[macro-economic delusions] part four – recognizing the virus for what it is

Here is Part 3

[Well, isn't that interesting. Vox has also posted on Krugman, taking him apart.]

Paul Krugman, April 18, 2009: With 12 trillion dollars of household wealth destroyed, it's hard to imagine that this is going to be a consumer led recovery, given the levels of household debt and given the very low level of saving that people were undertaking before.

Krugman says that wealthy countries have historically been able to handle up to 100% debt to GDP or even more and not go to the wall. Countries maybe, in macro terms but not individuals, in micro terms.

Why weren't people saving up to the point where the crisis hit? Why were you personally spending rather than saving?

1. The explosion of credit and the nasty little algorithm which fooled people into thinking that they could have the lifestyle of the stars for a fraction of the cost on the never-never also fuelled prices, particularly cost of houses and cars against net income.

With all the jargon in the world to defend the opposite view, that is what happened. People spent and the spending was easy. There was never going to be a crisis because the government and its controllers, e.g. Gordo's Shadow Bankers, told us there wasn't, that all the lessons had been learned and the economists parroted this:

2. The very fact that prices skyrocketed when released from the nexus of living within one's actual household budget in terms of cash on call, a thing which charged ahead in the 60s but not accompanied by corresponding rises in income, salaries in other words, meant that the dollar or pound bought less. Solution? More credit debt to finance the debt. Michael Rowbottom is quoted by Ellen Brown: Web of Debt:

The gold standard precipitated the problem, but unbuckling the dollar from gold did not solve it. Rather, it caused worse financial ills. Expanding the money supply with increasing amounts of "easy" bank credit just put increasing amounts of money in the bankers' pockets, while consumers sank further into debt. The problem proved to be something more fundamental: it was in who extended the nation's credit. As long as the money supply was created as a debt owed back to private banks with interest, the nation's wealth would continue to be drained off into private vaults, leaving scarcity in its wake.

In other words, there was precious little left to save.

3. The eternal fear which tells us to get while the getting is good. Some bonuses come our way? Upgrade while we can, rather than save.

4. The lack of understanding, even of Krugman and certainly all the otehr economists and financial advisers - and they STILL don't understand it - that the market doesn't run itself. It's controlled. Krugman partly understood it:


Bernanke admitted it:


Here's Karl Denninger with some interesting stats:

Banks make $38 billion a year from overdraft fees. Now let's look at the internals on that statistic:

3/4 of all accounts have not had an overdraft in the last 12 months. This means that one quarter of all accounts are responsible for basically all of this.

Of the remaining quarter, half of those account for nearly all (90th percentile plus) of the overdrafts. This means that roughly 12.5% of consumers are bearing the entire brunt of these fees.

70% of the overdrafts happen at a POS terminal or ATM, not by writing a check.

The last statistic is the clear one: There is no reason whatsoever for anyone to take such a hit. The bank knows before they approve the transaction that the money isn't there in the account.

This is not the same thing as a check, which the bank has no way to warn you about before you write it, as there is no "connection" between your checkbook and their computer.

IF we had honest regulators it would be strictly unlawful for a bank to intentionally approve a debit transaction which it knew you did not have the funds to settle unless you had an established overdraft line of credit (at a reasonable APR.)

I'd wager that almost any economist who has bothered to read this post so far would still not accept that the crises have been induced and for all the wrong reasons.

It's as though they know nothing about the hand in glove politics of the finance [here too] or the way this has always been the case. e.g.the Panic of 1857, caused by the collapse of the grain market and by the sudden collapse of Ohio Life and Trust, for a loss of five million dollars, in response to which the BofE lent Peabody $1m [an enormous sum for those days] but declined to support other firms.

Or the 1907 panic, when JP Morgan rescued banks and trust companies, averted a shutdown of the New York Stock Exchange, and engineered a financial bailout of New York City. Same players, same result - deeper capture of the financial infrastructure, completed in 1913 with the privately owned Fed.

This isn't good economics - it's monopoly of a malevolent type which not only doesn't give a toss whether the free enterprise system survives or not but which can realize profits under any system people are currently under the yolk of. These are the men and women who need to be taken from their secluded redoubts and incarcerated on Elba, with no food, with an international flotilla of warships surrounding them and observers noting how they survive their final ordeal.

These people need to be dug out, not in fantasy, as in Quantum of Solace, but for real, to once and for all get this yolk from around our necks. The evidence is there and until this is recognized by pundits, as a very beginning, then no amount of discussion of land value tax or cbi or whatever is going to produce one iota of lasting difference. The virus will simply go benign for a time and then strike again.

So when the depression grips, don't go for the muslims or just for Gordo, Obama and chums - go direct to the Real Enemy and do as Andrew Jackson urged - root them out. They were the ones who started it.

Here is Part 5