patrick.net

thunderlips11 says

I thought Austrians believed that money printing inevitably results in hyperinflation. Just like it did in 2010-2012. :)

Some did, Mish pointed out that it did not occur because 4 trillion is 6% of the money supply.

It actually created deflation in 08 as lenders pulled back on loans.

thunderlips11 says

Only to end up with about one year of "meh" growth after about 4-5 straight years of Austerity with increasing spending cuts and tax increases. How much of that is a general European extremely weak recovery, and how much is a result of policy?

Let me explain these charts for you: Spain had a large account deficit before the crisis. It was living off increasing debts, private debts in that case (it was more gov debt in Greece), caused by a housing bubble.

They HAD to solve this through the only ways possible: increasing productivity and cutting spending. Increasing productivity means cutting corporate taxes (and deregulation). Cutting spending means cutting gov deficit (raising personal income taxes) + cutting private spending (sales tax).

What they saw during these 5 years is not the consequences of austerity policies. These policies and the rest are just the fallout of the orgy in the years before that. And they are in a FAR better position now, in spite of what you can say of the unemployment. At least they have a path forward.

If you think there is a combination of weak money and gov spending that would have allowed the previous orgy to continue, you must believe in Santa Klaus.
Just because the US is doing it doesn't mean Spain could do it.

Heraclitusstudent says

Let me explain these charts for you: Spain had a large account deficit before the crisis. It was living off increasing debts, private debts in that case (it was more gov debt in Greece), caused by a housing bubble.

It was experiencing a housing bubble, caused by banks (including foreign banks) inflating the property markets in Spain.

Let's remember the same banks that caused the property bubble were the ones that fought and got deregulation over the past few decades. They insisted that more was necessary, even until that brief moment when "Wile E Coyote" was flailing in space just off the ledge above the chasm, that it was merely a rest period before continued growth.

They then begged for bailouts and got them. Government borrowed and printed and guaranteed with the public purse outrageous sums for these private institutions' bad debts.

We should remember that under post-Depression laws in most of the World (including original EU legislation) tightly regulated banks and no serious asset bubbles worldwide (or really nationwide) had appeared in property markets the late 90s, early 2000s super deregulation round.

Not only did deregulation cause the asset bubble, it misdirected countless trillions to construction and land purchases, at the opportunity cost of other segments of the economy, from retail to R&D to manufacturing.

In a word, huge scale "Malinvestment" that went unrevealed much longer than it should have.

Now, let's think about who is recommending Austerity. Banks who started the asset bubbles in the first place, like DeutscheBank. Institutions that backed deregulation to the hilt, like the IMF.

So the solution isn't to continue to starve non-financial segments of the economy through weakened spending, lowered demand thanks to stagnant/lower wages and higher unemployment, and increased taxation, but stop further damaging these sectors by forcing them to pay off the debt to the very banks and institutions that started the crisis.

We missed the opportunity to take a short term big hit by eliminating bad debt, making financial companies and investors eat their losses, and spreading their remaining good assets to new or more conservative institutions.

The solution now is most certainly not to continue to feed the parasite that caused the illness, but rather feed the rest of the body to get strong and healthy again.

Money is not backed by gold. Anything "Destroyed" by tossing out bad loans can be printed (or really created digitally) again and reinserted into the economy by a variety of transactions: Large infrastructure projects, R&D Grants, and flat out checks written to households.

thunderlips11 says

Now, let's think about who is recommending Austerity. Banks who started the asset bubbles in the first place, like DeutscheBank. Institutions that backed deregulation to the hilt, like the IMF.

Funny stuff, they make loans to countries who were not credit worthy and then want austerity.

thunderlips11 says

Not only did deregulation cause the asset bubble, it misdirected countless trillions to construction and land purchases, at the opportunity cost of other segments of the economy, from retail to R&D to manufacturing.

Nope once again, Glass Steagall did not regulate the derivative market, so it would have made no difference.

The solution is NO bailouts to mark to market, and let the market figure it out. It is infinitely smarter than you or Yellin or Bernanke or Draghi.

thunderlips11 says

Not only did deregulation cause the asset bubble

Non-recourse mortgage lending came about after banks gave out suicide loans and then picked up the collateral for a song once the loans blew up (while keeping the debtor in debt bondage for the full amount)

But, being a nation of children, we know little of our economic history.

Spain of course has horribly anti-borrower lending terms.

"Also problematic are Spain's punitive personal bankruptcy laws, which don't allow unpaid debt to be canceled and make it difficult for bankrupt persons to enter all kinds of contracts, from apartment leases to cellphone plans. Bankruptcy protection is so onerous in Spain that only 235 families applied for it in the fourth quarter of 2012—a 15% increase over a year earlier."

http://www.wsj.com/articles/SB10001424127887324077704578362693213191094

(don't read the rest of that, it's just the wsj being the wsj)

thunderlips11 says

it misdirected countless trillions to construction and land purchases

Ireland was the Atlas of poster children here.

http://en.wikipedia.org/wiki/Irish_property_bubble#Poor_financial_sector_supervision

Brother Vlad has reached out:
Russia "may lift its ban on food imports from Greece in the event it quits the European Union"

Robert Sproul says

Brother Vlad has reached out:

Russia "may lift its ban on food imports from Greece in the event it quits the European Union"

An example of losers sticking together. :)

thunderlips11 says

It was experiencing a housing bubble, caused by banks (including foreign banks) inflating the property markets in Spain.

What are you arguing here? That banks are bad by default? That no one else was involved? The Spanish government fully agreed with what was happening. And this was not unpopular with the spanish people. No one complained on the way in, like people complain about the consequences now. Everyone was in it.

Are you arguing that we should have let banks failed after the crisis? Then again, austerity would have been much worse. No banks, no loans. You would have gone to 35% unemployment. Then maybe after that you would rebound faster. This is the Austrian argument.

Are you arguing to default on the banks? Without bailing them out? That means letting banks fail.

You bail these banks out. Or you bail out people and they pay the banks. That's the same thing.

You have to see the obvious: you can't punish the banks without punishing people. You can't save people without saving the banks. Contrary to what lefties would want. People and banks go together.

The rest has nothing to do with banks, at least directly. It's a matter of how much the country as a whole consumes, and how much it produces. And this HAS to balance over time - unless you are the US. Hence Spain had to face reality and cut spending AND raise its productivity.

Heraclitusstudent says

Hence Spain had to face reality and cut spending AND raise its productivity.

That is not going to happen, like you said it is a current account thing the increase in liquidity increased consumption instead of investment. Which means 25% unemployment. They only real option is to leave the EU as then they can debase their currency.

U.S.A.,U.S.A.,U.S.A.

http://www.usdebtclock.org/

blue is Federal debt (ex-SSTF, ex-Fed) / GDP

red is interest expense / GDP

we're not really Greece, cuz we got a Fed.

Bellingham Bill says

red is interest expense / GDP

With interest rates at almost zero, when the interest rate goes to anything approximately the norm we are toast.

Bellingham Bill says

we're not really Greece, cuz we got a Fed.

We have the reserve currency. What is our debt to GDP compared to Greece?

indigenous says

The solution is NO bailouts to mark to market, and let the market figure it out.

"Indeed, a major source of objection to a free economy is precisely
that... it gives people what they want instead of what a particular
group thinks they ought to want. Underlying most arguments against
the free market is a lack of belief in freedom itself."

-Milton Friedman

darlag says

"Indeed, a major source of objection to a free economy is precisely

that... it gives people what they want instead of what a particular

group thinks they ought to want. Underlying most arguments against

the free market is a lack of belief in freedom itself."

-Milton Friedman

Do you want fraud, coercion, anticompetitive behavior? That's what a free market generates.

I believe in freedom, but I understand that freedom isn't as profitable as coercion...Guess which one companies opt for without any rules?

Anyone care to speculate when Greece will exit the Euro and/or declare bankruptcy? It's matter of when than if, but I have no idea when they will actually do it.

tatupu70 says

Do you want fraud, coercion, anticompetitive behavior? That's what a free market generates.

So you are saying that people are basically stupid and incapable of thinking and acting for themselves. That they won't vote with their feet when a bad bank or a bad company takes advantage of them or provides poor, inadequate services. That the poor peons need to be told what to do by a benevolent government that takes care of them and protects them.

Here's another quote from a founding father,

"The duty of government is to leave commerce to its own capital
and credit as well as all other branches of business, protecting
all in their legal pursuits, granting exclusive privileges to none."

-Andrew Jackson

America has become a nation of exclusive privileges for the TBTF crowd which is being supported on the backs of taxpayers. Moral hazard is alive and well in the U.S.

The companies bailed out in 2008-09 were given a Get out of Jail card when they should have been put in jail. The regulations you seem to think will somehow protect against fraud and coercion actually protect the perpetrators, not the people.

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/30/greece-really-might-leave-the-euro/

Predicts more extend and pretend as a "solution" to Greek debt.

zzyzzx says

Anyone care to speculate when Greece will exit the Euro and/or declare bankruptcy? It's matter of when than if, but I have no idea when they will actually do it.

I read Spain will be the first to leave, perhaps because Spain's economy is too big to bailout.

As to Greece Draghi is fighting for the existence of EU, so he is literally fighting for his career. Germany would take it in the ass big time if the Euro dissolves so they also are going to go to great lengths for it not to happen.

As Mish indicated they are not going to force Greece to "mark to market", they are going to pretend and extend. Since Draghi has just started his version of QE it could be a while as in Draghi has played every card he has. I would guess a few years?

See what happens when greedy bastards play with mercantilism.

darlag says

So you are saying that people are basically stupid and incapable of thinking and acting for themselves. That they won't vote with their feet when a bad bank or a bad company takes advantage of them or provides poor, inadequate services. That the poor peons need to be told what to do by a benevolent government that takes care of them and protects them.

Nope, I'm saying that all gas stations will collude to keep prices high. All banks will collude to keep fees high.

I'm saying the interests of businesses are directly opposite of the interests of consumers.

darlag says

America has become a nation of exclusive privileges for the TBTF crowd which is being supported on the backs of taxpayers. Moral hazard is alive and well in the U.S.

That's nonsense.

darlag says

The companies bailed out in 2008-09 were given a Get out of Jail card when they should have been put in jail. The regulations you seem to think will somehow protect against fraud and coercion actually protect the perpetrators, not the people.

Actually, if you remember, the reason the bailout was necessary was that the banking industry was DEregulated previously. The cause was poor oversight and too few regulations.

tatupu70 says

Actually, if you remember, the reason the bailout was necessary was that the banking industry was DEregulated previously.

And they would have paid the price for their trespasses if left to the public. Instead the state continues to protect them.

Bellingham Bill says

"Also problematic are Spain's punitive personal bankruptcy laws, which don't allow unpaid debt to be canceled and make it difficult for bankrupt persons to enter all kinds of contracts, from apartment leases to cellphone plans. Bankruptcy protection is so onerous in Spain that only 235 families applied for it in the fourth quarter of 2012—a 15% increase over a year earlier."

Just like Germany. They say that many Germans just commit suicide when faced with bankruptcy.

Heraclitusstudent says

What are you arguing here? That banks are bad by default? That no one else was involved? The Spanish government fully agreed with what was happening. And this was not unpopular with the spanish people. No one complained on the way in, like people complain about the consequences now. Everyone was in it.

Let's not pick on Spain alone. Greece, Italy, Ireland, the USA, Iceland (the only country to punish both banksters, lobbyists, AND politicians for the crisis) all had politicians bribed into compliance - some over the table (US Lobbyists), some under the table (like Spanish MPs and even members of the Royal Family).

People respond to "Market" forces, even when those "Markets" are captured. You don't blame the cough symptom (home flippers) for the lung cancer (housing bubble), but the smoking (banker-pushed deregulation and weakening of oversight).

The evidence is overwhelming that banks subverted politicians everywhere. From Glitnir to Deutsche Bank to Bank of Asmodeus and Washington Mutual. From minimal reserve requirements to Robo-signing.

Heraclitusstudent says

Are you arguing that we should have let banks failed after the crisis? Then again, austerity would have been much worse. No banks, no loans. You would have gone to 35% unemployment. Then maybe after that you would rebound faster. This is the Austrian argument.

Yes. There wouldn't have been NO banks, shitty banks would be unwound, any good assets they had sold off to non-shitty banks. Regional banks that weren't run like shit would be the beneficaries of picking up good assets at low prices, pumping them up to National or International status. There would have been a lousy few quarters of hardship, and that would have been it. 35% Unemployment? No way. 35% Unemployment can only result in a demand-challenged depression, which Austerity can actually help bring on. There's countless federal programs that could be pumped up with new money printed to replace the dead money, and direct funds to viable businesses in lieu of banks

Quite frankly, banking should be a public utility anyway - but that's another subject.

The banks and financial institutions are the biggest donors to neoclassical think tanks and lobbyists pushing deregulatory/re-regulatory benefits to themselves. Through their scholars-for-dollars, they claim "Creative Destruction is Good" - except when it happens to them, then they demand not only Socialism for their mistakes, but Austerity for everyone else which kills demand and slows down the redistribution to good investment from the malinvestment the banks caused.

Austerity kicks Demand in the balls then steals all the money in his Wallet.

The restriction of demand by Austerity slows the correction of malinvestment driven by the banks' direct actions. Instead, the banks' malinvestment is paid by all other actors and segments of the economy, including those who suffered when investment was misdirected away from their enterprises.

darlag says

And they would have paid the price for their trespasses if left to the public. Instead the state continues to protect them

Criminally or financially?

They did pay financially. I'd say losing 90% of a company's value is a pretty strong deterrent against doing it again...

I agree there should have been criminal charges, but I'm not a lawyer so I don't know the intricacies of the situation.

Bellingham Bill says

Spain of course has horribly anti-borrower lending terms.

"Also problematic are Spain's punitive personal bankruptcy laws, which don't allow unpaid debt to be canceled and make it difficult for bankrupt persons to enter all kinds of contracts, from apartment leases to cellphone plans. Bankruptcy protection is so onerous in Spain that only 235 families applied for it in the fourth quarter of 2012—a 15% increase over a year earlier."

Spain didn't have personal bankruptcy at all until 2003. Why they bothered is a mystery since the revised law isn't much better.

That being said, america is the one out of the mainstream. Personal bankrupcty discharge of debts is pretty much unheard of in many other countries. You can get the debt restructured, but it still exists and is expected to eventually be repaid. Of course other countries don't have millions of lawyers saying it's always someone else's fault either. People are expected to be responsible for what they do.

thunderlips11 says

What you're advocating is Socialism for the Wealthy.

It's only called welfare if government money is going to poor people. If government money goes to rich people it's called investment. They would never blow it on mansions, yachts, and lobbying for more government money.

The banking industry is problematic because of the centralization that has taken place since the 80s. Of which of course the CRA was a contributing factor.

This is all part of my, no thread without a mention of the CRA, policy

bob2356 says

thunderlips11 says

What you're advocating is Socialism for the Wealthy.

It's only called welfare if government money is going to poor people. If government money goes to rich people it's called investment. They would never blow it on mansions, yachts, and lobbying for more government money.

Yep.

And fucking up on such a Global scale to a huge degree, then demanding to be completely sheltered from all ill effects and make everybody pay (no matter what the cost to themselves) to make you whole again, even steven to where you were before, simply because "I'm so special and irreplacable" is not a deeply-entrenched sense of entitlement.

darlag says

indigenous says

The solution is NO bailouts to mark to market, and let the market figure it out.

"Indeed, a major source of objection to a free economy is precisely

that... it gives people what they want instead of what a particular

group thinks they ought to want. Underlying most arguments against

the free market is a lack of belief in freedom itself."

-Milton Friedman

Good old uncle Miltie... Ooops wrong one! But he may as well be the comedian, because it's not quite clear how he gets taken seriously...

indigenous says

The banking industry is problematic because of the centralization that has taken place since the 80s. Of which of course the CRA was a contributing factor.

This is all part of my, no thread without a mention of the CRA, policy

It was the banking industry and their political hacks that lobbied for deregulation. Robert Rubin, Larry Summers pushed for the passage of the Gramm Leach Bliley Act that effectively lessened the regulations and allowed banks to become TBTF. The CRA was a little chunk that they conceded on due to pressure on Clinton from Jesse Jackson.

Diva24 says

indigenous says

The banking industry is problematic because of the centralization that has taken place since the 80s. Of which of course the CRA was a contributing factor.

This is all part of my, no thread without a mention of the CRA, policy

It was the banking industry and their political hacks that lobbied for deregulation. Robert Rubin, Larry Summers pushed for the passage of the Gramm Leach Bliley Act that effectively lessened the regulations and allowed banks to become TBTF. The CRA was a little chunk that they conceded on due to pressure on Clinton from Jesse Jackson.

Irrelevant to what I'm talking about. The CRA part was a joke for the most part, even though it did contribute to bad loans above the sub prime.

The overarching problem is the centralizing of banking and the bullshit Fed approval process. That has been going on since the 80s.

One big giveaway to the 'wealthy' is letting them dig up this nation's nonrenewable natural resources and then sell all that to us.

Actually, bigger than that is all the land titles the government handed out, especially all that land in the 19th century that concentrated in so very few hands.

And bigger than rural land holdings is urban housing empires; the expense renters pay these days is not primarily the cost of the sticks and bricks (or management thereof), it is the cost of keeping the 2nd bidder from taking over the tenancy.

Imagine if we had to pay the man for every breath of air we took. The land market isn't any different, millions of rich people getting something for nothing via their land monopoly.

"Nobody gets this." -- Perhaps it's best if they didn't, LOL

real annual per-capita housing expense

thunderlips11 says

You don't blame the cough symptom (home flippers) for the lung cancer (housing bubble), but the smoking (banker-pushed deregulation and weakening of oversight).

Who was corrupting politicians: Realtors, Builders, Banksters, Flippers, Voters who like their home equity... i.e. a majority of people. Politicians also do things if they see a short term interest, a short term boost in economic activity, which they did. Bottom-line everyone contributed to the problem at their own level and it's just a tiny bit too convenient to say "the bankster made me signed this no interest stated income loan" and encouraged me to lie.

thunderlips11 says

Regional banks that weren't run like shit would be the beneficaries of picking up good assets at low prices, pumping them up to National or International status. There would have been a lousy few quarters of hardship, and that would have been it. 35% Unemployment? No way.

No offense but it's a bit naive. One big bank fails and the financial system would be wiped out. Credit would freeze everywhere: money markets, intra bank lending, day to day lending to companies, etc... Most banks would fail and those remaining would be so suspicious that they would make loans only to people sitting on golden collaterals. The lack of lending would mean economic devastation. Companies would fail everywhere. There would absolutely be 35% unemployment in a country like Spain that had 18% unemployment in 1995 BEFORE the euro.

The only argument here is that it would indeed solve the problem, and the rebound would be fast. Of course retired people with pensions wiped out would go hungry but that's an other problem.

thunderlips11 says

What you're advocating is Socialism for the Wealthy.

Nobody is talking about punishing the banks, simply allowing capitalism to take it's course,

I'm not advocating it, I'm just explaining what "capitalism taking it's course" means for the people. You can't let banks fail and hope "the little people" would be helped by that. They are, in a very practical sense, in the same boat as banks.

thunderlips11 says

Austerity kicks Demand in the balls then steals all the money in his Wallet.

You cannot say that of a country that spends more than it produces. There, it should be obvious, demand is not the problem.

You could say there is austerity in China. Indeed it saves 50% of what it produces. That's what you should complain about.

Heraclitusstudent says

You could say there is austerity in China. Indeed it saves 50% of what it produces. That's what you should complain about.

Heraclitusstudent says

thunderlips11 says

Austerity kicks Demand in the balls then steals all the money in his Wallet.

You cannot say that of a country that spends more than it produces. There, it should be obvious, demand is not the problem.

You could say there is austerity in China. Indeed it saves 50% of what it produces. That's what you should complain about.

That saving is done by the government at the expense of the citizens. IOW if you devalue your currency that is great for getting commerce to your country, but it also devalues the buying power of the citizens. Ergo no real economic growth for the domestic economy.

Heraclitusstudent says

You could say there is austerity in China. Indeed it saves 50% of what it produces

No it prints and saves that.

AFAIK China still runs a trade surplus by taking the USD its exporters receive and prints up the yuan for them in exchange.

shows China's NIIP has been flat for a while

Heraclitusstudent says

No offense but it's a bit naive. One big bank fails and the financial system would be wiped out.

Then we better take steps to prevent TBTF and embark on policies that encourage many small banks instead of a handful of large ones.

Heraclitusstudent says

Credit would freeze everywhere: money markets, intra bank lending, day to day lending to companies, etc... Most banks would fail and those remaining would be so suspicious that they would make loans only to people sitting on golden collaterals

Keynes and FDR solved this problem almost a century ago. Banks are not the only source of cash infusions into the economy.

Also, of course, there are massive social effects from hypocrisy of elite driven events.

Heraclitusstudent says

You cannot say that of a country that spends more than it produces. There, it should be obvious, demand is not the problem.

That's the Triffin Dilemma, and it's fueled by a combination of world reserve currency status and bank-friendly goods production-hostile strong currency policies..

Heraclitusstudent says

You could say there is austerity in China. Indeed it saves 50% of what it produces. That's what you should complain about.

Not at all. China is aflush not only with Ghost City construction, but Airports, Railroads, Subways, Highways. More than half of Chinese work at SEOs. It is greatly expanding it's military capacity with expensive modern vehicles and weapon systems. It's funding a huge space program that will probably continue to a moon shot in the next 15 years.

thunderlips11 says

Heraclitusstudent says

No offense but it's a bit naive. One big bank fails and the financial system would be wiped out.

Then we better take steps to prevent TBTF and embark on policies that encourage many small banks instead of a handful of large ones.

The real problem is banking oversight. It is trough the Fed and a bank getting approval for expansion through citizen groups to "prove the bank is a good citizen". Canada for instance has far fewer banking problems because the oversight is by appointed officials who don't have an ax to grind and make non political decisions. Over a comparable time frame the US has had IIRC 14 banking crises compared to Canada's ZERO over the same time period. A banking crises is defined as involving 1% or more of the GDP.

The solution would be to re regulate banking and get politics the fuck out of it.

Keynes and FDR created infinitely more trouble than they fixed.

thunderlips11 says

Not at all. China is aflush not only with Ghost City construction, but Airports, Railroads, Subways, Highways. More than half of Chinese work at SEOs.

Obviously an economy based on building ghost cities is not an economy based on consumption. The saving numbers are there.

Bottom line if you are going to claim austerity is depriving the world economy from demand, you can't apply this argument to Greece or France. This is an argument that should be applied to the countries that are actually saving.