs which I firs read about here:
Summers: The
essence of secular stagnation is a chronic excess of saving over investment. Check
Summers: In
situations where target saving is important, reductions in rates may increase
rather than decrease saving, exacerbating imbalances. Check
Summers: I think
that it will be hard to escape the conclusion that household debt grew at an
unsustainable pace in the decade before the great financial crisis and that
this was an important spur to growth.
Check
Mind you Summers, another lifelong academic with no real
world experience operating in any industry outside of education (or non-profit
“think tanks” that seek to directly influence legislation by hiring high
profile and Ivy League academics to “vilify” their agendas), was an Integral
Player and heavily influential in the deregulation game. During his entire tenure with the Treasury,
he became Wall Street’s whipping boy. Within less then a decade in the early
2000’s deregulation, which is arguably the core reason for the bubble /
unsustainable credit / derivative expansion that ensued, actually picked up
steam under advice from people like Larry Summers. He was instrumental in further influencing a
hands off approach towards “managing” the explosive growth in unregulated derivative
products built directly on the backs of individual borrowers in the US and
elsewhere (wherever “offloading risk” became the core ideology of “lenders” the
world over) and not unsurprisingly, after the collapse of credit markets around
the world, ended up back at government service in 2008 to make sure no branch
of the government, regulatory or
otherwise engaged in ANY reigning in of the “regulated” financial industry nor
sought to disband, regulate or otherwise force under regulatory framework the
multi-trillion dollar “unregulated financial industry”.
Summers argues
governments can expand debt “indefinitely”: “As long as a public investment project yields
any positive return it will generate enough revenue to service the associated
debt.”
Yet Summers completely ignores the exceptional debt burden
currently held by nearly all the major industrial economies including China,
which though not a fully “developed” industrial economy, is vastly influential
in global economic reality due to its sheer population size and explosive
government orchestrated “growth” over the past several years. As Bernanke goes on to retort, this is
important as the money printing and excessive spending shows declining rates of
return over time.
Summers again on debt
spending: The case for expansionary fiscal policy in economies with very
low real interest rates is of course magnified if there are reasons to doubt
that the central bank can act on its own to raise inflation expectations.
It may well be that in situations where the interest rates are trapped near
zero – such as those prevailing in Japan and Germany – expansionary
fiscal policy reduces real rates by raising inflationary expectations.
So do you REALLY want this kind of inflation? Fiscal spending increases, ie; government
spending be it infrastructure or otherwise, is not sustainable long term, esp.
if the government already carries very high debt burden. So ramping up inflation via monetary and
fiscal policies with NO resulting increases in private investment in the
economy will create the worse kind of inflation, not unlike that currently
happening in Brazil. So Really?
Do you want the kind of inflation by printing money and government
spending with no private investment and or increases in productivity? You are in for a real mess… So someone here
needs to explain the different types of inflation and what kind of inflation is
or would be considered “normal” or “desirable” vs. inflation for the sake of
inflation!!!!
Summers back to “secular stagnation”:
Indeed, the lower level of rates, the greater tendency
towards deflation, and inferior output performance in Europe and Japan suggests that the spectre of secular
stagnation is greater for them than for the United States.
Now, any person with some understanding of the economic
reality of Europe and Japan
vs. the US
would be able to understand right away why the “spectre of secular stagnation”
is greater in the former. Demographics,
labor market flexibility, immigration dynamics, capital flows (real and
financial) and competitive markets all greatly differ in the US vs. Japan/Europe. It simply does not matter how much money they
print in Japan or Europe, this money will not solve problems that are /
were not based on money in the first place.
Devaluing their currencies against the Dollar has run it’s course and
China is about to go through a major currency adjustment as they get killed by
their indirect dollar peg which in the end, with Brazil, Russia and several
other mid-tier industrial producers all trying the same game will result in
nothing more then an across the board debasement of currencies everywhere in a
race to the bottom NOBODY has a clue where or how it will end.
Summers pointless statement: Global mechanisms that
concentrate on causing borrowing countries to adjust without seeking to shrink
the surplus of surplus countries will tend to push the global economy towards
contraction.
This statement is straight from the mouth of an Academic for sure. What on EARTH are you going to do to “shrink the surplus of surplus countries”? Tell them to spend money? The ONE THING that is in the process of happening, China’s lead on creating the Asian Infrastructure Investment Bank (Remember the US was a the only major nation with an undestroyed economy and a major creditor back when the IMF and World Bank were created and virtually dominated by the US from their inception, even though the US is no longer a major creditor nation), leads to headlines like this one from the Guardian: “China's growing support to lead multilateral lending bank worries US”. Why doesn’t Mr. Summers recognize directly how important it is for the nations around the world that have built up massive foreign reserves through “excess savings” start putting this money to use around the world instead of having Washington look like it’s being run by the complete idiots it is!!!
Summers does recognize the futile exchange rate policies:
Policies that seek to stimulate demand through exchange rate changes are a
zero-sum game, as demand gained in one place will be lost in another.
Secular stagnation and excess foreign saving are best seen alternative ways of
describing the same phenomenon.
Yet Summers only uses the “demand” argument here, failing to
estimate the various other negative repercussions of competitive exchange rate
reductions. Calling every country’s
attempt to debases it’s currency so it can “export” it’s way out of economic
malaise (thinking increased exports will lead to further investment) while at
the same time boosting inflation with the intent of devaluing their current
debt burdens, a “zero sum game” is being VERY generous to what is likely to be
a global economic disaster!
Summers Final lack of solution: So, I continue to urge that
it is worth taking seriously the possibility that we face a chronic problem of
an excess of desired saving relative to investment. If this is the case,
monetary policy will not be able to normalize, there will be a continuing need
for expanded public and private investment, and there will be a need for global
coordination to assure an adequate level of demand and its appropriate
distribution.
This is Summer’s final academic statement that just blows me
away! “Chronic excess saving” is
hilarious thought. Watching corporate America take
huge amounts of their “earnings and cash flows” and plow that money into buying
back their stock instead of investing it is heartening. This is a major transfer of wealth, the money
spent on buying products generating ever larger profits as the oligopolization
of the American economy continues to increase prices (under the radar as the
official inflation numbers are massively distorted, go buy a gallon of paint
and tell me why it is $30 vs. $10 fifteen years ago…) and profits are simply
used to buy back stock which gets plowed back into the stock market. Meanwhile, nearly free money exacerbates this
problem as central banks mop up a huge chunk of government issued debt leaving
“investors” looking anywhere for yield.
Companies not only use their current cash flows to buy back stock, but
literally leverage their companies by borrowing ever increasing amounts of nearly
free money to buy back their stock at elevated prices. While great for the upper echelons of
corporate management who get ever richer by cashing in on their stock options
pocketing billions of dollars a year in personal “profit”, the average “saver”
gets zero return on their money, resulting in the fact that they are actually
saving MORE to counter the loss in earnings they would have from interest.
In a “perfect” economy, based on pure economic theory,
people would be spending all their money today as they get NOTHING from saving
it. But economic theory be-dammed,
because in reality, the aging populations of the developed world have been
saving MORE since they are playing a loosing game against the push by central
banks to increase inflation while their cash savings yield them zero return
nominal return. Now tell me, supposedly
“savers” participate in investing when the institution with which they place
their “savings” lends it out and at positive rates and pays them interest
earnings for using their money. But this
rationale is completely broken, it simply does not happen any longer!! The
banks just keep all the profits, including the profits from their 15% credit
cards, fee generating income, investment banking, mortgage lending etc. Want a yield, you better to buy their stock
and hope they don’t go belly up or another financial crisis does not wipe out
your investment. Then there are always
the crowdcube.com models where you can invest directly in small businesses with
your own money.
The thinking goes, in a zero rate environment corporate
entities would be happy to borrow and invest in nearly anything able to earn return
higher then ZERO. Well, the financial
industry is taking the trillions of newly “created” money and buying nearly
anything with positive yield with abandon, meaning lots of worthless paper can
float around at exceptionally low yields right now. Yet, the average Joe does not participate
directly in this game as his “investment holdings” are more than likely tied up
in some retirement account where he has no idea how much of it is chasing
yields in a new debt bubble that is likely to burst taking whatever he managed
not to loose or regain since the last financial collapse and wiping it out
again along with whatever he contributed since then.
Where is the investment?
Why invest? The developed world
has nearly zero population growth and a massively aging bulge in their
population while the rest of the world, where populations are rising rapidly,
people are still poor, their countries still lack industrial capacity,
infrastructure investment, technology and or any of the other factors needed to
participate in “development” while most of them are still having their natural
resources stolen from them for pennies on the dollar with no secondary industry
even in existence to turn these recourses into finished goods at higher value
and thus raise the incomes of their populations. Where
are Summers tangible recommendations on how to remedy this situation?
Screw trying to force feed investment in mature economies
where underlying demographics and consumption trends are declining! How does the world get growth, investment,
consumption and inclusion into the global economic machine in the 3/5 of the
population of the world that has been left to rot? Where are the models that state explicitly
that the global economic “norm” that we have lived under for to long is broken? The planet is at its wits end ecologically
and economically. Growth and Consumption
models are broken. Corruption rules far too great a number of the planet’s
population (inclusive of many “developed” nations). The global elite are
increasing their hold on resources while directing puppet governments they
control to abandon their responsibilities to their citizens and spend great
amounts of resources and lives on militaries to protect them and move forward
their agenda, which has absolutely no productive value. Most of the war currently happening is a
direct result of policies of the developed world which supported corrupt
governments for political purposes, exploited their resources, oversaw almost
no productive investment purposefully so they could force feed their global
brands and products down the throats of the increasingly impoverished people
while exploiting their corrupted neo-colonial governments. You want investment? You want growth? You want a return to a “market based” economy
where supply and demand work without massive intervention by the wheels of
central banks with their capacity to “print” massive amounts of money in the
name of “stimulus”? Then the developed
world needs to STOP trying to instigate growth where it is not organically
present!! The developed world needs to
start the process of sharing / transporting / instigating development in the
underdeveloped world. Of all nations, China is taking
a lead with the new AIIB and this is a good step in that direction. China, a nation who’s “growth” has been
completely orchestrated not unlike the communist / socialist governments rapid
growth after WWII; State led, state driven and state directed with spectacular
results for a short period, extended of course by China also taking over near a
quarter of the global dirty manufacturing with disastrous ecological and
environmental results (But that is just fine for an expendable few hundred
million people so the developed world elites can have their huge profit margins
and their citizens cheap junk to feel rich right?).
Meanwhile, it’s time to the stagnant developed nations’
corrupt governments start recognizing that the “profits” made from corporations
either are put to good use or confiscated for the public good i.e.; to pay off
the massive debts the irresponsible corrupt governments have accumulated while
creating policies to ensure social stability, security and equal deliverance of
government services and investment. The
debts government have accumulated, especially since the global financial
failure, is directly on the backs of the citizens who are on the hook for
trillions after bailing out the financial elites while for the most part the
“productive” corporate entities also had a free ride, many having been bailed
out themselves! It’s time this all gets
restructured NOW.
Recognize people that excessive profits, i.e.; profits that
are not put to good use, invested etc, are nothing more than a “tax” on the
citizens who purchase those products with which the public is NOT seeing any
social benefit or “welfare” as economists like to say. Will you hear Summers or Bernanke say out
loud that the models are broken? That we
need a massive rethink of what it means to allow unfettered consolidation and
profits from fewer and fewer players who are enjoying massive rewards on the
backs of the vast majority of citizens who are NOT seeing the benefits spelled
out by so many economists in their pretty little models of how society will
benefit over time as capital increases productivity allowing workers higher
wages and more leisure etc…
If we don’t do something now or very soon, trust me, there
will be backlashes from society and elements of society who will propose far
more drastic measures and far more destructive proposals in the future if the
current “institutions” on all sides of the debate don’t start coming up with
tangible solutions now!! (I would argue
this is at the core of most global conflict since at least 2001.)
I would propose a global developed world corporate tax
rate that is collectively agreed upon, that no nation is able to undercut and
that completely eliminates the incentive for corporate entities to skirt their
responsibility to pay taxes on the profits they make. It should be a crime for any corporate entity
to use gimmicks and supply chain accounting to hide, transfer or otherwise
manipulate their profits to avoid paying tax in any given jurisdiction. Corporate entities should be made to realize
they operate via corporate charters that are granted by legal entities in
jurisdictions they operate and that part of their allowance to do business and
answer to shareholders and the like is an understanding that they have a social
obligation to operate their business ethically, pay wages directed by law, pay
tax on their profits and understand that the responsibility of the governments
they operate under are not free, that caring for the social welfare of the
population and investing in the infrastructure that benefits both the corporate
entity, their workers and the people they “serve” are all connected. To act in any way that is contrary to the
good of the citizenry where they operate is criminal activity and they risk
loosing their corporate charter to operate.
This is to be a rebalancing of the responsibility of corporate entities
who operate with the blessing of the state / citizens of the world they operate
in with the needs of the citizens governments to finance the social welfare of
those citizens.
I would criminalize extraction exploitation on a global
scale. Institute a minimum royalty for
all resource extraction including agriculture that would be to the benefit
citizens of the nation where the extraction is taking place. In addition, global environmental /
ecological rules would be enforced on any an all companies operating in the
extraction industry. Global resource
accounting would identify in real time all resources that exist and
international agencies would work proactively with local governments to manage
the proper extraction of resources, helping to set up local legal structures
and monitoring systems to make sure compliance is universal.
I would set up a global database of every hectare of arable
land on the planet and begin working with every government on the planet to establish
best use guidelines and practices for the land, encourage the application of
agricultural technologies suitable for each region, outlaw the use of any genetically
altered seed or product that involves the use of mass pesticides and instead
focus on local varieties of agricultural
production that takes advantage of that regions soil, environment, available
technology and resources. For the McDonalds or the world that rely on homogenized
agricultural products on a global scale, this would be allowed no longer. Diversity in Agricultural output would be the
rule and global homogenization of global food sources no longer encouraged or
allowed to be dictated by any one or group of corporate entities for the
benefit of their “business model”.
I would create a global arable land database, inclusive
of potential for fisheries and livestock, for every nation / common geographic
area taking in consideration of the population of every nation and use all
resources available from international agencies to plan and coordinate a
strategy to make sure every person on the planet has access to a minimum daily
calorie / nutritional allowance of food, with all priorities directed toward
efficient local production vs. cheap developed nation subsidized products
undercutting the local market’s production.
In this effort, food would be sourced locally as possible, with
strategies to manage the import / growth of food sources, emphasis on
accomplishing the daily nutritional needs, focus on plant based nutrition vs.
animal nutrition and vast application of the best known irrigation / organic
fertilization / farming techniques known and applicable for the specific
region. The effort would be coordinated
with local governments and composed entirely of local citizens who would be
trained, financed and supplied with all the necessary inputs needed to
successfully operate i.e.; technology transfer and technological expertise on
the ground. Ideas like the patenting of
seed that is not recyclable through the use of seed from the crop grown would
be strictly outlawed and everything possible would be done to ensure continued
success of all initiatives to meet global nutritional standards. This initiative would include developed
nations where for all intensive purposes, the food abundance and massive waste of
the “food industry” that takes place in the developed economies (not to mention
the massive “throw away” of food by individual citizens) would be accounted for
either financially or otherwise and direct fines would be imposed as a
financial penalty that would be used to finance agricultural and nutritional
needs in deprived parts of the world.
Every vehicle sold for “personal use” that does not meet
a pre-set qualified global standard of emissions, fuel economy, recyclability
etc. would be subject to a direct and immediate “tax” that would be used to
dramatically expand renewable, non-fossil fuel energy the world over. This “tax” would also apply to the
construction of housing, commercial facilities and be imposed on corporate entities
in the business of physical productive activities who do not meet a global
environmental standard. The era of
cheap disposable products would be declared OVER. Every durable good must be repairable,
recyclable and meet minimum life cycle requirements, period.
Every vehicle transportation system in the world would be
reworked. There would no longer be
millions of miles of roads that allow any two vehicles to travel at high rates
of speed towards each other in opposite directions with nothing but a painted
line between them. The idea that a
supposed intelligent race of beings would allow such a thing to happen is
bazaar and obscure. To continue to propagate such ignorance is beyond
comprehension. It should have been
reconsidered the moment a motorized vehicle came into the hands of a citizen
for common use.
There are additional global initiatives I would begin
working on and will embellish on later…
Now on to Bernanke’s remarks:
Bernanke Comment
on Summers Solution: Larry’s proposed solution to this dilemma is to turn to
fiscal policy—specifically, to rely on public infrastructure spending to
achieve full employment. I agree that increased infrastructure spending would
be a good thing in today’s economy. But if we are really in a regime of persistent
stagnation, more fiscal spending might not be an entirely satisfactory
long-term response either, because the government’s debt is already very large
by historical standards and because public investment too will eventually
exhibit diminishing returns.
Well Bernanke puts this well enough. Now where are the alternative solutions?
Bernanke Learning MIT: As Larry’s uncle Paul Samuelson
taught me in graduate school at MIT, if the real interest rate were expected to
be negative indefinitely, almost any investment is profitable. For example, at
a negative (or even zero) interest rate, it would pay to level the Rocky
Mountains to save even the small amount of fuel expended by trains and cars
that currently must climb steep grades.
Of course this is true when and if it is expected the
investment you make is going to have some utility!! Hello! The word “almost” is a VERY big word
here. Just because the government could
borrow at zero percent vs. say two percent does not clear return on investment
make!
So why is investment at historically low rates? Clearly, companies operating at the duopoly
or oligopoly level, the majority of sectors in the American economy, see the reality. They are already making or importing products
on such a large scale at such a low cost and selling it at increasingly
profitable prices, that there is little left for them to do to sell more, thus
they just buy back their stock with their earnings (there are plenty of
economic models for this phenomena). Since
the collapse of the oil price, not even high energy prices are encouraging them
to invest in say plant or energy efficiency right now… Outside of the technology area, where very low
levels of “physical” investment can result in very high valuations and profit
margins, and large scale production industries such as Aerospace and
Automobiles and for a while areas like oil drilling, shipbuilding and mining,
investment is on the decline.
Not enough of the general population have come to realize
how much damn money the companies are making selling nearly everything to them
at increasingly high developed world prices while their cost of production lies
in the underdeveloped world (one of a few emerging exceptions is beer, thank
God). Once people figure out how cheap
machine tools are (thank you Alibaba), and how much money they could make producing
and selling everything from underwear to peanut butter to house wears without
going through the oligopoly retail industry, more people may start investing
and producing. There are already cottage
industries all over the US
making and selling everything from organic and gourmet foods like ice cream,
chocolate and other delectabl's to soap, lotions and other consumables. These
people are investing, producing and in some cases growing and building
sustainable businesses. They figured it
out. Perhaps they will make higher
quality products and sell for a premium and perhaps their consumers will spend
more on quality and less on quantity and this shift will create tens of
thousands of cottage industry producers of high quality goods sold directly to
consumers who will be happy knowing that consumption of quantity vs. quality
was futile and wasteful and degrading to the environment… Who knows? But it is worth governments putting money and
resources behind this initiative.
Education, training, cooperative business starting rules and
regulations, flexible labor laws and tax incentives are all worth while. This might sound pie in the sky like but the
potential is there and is happening and has happened on some levels already. In addition, these cottage industries are
“making a living” i.e.; beating the “ wage trap” created by corporate America
that limits one’s earn-able income, where lacking a secondary education, being
unable to pass the on-line corporate drone psychology test, or being one of the
65 million Americans with an arrest record, means attaining a decent salary is
becoming a remote reality.
Bernanke Note on equilibrium negative real interest rates: I
concede that there are some counterarguments to this point; for example,
because of credit risk or uncertainty, firms and households may have to pay
positive interest rates to borrow even if the real return to safe assets is
negative. Also, Eggertson andMehrotra (2014) offers a model for how credit constraints can lead to
persistent negative returns. Whether these counterarguments are quantitatively
plausible remains to be seen.
Bernanke on bubble instigated full employment: They note
that the bubble in tech stocks came very late in the boom of the 1990s, and
they provide estimates to show that the positive effects of the housing bubble
of the 2000’s on consumer demand were largely offset by other special factors,
including the negative effects of the sharp increase in world oil prices and
the drain on demand created by a trade deficit equal to 6 percent of US output.
It’s a crazy idea that only at the end of a cycle do we have
a “bubble” hence the cycle is not a “bubble” cycle… Let’s just say that with
any idiot with no formal economic education could see the severity of cycles in
the economy over the last 30 years or so were all financial in nature, driven
by Wall Street gamblers and speculators, and all involved bubbles in various
sectors of the economy. The latter part
of the 1980’s, 1990’s and 2000’s were all cycles that at the end of each,
resulted in massive transfers of wealth to the top, exaggerated more intensely
each time, with each cycle involving ever increasing amounts of debt held by
both households and industry (and government with the exception of the late
1990’s balanced budget on the Federal level, a gift horse for an aging nation
that was quickly squashed by the reckless and mindless policies of the Bush
presidency) and ever more drastic measures taken by the central banks to
“smooth” over the excess without allowing or forcing structural change. In fact more effective regulation, resulting in ever
larger bubbles and collapses.
The time has long since come for the trillions of dollars in
unregulated financial capital sloshing around the world looking for “yield” to
be reined in, shut down, regulated and or completely disbanded and forced into
productive use. The money being printed
by the central banks is pointless. There
is plenty of money, it is all highly levered into “financial instruments”,
being recycled through the revolving buybacks and subsequent stock purchases
and being used to gamble and speculate. The Trillions of “wealth” tied up in
pointless paper and derivatives instead of being put to productive use is at
the core of the lack of investment on a global scale. Using money to make money without ever
producing anything tangible never ends well.
What the central banks did during and after the credit
crises and continue to do today will be marked as the biggest mistake in human
history. The global credit “reset” had
started back in 2007-09. This was badly
needed. The ONLY money central banks
should have printed was that which was lost through the insolvency of nearly
all major banks by actual individuals and companies who had stored money in
insured bank accounts. The bailing out
of money markets, which nearly all had been so mismanaged they were essentially
on their way to offering an unprecedented “haircut” of several percentage
points or even more to the individuals and institutions who kept trillions of
dollars stored there was a huge mistake.
Recapitalizing insolvent overly levered banking conglomerates was a huge
mistake. Handing trillions of dollars to
bank and non-bank institutions with explicit instructions to provide liquidity
to the multi-trillion dollar unregulated hedge fund and private equity markets
was a huge mistake. Allowing dozens of insolvent non-bank financial companies,
from credit card issuers, to Wall Street institutions to commercial and
individual credit companies to become bank holding companies to give them
access to Fed funds was a huge mistake. All the Central Banks have accomplished, is to
allow trillions of dollars in levered “financial paper products” to remain in
circulation, then allow the debt bubble to inflate even further along with the
derivative markets. Printing ever more
money is only aiding and abetting the continued accumulation of non-productive
leverage for no good reason!
As of this writing the amount of outstanding bond debt of
American Corporations has literally doubled since 2008 making total corporate
debt now nearly 80% of US GDP, the value of non-revolving debt held by
Americans has gone up by over 2/3rds, the approximate value of financial
derivative products has grown by at least 1/3rd bring the total
global exposure to over $700 trillion! Meanwhile the debt burden assumed by the
non-presumptive citizen pawns through their irresponsible governments as they
protect the “wealth” of the elites has grown exponentially as well (8 trillion
or up 80% from 10 to 18 trillion in the US alone).
It is 2015 and the global financial system functions more
like the 19th century from the perspective of capitalistic games
between gambling men who wield their financial power from the small financial
centers of the world, where nobody is held accountable, money floats around
with no national allegiances or responsibility to any citizens on the planet
and where humanity is just considered fodder for making as much money as
possible. Crash a currency, sure,
inflate a commodity, sure, crash a commodity, sure, flood a market with short
term cash, sure, suck the cash out overnight, sure, it simply does not matter what
destruction these actions wrath on humanity as long as the global elites make
their desired 8-10-15-20-25-30% or whatever they can on the backs of whoever
they can for whatever reason. God forbid any nationality try to tax them for
what they do! Meanwhile “economists” sit around trying to recreate economic
models by studying the behavior of people in villages in remote areas of Thailand. Yea, a whole lot of good this does the global
economic system!
Bernanke Academic statement is not worth salt. He says, “The
foreign exchange value of the dollar is one channel through which this could
work: If US households and firms invest abroad; the resulting outflows of
financial capital would be expected to weaken the dollar, which in turn would
promote US exports.” What a load of
academic hogwash. Is he aware that the
entire global financial system is currently rigged? To go back to some academic economic model
that assumes a “normal” functioning economic system, where the “exchange value”
or the dollar would be affected by his suggested actions is INSANE. He is talking out of the side of his mouth!
The EU and Japan
are both highly manipulating their exchange rates through massive monetary
policies. Does he really think “US households”
are capable of anything other then borrowing as much money as humanly possible
at very low rates and consuming as much as possible now? This is exactly what the central banks are
encouraging!! They are not encouraging “saving and investing”!! Besides, for
the last 30 years or so, all US firms have done is invest abroad! They have built or shipped wholesale
factories and production “abroad”. They
have expanded their operations, purchased companies, transferred their monopoly
rents, outsourced massive amounts of their production (Boeing anyone?), moved
wholesale their customer service operations… basically every possible way under
the sun American companies have “invested abroad”, many times to the detriment
of the local economy (telecom companies buying assets around the world with
their monopoly rents while the biggest thing to ever hit the telecom world grew
like mushrooms in their back yards in the 1990’s, hello!). And what is
happening to the dollar? Does this man
even know that the dollar is a “reserve currency” where it really does not
matter what the US Fed reserve thinks it can do to “manage” the economy. The reality is there is no measurable amount
of fiat currency that can be printed to bail out the global debt bomb that
burst for a minute in 2008/9 and will burst again imminently. There are almost no policies that can be
“initiated” that will have predictable effects on exchange rates / investment /
consumption etc. when every “developed” nation’s central bank is pursuing the same
reckless debt expansionary policies.
Just forget about it!
And this is Bernanke’s hilarious example: “For intuition
about the link between foreign investment and exports, think of the simple case
in which the foreign investment takes the form of exporting, piece by piece, a
domestically produced factory for assembly abroad. In that simple case, the
foreign investment and the exports are equal and simultaneous.”
(WTF? If exported our
factories as “investment abroad” what good would it be to have a lower exchange
rate? We would not be producing anything
any more to make the lower exchange rate work for the good of the
economy!! We would be importing finished
products made in foreign countries with the factory we exported to be purchased
by people making a dwindling amount of money from shitty retail wages. Sound
familiar? Where do these guys get their
common sense?).
Irrespective of whether the company is a US company or not
(think Apple making $600 phones overseas and importing them to the US instead
of making them here, keeping both the profits and production out of the US) we have
been gutting our economy for decades while at the same time exporting our
technological know-how (and even our lower productive factory machinery as
Bernanke suggests) and now every nation in the world is “exporting” everything
back to the US, which is just churning the same money over and over, bubble to
bubble, debt to debt, to buy the products with ever dwindling amounts of income
allocated to the largest historically economically strong segments of the economy
while each churn turns over another huge chunk of that pie to the richest 10%
who are in the position to benefit from the debt/churn machine. I truly love when academics set up “examples”
that expose how clueless they are to what they are saying or how inappropriate
their examples are.
Notes:
1) How
many more people would care to drive through the Rocky
Mountains if they were leveled for a road through? Would there be any increase in productivity
from the mountain pass? Would the
savings on fuel actually lead to any social benefit that is measurable or would
it just leave a little more money for the person driving to be able to buy a
hot dog and coffee on the way? How would
the government ever see a return on such expenditure? Would the expenditure’s short term multiplier
effect have any lasting benefit?
2) per
year: 35,000 average shares exercised, 7425 exercises, $24.88 average
profit/share 1996-2003
- On a Side Note:
Time preference reflects the relative valuation
placed on goods at an earlier date versus a later date. While current
goods (including cash) should always have a higher valuation than future goods,
time preference declines as an economy becomes wealthier, i.e. the proportion
of income devoted to current consumption falls versus that devoted to
saving/capital accumulation.
On one hand, their policies seek to increase current
consumption, at the expense of long-term saving & capital accumulation, in
an over-leveraged world. This increases time preference and
would normally equate with higher interest rates, shortening time horizons and
diminution in wealth.
However, by forcing down interest rates, the substitution of
savings (real wealth) by cheap credit and by supporting financial markets, they
have created an impression that time preference is lower than it really
is. This lengthens time horizons, implies that current/rising
consumption levels are more easily sustainable and induces incorrect spending
decisions. (Basically creating a “new
normal” in expectations)
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