Erle@what bugs you -- trotsky, 10:31:02 05/23/07 Wed
you sound as if i were hailing the credit bubble as something good - which i've never done. i will admit though that i don't understand your fixation on hedge funds and other 'financial engineers'. are they foolish? sure, but there is a method to the madness, if you will. let's not forget, these are private entities - i see their extreme leverage and propensity to squeeze out even the last bip of yield as nothing but a natural reaction of private capital to monetary inflation - essentially it is trying to preserve its purchasing power.
that the game has in the meantime grown to scary proportions and that inflation of money and credit is these days seen as a boon rather than a bane is basically a natural outgrowth of what has happened over the past 35 years or so.
ultimately a credit bubble is destructive, no matter what one does to 'ride its coat-tails'. the production of real wealth is hampered by it, until the point comes when the pool of real savings begins to inexorably decline.
guess what the 'authorities' (these days, the central banks) will do when the bust comes? do you think they will allow the liquidation and redirection of capital to proceed unhampered? not a chance! they'll do exactly what Japan has done, drop their rates to zero, and pump all out to revive the bubble. this cycle will be repeated until the fiat money/fractional reserves system meets with its pre-ordained Misesian end.
now, all that said, it is still possible to make classical liberal arguments on several issues. after all, the world's pool of real funding appears to be still intact - in spite of the ministrations of the CB system. every economic argument must of course be mentally adjusted in terms of 'this takes place in a system distorted by too much money and credit', but that doesn't mean that the market has ceased to work. it may be subject to distortions, but its basic principles can not be changed. even if one looks at an extreme case, namely the former Eastern Bloc command economies, they actually proved that the laws of the market can not be circumnavigated. the only reason why the Soviet Union didn't end up in mass starvation was that the central committee one day decided that 2-3% of the communal arable land would be set aside for private use. there was a thriving 'black market' as well (daring smugglers could make a fortune importing Pink Floyd LPs to Moscow). lastly, in all spheres of economic life where the market had been replaced with 'the plan', decay immediately set in. a post mortem analysis of the economy of the German 'Democratic' Republic, the allegedly strongest Eastern Bloc economy, showed that it was nothing but a Potemkin village of cooked books. not one thing that foreign creditors to the regime had assumed about the GDR's creditworthiness was even remotely true.
and yet, the tiny benefits that the small enclave of private entrepreneurship in agriculture was able to deliver was enough to keep at least everybody fed.
do you get my point? even if the 'system' as such is totally wrong, one should strenuously support every aspect of it that is free. even if the system does not represent a free market by a long shot, it can still be analyzed in terms of the laws of economics.
morbius@tulips -- trotsky, 18:48:06 05/22/07 Tue
yes, it would be possible to relive the tulipomania, or a reasonable facsimile. it has however nothing to do with whether the Fed, Goldman Sachs and Mr. Cramer apply themselves to it or not. it would only work if the social mood is receptive to the idea.
just before the stock market crashed in 1929, the pre-eminent economists and market observers of the time (btw., Goldman Sachs was around as well at the time...) were to a man convinced that a bear market of any consequence was impossible. in fact, the crash itself was widely hailed as a buying opportunity. the reasoning generally involved the Fed's unparalleled power to prevent bear markets and recessions, as well as the great trust in the bankers and investment trusts who would surely buy all they could at those discounted prices of late October 1929. in fact, they DID step in and buy - and then were swept away with all the rest of the believers as the wave of bearish sentiment came crashing ashore in the early 30's. how come they couldn't stop it? the Fed increased free bank reserves by over 400% between late 1929 and mid 1931 - all the touters , politicans, officials and banksters of the day were full of 'the bottom has been reached' and 'recovery is just around the corner' stories.
were the 'in control' before the bear market and depression struck? were the in control during it or thereafter?
your mistake is in believing, just as Irving Fisher and co. did in the late 20's, that somehow, the bureaucracy has magical, unlimited powers to direct markets. if all it took to revive a burst bubble was the willingness of the central bank to provide copious credit for free, Japan's Nikkei index would never have fallen from 38,000 points to a mere 8,000 14 years(!) later, after every interventionist strategy under the sun had been tried. why did the Fed not succeed in the 30's? why did the BoJ not succeed in the 90s? where was the control? the answer is of course that they control actually nothing - the markets can not be controlled. when the mood turns bullish, nothing can stop the train, and the same goes for when it turns bearish. the decisions of the bureaucracy (which is staffed by humans, after all) are likewise a reflection of the social mood.
a recent example is the now bursting housing bubble. for years, no prosecutor was interested in following up stories of mortgage fraud. why would they? everybody made money after all (at least on paper). NOW one fraud case after another suddenly comes to light. Ohio's attorney-general wants to 'avenge' homeowners (his words) and go after lenders and securitizers whom he blames for the debacle.
well, if he had asked me 3 or 4 years ago, i would have told him this would happen. only, the social mood of the time ('we're all getting rich with real estate!') would never have allowed him to prosecute those he now is aiming his righteous anger at. and so it goes, it's all ruled by mass psychology.
Winston@Guardian article -- trotsky, 18:25:29 05/22/07 Tue
i couldn't believe what i was reading - an 'unnamed US official' basically writes a propaganda screed for the Guardian? the assertions re. Iran are so full of holes that one doesn't know where to begin. this could only have been cooked up by someone who...well, doesn't know the difference between Sunni and Shia to begin with.
anyway, we've heard this all of this now for a long time - and it's similar to the stuff heard in previous wars of choice. naturally, not a shred of proof has been presented to buttress the allegations. it's always 'unnamed officials' throwing out these morsels of battlefield wisdom...lol.
the 'Iranian involvement in Iraq' story has about the same credibility as the WMD story , actually slightly less all things considered.
morbius@liquidity -- trotsky, 17:34:03 05/22/07 Tue
do you honestly think where the liquidity has flowed has been 'controlled' by someone? how come then that the Dow Industrials Average has lost over 50% of its value versus gold in the past 6 years? are you really so naive to believe that the financial markets are 'controlled'? note, i'm not denying that statist intervention has an effect on the markets. i only don't believe that any of the effects have been intended or are in any way controllable (who can 'control' what thousands of hedge funds decide to do day after day?).
one must not lose sight of the forest on account of the trees. watching the markets every day, one may often think that something unusual is happening - however, this can easily be disproved by looking at long term charts. nothing is happening that hasn't happened before.
btw., the historical record shows that widespread belief in the control authorities (governments or central banks, depending on the era) allegedly have over markets becomes most entrenched at precisely those points in time when unmistakable proof of the opposite is lurking just around the corner.
it's only human to extrapolate, but financial markets don't act on exogenous cause-and-effect principles.
i've frequently tried to point this out via examples. 'if A then B' doesn't work in financial markets, attempts at rationalization in the financial media notwithstanding. the force that is driving it all, the collective social mood, is outside of the control of ANY outside force (including your central planners...).
morbius@central planning -- trotsky, 15:52:50 05/22/07 Tue
it doesn't matter whether central planners now have more technology at their disposal; after all, the complexity of the economy they are trying to plan has increased commensurately. the Soviet Union as an example for the failure of central planning is actually timeless - it took them nearly 70 years to utterly fail after all. in our 'mixed economy' system, where the State is only about 50% of the total economy, it should take much longer for the failure to become obvious to all. after all, there is a huge stock of capital to feed off. lastly, what is important is not so much what is seen, but what isn't seen - namely, the question, where would we now be WITHOUT state interventionism? it takes only some understanding of the laws of economics to realize that we would be far more prosperous overall. there are no economic decision processes that the bureaucracy can do 'better' than the market - regardless of the tools it uses. the outcome will always be less than optimal - with the effects cumulative over time. if the economy merely grows 1 or 2% less per year than it otherwise would, it begins to really add up over the years and decades due to compounding. |
