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Comparing Crises: 1929 with 2008 and the Next

September 28, 2018

Comparing Crises: 1929 with 2008 and the Next

The business and mainstream press this month, September 2018, has been publishing numerous accounts of the 2008 financial crash on its tenth anniversary. This month attention has been focused on the Lehman Brothers investment bank crash that accelerated the general financial system implosion in the US, and worldwide, ten years ago. Next month, October, we’ll no doubt hear more about the crash as it spread to the giant insurance company, AIG, and beyond that to other brokerages (Merrill Lynch), mid-sized banks (Washington Mutual), to the finance arms of the auto companies (GMAC) and big conglomerates (GE Credit), to the ‘too big to fail’ banks like Bank of America and Citigroup and beyond. These ‘reports’ are typically narrative in nature, however, and provide little in the way of deeper historical and theoretical analysis.

Parallels & Comparisons 1929 & 2008

It is often said that the initial months of the 2008-09 crash set the US economy on a trajectory of collapse eerily similar to that of 1929-30. Job losses were occurring at a rate of 1 million a month on average from October 2008 through March 2009. One might therefore think that mainstream economists would look closely at the two time periods—i.e. 1929-30 and 2008-09—to determine with patterns or similar causes were occurring. Or to a deep analysis of the periods immediately preceding 1929 and 2008 to see what similarities prevailed. But they haven’t.

What we got post-2009 from the economic establishment was a declaration simply that the 2008-09 crash was a ‘great recession’, and not a ‘normal’ recession as had been occurring from 1947 to 2007 in the US. But they provide no clarification quantitatively or qualitatively as to what distinguished a ‘great’ from ‘normal’ recession was provided. Paul Krugman coined the term, ‘great’, but then failed to explain how great was different than normal. It was somehow just worse than a normal recession and not as bad as a bonafide depression. But that’s just economic analysis by adverbs.

…click on the above link to read the rest of the article…

The Committee to Destroy the World: The Federal Reserve

September 18, 2018

The Committee to Destroy the World: The Federal Reserve

The general belief among average citizens is that the purpose of central banks is to help the economy by fighting inflation and mitigating financial crisis. It’s a fairy tale that politicians like to encourage. If there were any truth to it, however, where was the Federal Reserve during the crisis of 2007? Rather than helping, it was widening the crisis with its easy money policies.

While central banks are not a government entity, their primary purpose is to create money for the benefit of the government. By mindlessly printing fiat currency, central banks create a shaky illusion of financial stability. In reality, each central bank is a monopoly that controls the production of distribution of currency and interest rates. Most importantly, it also controls gold reserves. While paper currency allegedly has the backing of the government, it is the central bank that controls the value of the currency at any specific time.

The first central bank, the Central Bank of England, was created in the 17th century as a scheme to enable the king to pay off his debts. As each country established its own central bank, it has been used by its government as a personal bank account.

With the government’s permission, central banks print money for the use of commercial banks to lend out at a specified rate of interest. Together, they work at inflating the money supply through a system called fractional-reserve banking. Commercial banks are required to keep a fraction of their money in reserve. For example, if someone deposits $1,000, the bank has to keep 10 percent in its vaults. That $100 cannot be lent out. It can only lend out $900, thereby creating two separate claims on those funds: the original deposit of $1,000 and the subsequent borrower of the $900. The supply of money in circulation has been artificially increased to $1,900. That is only one of the ways central banks manipulate the fiat money supply.

…click on the above link to read the rest of the article…

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Ray Dalio Warns ‘History Repeats’ – Understanding Big Debt Crises, Part 1

September 10, 2018

Ray Dalio Warns ‘History Repeats’ – Understanding Big Debt Crises, Part 1

Ten years ago this month, the world’s financial system nearly ground to a halt. It was a dramatic and pivotal time, which has had lasting effects on many people’s lives. But, as the founder of the world’s largest hedge fund, Bridgewater’s Ray Dalio, notes, it was also something that has happened many times in history and will happen many times in the future.

Authored by Ray Dalio via LinkedIn.com,

As you know, I believe that everything happens over and over again and that by looking at those things happening many times, one can see the patterns and understand the cause-effect relationships to develop principles for dealing with them. Prior to 2008, I had studied these relationships for debt crises with my colleagues at Bridgewater, and because we understood these relationships, we were able to navigate the crisis well when many others struggled.

Today I am sharing our understanding of how debt crises work and how to navigate them well in a new book called “A Template for Understanding Big Debt Crises.”

I am making it available for free because I am now at a stage of life where what’s most important to me is to pass along the principles that have helped me. My hope is that sharing this template will reduce the chances of big debt crises happening and help them be better managed in the future.

The template comes in three parts.

The first explains the template for understanding how debt cycles work and provides principles for dealing with them well.

In the second, I look at how three big debt crises worked in depth – the 2008 financial crisis, the US Great Depression of the 1930s, and Germany’s inflationary depression of the 1920s.

…click on the above link to read the rest of the article…

Patrick Barron–My letter to the NY Times re: Typical Keynesian Whitewash

August 16, 2018

Patrick Barron–My letter to the NY Times re: Typical Keynesian Whitewash

Dear Sirs:
Fareed Zakaria’s review of the Adam Tooze book Crashed: How a Decade of Financial Crises Changed the World is a typical Keynesian whitewash of a deeply flawed monetary and regulatory system. Like Tooze, Zakaria sees the Federal Reserve Bank as the hero in “saving the financial system” that was going into free fall in 2008. But why was it going into free fall, and was the Fed’s massive, multi-trillion dollar bailout really the answer? To agree with Tooze and Zakaria is to condone monetary counterfeiting pre-2008 and even more monetary counterfeiting thereafter. One of the prime purposes of sound, as opposed to fiat, money is to allocate scarce resources. The Keynesians do not admit that resources are scarce. They equate the medium of exchange, in this case fiat dollars, with real capital. Yes, fiat dollars can be increased to unlimited amounts at the click of a Federal Reserve Bank computer, but real resources and real capital must be accumulated by hard-working people. Zakaria and Tooze–and the rest of the Keynesian dominated Main Stream Media like the New York Times–fail spectacularly to understand the distinction.

Why you might as well paint a giant bulls-eye on your bank account

September 6, 2017

Why you might as well paint a giant bulls-eye on your bank account

Vegetarians be forewarned… you won’t like what follows.

We slaughtered a pig yesterday at the farm. I have two freezers full of pork now, and countless strips of bacon curing in the kitchen.

I’ve written about this before– out here at the farm I’m able to organically produce almost everything that I eat… meat, eggs, rice, nuts, and just about every kind of fruit and vegetable imaginable. A lot of it gets canned and stored.

We even grow wheat which we turn into organic flour, plus oats and all sorts of other grains.

As I’ve described in the past, this is a pretty powerful feeling. I know that, no matter what happens in the world, I’ll always have a source of food.

And even if it’s all rainbows and buttercups from here on out, I get to eat clean, organic food. There’s hardly any downside.

Invariably as I meet people throughout my travels around the world, I’m always asked why I spend so much time in Chile.

I usually tell them about my business ventures here and that I founded a company that’s rapidly becoming one of the largest blueberry producers in the world.

But when I talk about the farm and growing my own food, people often respond with furrowed eyebrows and a hint of derision– “Oh, so you’re, like, preparing for the end of the world…”

It’s as if embracing a little bit of independence and self-reliance requires paranoid delusion and chronic pessimism.

Fortunately I’m no longer in middle school, so my decisions aren’t based on what the cool kids might think.

In truth I’m wildly optimistic about the future.

Yes, there will come a time when bankrupt western governments will have to suffer the consequences of their reckless financial decisions.

…click on the above link to read the rest of the article…

Bubbles Always Burst: the Education of an Economist

September 28, 2015

Bubbles Always Burst: the Education of an Economist

I did not set out to be an economist. In college at the University of Chicago I never took a course in economics or went anywhere near its business school. My interest lay in music and the history of culture. When I left for New York City in 1961, it was to work in publishing along these lines. I had worked served as an assistant to Jerry Kaplan at the Free Press in Chicago, and thought of setting out on my own when the Hungarian literary critic George Lukacs assigned me the English-language rights to his writings. Then, in 1962 when Leon Trotsky’s widow, Natalia Sedova died, Max Shachtman, executor of her estate, assigned me the rights to Trotsky’s writings and archive. But I was unable to interest any house in backing their publication. My future turned out not to lie in publishing other peoples’ work.

My life already had changed abruptly in a single evening. My best friend from Chicago had urged that I look up Terence McCarthy, the father of one of his schoolmates. Terence was a former economist for General Electric and also the author of the “Forgash Plan.” Named for Florida Senator Morris Forgash, it proposed a World Bank for Economic Acceleration with an alternative policy to the existing World Bank – lending in domestic currency for land reform and greater self-sufficiency in food instead of plantation export crops.

My first evening’s visit with him transfixed me with two ideas that have become my life’s work. First was his almost poetic description of the flow of funds through the economic system. He explained why most financial crises historically occurred in the autumn when the crops were moved. Shifts in the Midwestern water level or climatic disruptions in other countries caused periodic droughts, which led to crop failures and drains on the banking system, forcing banks to call in their loans.

…click on the above link to read the rest of the article…

 

Ten Things Every Economist Should Know about the Gold Standard

August 19, 2015

Ten Things Every Economist Should Know about the Gold Standard

?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????At the risk of sounding like a broken record (well, OK–at the risk ofcontinuing to sound like a broken record), I’d like to say a bit more about economists’ tendency to get their monetary history wrong.  In particular, I’d like to take aim at common myths about the gold standard.

If there’s one monetary history topic that tends to get handled especially sloppily by monetary economists, not to mention other sorts, this is it.   Sure, the gold standard was hardly perfect, and gold bugs themselves sometimes make silly claims about their favorite former monetary standard.   But these things don’t excuse the errors many economists commit in their eagerness to find fault with that “barbarous relic.”

The false claims I have in mind are mostly ones I and others–notably Larry White–have countered  before.  Still I thought it would be useful to address them again here, because they’re still far from being dead horses, and also so that students wrapping-up the semester will have something convenient to send to their misinformed gold-bashing profs (though I urge them to wait until grades are in before sharing!).

For the sake of those who don’t care to wade through the whole post, here is a “jump to” list of the points covered:

1. The Gold Standard wasn’t an instance of government price fixing. Not traditionally, anyway.
2. A gold standard isn’t particularly expensive. In fact, fiat money tends to cost more.
3. Gold supply “shocks” weren’t particularly shocking.
4. The deflation that the gold standard permitted  wasn’t such a bad thing.
5.  It wasn’t to blame for 19th-century American financial crises.
6.  On the whole, the classical gold standard worked remarkably well (while it lasted).
7.  It didn’t have to be “managed” by central bankers.
8.  In fact, central banking tends to throw a wrench in the works.
9.  “The” Gold Standard wasn’t to blame for the Great Depression.
10.  It didn’t manage money according to any economists’ theoretical ideal.  But neither has any fiat-money-issuing central bank.

…click on the above link to read the rest of the article…

 

 

This Week In Energy: Oil Prices Hinge On Two Financial Crises

July 11, 2015

This Week In Energy: Oil Prices Hinge On Two Financial Crises

It has been an eventful week. Two major financial crises are destroying the bullish case for oil.

The Greek crisis continues, although there are signs that some semblance of a solution is at hand. Europe had demanded a new proposal and set this Sunday as the absolute final deadline, ruling out any further extensions. Greek Prime Minister Alexis Tsipras offered a new proposal to European creditors on its debt situation and appeared willing to accept most European demands in exchange for some debt relief.

Greece has asked for a three-year bailout, and will make further concessions on austerity, cutting spending in key areas of its economy. But in perhaps a surprise move, creditor nations are looking at offering some debt relief. The international pressure on Europe has grown, with calls to offer some debt relief to a country that is mired in five years of recession (or depression), has 25 percent unemployment, and cannot pay its bills. Even the European Council’s President, former Polish Prime Minister Donald Tusk, has joined international calls for debt relief, as part of a loan package. The German Chancellor has been adamantly opposed to debt relief, but with the White House leaning on Europe to act, further austerity in exchange for some debt relief offers all sides a face-saving way out of the crisis. That could pave the way for a financial lifeline to Greece, hours before a hypothetical Grexit from the Eurozone.

Related: OPEC Still Holds All The Cards In Oil Price Game

Meanwhile, Greece announced a 2 billion euro plan with Russia over the Turkish Stream Pipeline, a natural gas pipeline that would run beneath the Black Sea, carrying Russian gas to Europe. Greece’s energy minister announced preliminary plans for the project on July 8, just as Greece was entering into the final days of its standoff with Europe over its debt mess.

…click on the above link to read the rest of the article…

 

 

 

Misreading the Lessons From Financial Crises – NYTimes.com

December 12, 2014

Misreading the Lessons From Financial Crises – NYTimes.com.

“There are good crises and there are bad crises. Every crisis breaks a deadlock and sets events in motion. It is either a disaster or an opportunity. A bad crisis is one in which no one has the power to make good use of the opportunity and therefore it ends in disaster. A good crisis is one in which the power and the will to seize the opportunity are in being. Out of such a crisis come solutions.”

— Walter Lippmann,
March 7, 1933

The world has experienced one financial crisis after another over the last few decades — runaway inflation, the stock market crash of 1987, the East Asian crisis of the late 1990s, the popping of the dot-com bubble in the face of accounting scandals and, finally, the crisis that led to the Great Recession.

And yet, at least according to the stock market, these have been the golden years. Never have United States stock prices done so well during a 36-year period as they have since 1978.

That one fact is an indication that the world has, on balance, handled the crises well enough — or at least that investors now believe that to be true. This column, which will conclude next week as I end a 26-year career at The New York Times, is an attempt to evaluate those crises and how they were sometimes misunderstood in ways that came back to haunt the world years later.

 

…click on the above link to read the rest of the article…

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