Saturday, December 8, 2012

Another Summer of Discontent: The Four Factors that Explain Why What We’re Doing Isn’t Working

  • The imbalances between high-wage/current-account-deficit/balance-sheet-indebted nations and lower-wage, surplus nations have produced a glut of savings in the latter, relative to the opportunities offered for profitable investment of those savings in additional capacity either at home or abroad, given the absence of demand for such additional capacity.
(This is the global economy separating into Iv-B advanced economies and V-Bi emerging economies that lend their surpluses. This is not a natural economy because it treats the advanced economies as Iv-B but this was only a speculative boom as they are not really innovating as much. The subprime innovation was deceptive and opaque drawing in money like outsiders betting on a poker game.)

  • The excess savings have inexorably reduced the cost of money in the developed world to the historically low levels we again achieved this week.
(This is because the advanced economies have had the subprime deception exposed and so this money is afraid to go there now, it also has nowhere else to go as their own economies cannot grow fast enough to use it. Their growth came mainly from selling to the advanced economies after dismantling their own manufacturing industries.)

the sovereign debts of those countries that was taken on to subsidize internal welfare systems in lieu of, or in addition to, households taking on debt directly) is preventing the recovery of internal demand. Moreover, as the great Irving Fisher wrote during the Great Depression, the very act of attempting to reduce debt has once again ignited the paradox of reduced economic activity, employment and income causing consumers to become even more debt-dependent

(The advanced economies borrowed money to quench the effects of the Iv-B chaos, much of this from connections to the government to insure the losses of V. Now reducing debt in Bi-B is causing more collapses from the chaos not having enough Bi capital to quench it.)

For example, New Keynesian macroeconomists, as well as some of their post-Keynesian and Hicksian cousins (yes, I am including Paul Krugman in this category, much as he is to be admired for his outspokenness) have posited that gargantuan additional amounts of monetary expansion will succeed in overcoming the debt deflation.

(Not necessarily, a Roy economy has to minimize losses first before trying to restart profit. Also this money will go into regrowing Iv-B weeds because of weak I-O policing, for example stimulus projects going to cronies.)

efforts to induce inflation, and efforts to target and forcibly obtain high rates of nominal GDP growth (the hope of all who seek to induce debt-devaluing, and investment-inducing inflation/financial repression—see Christina and David Romer, Kenneth Rogoff, and his collaborator, Carmen Reinhart) are not working.

(This is because the Iv-B system crashed like a fallen tree or collapsed building, injecting money to prop it up just creates a zombie economy.)

In addition to historically low interest rates and a banking/credit system choking on un-lent, and foolish-to-lend, liquidity, we have the subsidizing effect of low interest rates on banks and corporations (and, to a far more limited extent because of the decrepitude of household balance sheets, consumers). We even have, as a result of the household debt crisis and the underwater mortgage crisis, 6.5 million households that are delinquent or in default on their mortgage and essentially living “rent free”—a most insidious form of subsidy.

(The money cannot get into most of the economy because the Iv-B roots and branches were broken in the crash, like a zombie patient with not enough blood vessels to move nutrients to revive them. The money then just pools like in the patient, also the Iv-B economy is still too deceptive to trust.)

In it, Krugman asserts that falling wages would precipitate “destructive deflation” and maintains that while wage cuts couldtheoretically be thought of as expansionary (because such cuts would notionally increase the demand for workers, thus creating jobs and increasing demand) they would exacerbate the debt problem, as households earning less would have a more difficult time deleveraging and between that, and the downward price adjustments that would need to follow wages, we’d be off on the road to Tokyo before long.

(This is the V-Bi and iv-B disconnect, some want to let wages collapse to get people working while others think it will cause more collapses in the economy. the result is vacillation between both policies creating zombies not killed off and not helped enough to revive.)

Irving Fisher taught that to prevent a deepening slump amidst a debt deflation we must stabilize economies and then go all-out to reflate them. The monetary authorities in the developed world have engaged in massive coordinated action to stabilize their financial systems and economies to prevent depression (at least so far). But they have not succeeded in being able to reflate the advanced economies—and will not be able to do so through a singular reliance on the blunt instrument of further monetary easing

(The economy cannot be reflated when it has too many holes in it still. The Iv.B economy is like pressurized pipes, as it overheats it eventually explodes and so any repressurizing with money pools or leaks away.)

We've Always Been Deadbeats

Iv and Oy debt collectors using camouflage.

My father was a repo man. He did not look the part, which made him all the more effective. He alternately wore a long mustache or a shaggy beard and owned bell-bottoms in black, blue, and cherry red. His imitation-silk shirts were festooned with city maps, cartoon characters, or sailing ships. Dad sang in the car, at the top of his lungs, mostly obscure show tunes. His white Dodge Dart had Mach 1 racing stripes that he had lifted from a souped-up Ford Mustang. The "deadbeats" saw him coming, that's for sure, but they did not understand his profession until he walked into their homes and took away their televisions.


The story of my dad, Woolco's debtors, and the debts he collected is in some sense the story of America. Americans settled this nation by borrowing goods, land, and more abstract representations of those goods—land warrants, deeds, patents, concessions, and equities. They borrowed with the most optimistic assumptions about their capacity to pay. But when it became clear that Americans were not paying, banks began to doubt wholesalers and called in loans; wholesalers demanded settlement from retailers; retailers sent my dad and thousands like him out into the countryside to recall some portion of their property. I saw the downturn in 1973 unfold outside the window of a Dodge Dart, and in graduate school and after I became fascinated by many other slumps.

Not so much optimism but being blind in the Iv-B economy as it booms then busts.


In each case, lenders had created complex financial instruments to protect themselves from defaulters like the ones I watched from the car. And in each case, the very complexity of the chain of institutions linking borrowers and lenders made it impossible for those lenders to distinguish good loans from bad.

The complexity comes from the Iv-B mutual deception and the growth of the B roots and iv branches. In a game of bluff exposing reality gives your competitors an advantage. this was seen with the subprime crisis where everyone who knew the crash was coming didn't alert the regulators.


Such economic models of financial health, however scientific they looked, tended to be abstract representations of an economy that was, in fact, more complex and more interconnected than they pictured. 

Also these models leave out the hidden parts of the economy, like watching a poker game and only having the bluffs and bidding as information without seeing the cards.


If some historians focused on the temperature of the "real economy," economists were becoming obsessed with the money supply as the single factor explaining most American panics. Again, a certain kind of blindness to the history of debt and deadbeats ensued.

V-bi economists tend to see the economy only as V-Bi where everything important is visible.


Rogue debt collectors

Secretive Iv agents as debt collectors trying to find secretive b people hiding from them. Then their Bi community starts protecting them like a Ro herd protecting R members. V creditors using these agents, the system separating into Iv-B and V-Bi because of weak I-O policing. 

Dispatch investigation | Debt deception | The Columbus Dispatch

Rogue debt collectors are chasing Americans for debts they paid long ago or never owed, and they are threatening consumers with ruined credit reputations if they don’t pay.
They are pursuing innocent people who share a name or an old address with the real debtor. They are hounding victims of identity theft and credit-card fraud.
They are illegally pressuring people to pay debts even without original documentation that proves they owe something.
Thousands of state and federal complaints reveal a cry for help from consumers who say that their credit reports have been wrongly tarnished by debt collectors.
Even one unpaid debt in collection on a credit report — no matter the amount — can harm a consumer with an otherwise pristine payment history. It can stifle refinancing a house, opening a credit-card account or buying a car.
The 34-year-old federal law that governs debt collection is so broken that the industry itself has joined a chorus of government regulators, watchdogs and consumer advocates calling for reform.