“Interesting, so Keynes actually thought people would lend during a time when they have no idea what is happening to creditworthiness”.

Only if the price is right. Hence the rise in credit spreads.

Bullshit. It’s not the end of the story. Why on earth do you think money held in the government’s hands is less inflationary and distortive? Don’t you think the various “funds” they created such as the Future Fund and the Education Fund for instance weren’t potentially inflationary for asset prices? Even if they had taken the money overseas it would have distorted the exchange rate. I think you don’t really understand the way the government creates money, which is why you think the surplus retuned as tax cuts was inflationary. The surplus is money that’s already been created, returning it is not “new” money. If you were really concerned with inflation you would be advocating the destruction of the surplus…. Having it simply cancelled.

The Austrians don’t have a valid theory of financial markets that’s why they believe cartoon cleansing is good policy. In fact I agree it is usually reasonably good policy but only to a point. The problem is the crisis has reached such huge proportions that the Fed and government has no choice but to intervene.

I don’t believe that’s true. All that was needed to happen was for the bondholders to move down to equity level depending on seniority. The bankruptcy court could have handled that in a week and over that period of time the Fed could have kept the payments system open by standing in the middle. There was plenty of capital at the bondholder level.

Deflation is poison in an economy with high levels of private debt where the risk of deflation is high.

I love how you think deflation is bad but inflation isn’t as bad.

The 1930’s can be likened to a laboratory experiment and showed the Austrian solution was a failure.

Doofus, the 30’s were a period of intervention. It was the opposite of market-based economics, you nong.

The US banking system is not impaired?

It was, but isn’t now. You really have a problem with following an argument, don’t you?

Obviously the Fed doubled the money base just for the hell of it. That there are $1 trillion in reserves at the Fed is evidence the system is impaired. Do you even no what the multiplier is?
Credit spreads are exactly what Keynes was talking about. Do you really think business and householders borrow at AAA rates? The Libor/OIS spread blew out to astronomical levels for crying out loud. Banks were iffy about even lending to each other. Even here the bills/OIS spread blew out and our banking sector is relatively sound, though a sharp increase in unemployment would certainly test it out.

Interesting, so Keynes actually thought people would lend during a time when they have no idea what is happening to creditworthiness.

That private monopolies produce deadweight losses is pretty basic second year micro from memory.

Was second year silent on public monopolies?

The Austrians don’t have a valid theory of financial markets that’s why they believe cartoon cleansing is good policy. In fact I agree it is usually reasonably good policy but only to a point. The problem is the crisis has reached such huge proportions that the Fed and government has no choice but to intervene. Deflation is poison in an economy with high levels of private debt where the risk of deflation is high. The 1930′s can be likened to a laboratory experiment and showed the Austrian solution was a failure.

The US banking system is not impaired? Obviously the Fed doubled the money base just for the hell of it. That there are $1 trillion in reserves at the Fed is evidence the system is impaired. Do you even no what the multiplier is?

Credit spreads are exactly what Keynes was talking about. Do you really think business and householders borrow at AAA rates? The Libor/OIS spread blew out to astronomical levels for crying out loud. Banks were iffy about even lending to each other. Even here the bills/OIS spread blew out and our banking sector is relatively sound, though a sharp increase in unemployment would certainly test it out.

That private monopolies produce deadweight losses is pretty basic second year micro from memory.

As for Japan, private consumption has been if anything a drag on Japanese growth over the past decade and a half. Japanese growth has been export and government expenditure driven over the past decade and a half.

Textbook ecomomics tell us little of what happens in the real economy because it omits the role of financial markets and expectations. I’ve always treated it as a frame work. I did my degree in my 30s so I had already worked in the real economy. I had already worked for a company where a corporate raider tookover a small thriving small business and bled it for funds until it ran out of money and credit. And then went bust. I also worked as a sales rep in the building industry during a government generated housing boom and bust.

You’re right we’re going around in circles. You’ll probably want to reply (I know I would) but I’m not going to answer. Unless you request an answer of course.

Leave people and the economy alone. If you must intervene then apply the Hippocratic oath in that you do NOT make things worse and always be aware that actions have real freaking consequences. Maintain a hard currency not a strong currency necessarily but a hard currency, which is different.

Always endure the long-term growth arrow is pointing straight up.

That’s my guiding principal and pretty much everything else such as arguing about freaking this or that just isn’t going to get us anywhere.

You apply incredibly bad faith in your debating style, SDFC. We were always specifically talking about Australia’s surplus at the time of the Howard government. To suggest this was going to raise our inflation rate level to Zimbabwean proportions is frankly laughable. In any event the RBA is always able to sweep out the extra money through a permanent reduction in the money supply. As I said to you (which seems I need a jackhammer to get through) inflation is and always will be a monetary problem. Tax policy has little to do with it.

Let’s you contention that Keynes and the Austrian theory of credit booms are contradictory. Try explaining how.

Interest rate determination is one. Keynes thought liquidity preferences etc. determine the interest rate. He’s fucking wrong. No equivocations. He’s just wrong, accept it and move along. If you get teary eyed, get a Kleenex.

Austrians on the other hand suggest interest rates are determined as a result of present vs future consumption decisions in an unhampered market and it’s government intervention in the price discovery mechanism in this area that fucks things up. They’re right.

Their policy prescriptions differ once the boom turns into a bust, but we already know that.

Of course they’re different. Keynes suggests all sorts of voodoo economics while the Austrians think the cleansing is a good thing. The Austrian prescription of a cleansing may sound harsh however in reality there is no free lunch in economics and the pain will eventually have to be taken. Notice how the size of the economic crises only get bigger? Does that tell you something like perhaps we’re really just rolling all these problems in a forward date until we have no choice but to allow the market to clear itself which means ultimately the Austrians are right.

Keynes prescriptions have been largely followed by central banks, leading to sonewhat of an easing in financial market conditions. That the multiplier remains in the doldrums however is due to the impairment of banking sector money creation activities as in evidence by the ongoing decline in private sector credit.

The US banks are not really impaired. If they were there wouldn’t be $1 trillion of reserves hanging around. People aren’t borrowing and there’s a big shift going on in the US towards more savings.

How was Keynes theory of liquidity preference proved to be wrong? Did credit spreads not skyrocket during the crisis?

That was hardly what the old fart was talking about and in any event the entire interest rate structure moved down. He’s wrong.

Your ongoing contention that government should never invest in infrastructure means you obiovusly favour privagte roads, ports, airports, rail, electricity distribution, water distribution etc. In other words you favour monopolies to any form of government investment.

Oh but state based monopolies are somehow better, are they? History has always shown us that monopolies owned by the state are always so efficiently run. LOL If you’re that concerned with monopoly power then the government can use regulation. The gouging that always takes placed in government owned monopolies is the result of unionization and how they treat the assets as captured capital.

As for Japan, they are almost entirely dependent on external demand so I wouldn’t be making any comparisons with them.

Oh bullshit. The vast, vast bulk of their economy is domestically based.

You really don’t understand much economics, SDFC.

So now you agree that a 2.5% swing in in the budget balance is expansionary. That’s a bit of a flip flop.

Let’s you contention that Keynes and the Austrian theory of credit booms are contradictory. Try explaining how. Their policy prescriptions differ once the boom turns into a bust, but we already know that. Keynes prescriptions have been largely followed by central banks, leading to sonewhat of an easing in financial market conditions. That the multiplier remains in the doldrums however is due to the impairment of banking sector money creation activities as in evidence by the ongoing decline in private sector credit.

How was Keynes theory of liquidity preference proved to be wrong? Did credit spreads not skyrocket during the crisis?

Your ongoing contention that government should never invest in infrastructure means you obiovusly favour privagte roads, ports, airports, rail, electricity distribution, water distribution etc. In other words you favour monopolies to any form of government investment.

As for the Fed they’ve made some pretty big mistakes in the past. After all ultra-easy fed policy was a major contributor to the crisis. My comment about funding of the housing market is related to the end of the agency MBS buying program at the end of March. Is the private sector ready to pick up the ball? This will almost be a psuedo policy tightening if that makes any sense.

As for Japan, they are almost entirely dependent on external demand so I wouldn’t be making any comparisons with them.

As for the financial conditions index this article suggests the traditional indices could be a little misleading.

http://www.marketwatch.com/story/financial-conditions-may-be-recovery-drag-study-2010-02-26

Are you really this dumb? Did I even go near suggesting that? The point I was making is that it was pretty small. I t was relatively insignificant to the effect of monetary policy.

Nice chart of the M1 multiplier, kind of proves I’m right don’t you think? Since 2000 the multiplier
has been relatively stable except for the cliff at the end.

It doesn’t prove you’re right at all. Stop the lying. You argued that Keynes liquidity preference bullshit was right. I proved to you through evidence that the fucker was so wrong he deserved to have his head put in a vice 3 stooges style and someone tightening it a few notches.

As for the financial conditions index, that wouldn’t be a function a fed funds at close to zero would it?

Dunno. It hasn’t appeared to be the case in Japan.

We can chuck the PBOC and BOJ into the mix as well. in terms of easy policy. There does seem to be a hell of a lot of money sloshing around out their but I’ll believe credit is easy when the loan officers survey suggests an easier supply of credit and households. CP issuance has stagnated at low levels. It’s going to be interesting when the Fed stops funding the housing market at the end of this month.

Fed is a pretty smart institution and I wouldn’t always sell them down the river.

For about the 20th time, the impact of the stimulus on economic activity is a separate issue as to the quality of the spending, I have always maintained that some of it is wasteful, I have told you there has been wasteful spending at my kids’ school. Some of it such as the whole insulation fiasco has been downright stupid.

There’s no such thing on quality spending in a hurried slap dash way it was put together. There can’t be as it’s impossible for any government to ensure efficiency in such a thing, in such size and in such speed.

In any event the government hasn’t got one spending intititiave right for the past 50 odd years. Everything they’ve touched they’ve fucked up longer term and you think I would my faith in Rudd-the-fake?

Keynes picked the crisis like a nose.

Hahahhahaha I wouldn’t be using that analogy to explain it. But then again I’m not you.

The financial markets did exactly what Keynes said would happen, the increased demand for liquidity in a crisis sends interest rates higher. Why do you think the Fed engaged in QE or credit easing as they apparently like to call it. Have you been asleep for the last two and a half years? The multiplier hasn’t just declined its plummeted, the slump is near vertical.

Are you on dope? It’s a serious question. What Keynes said about that liquidity preferences and interest rates is wrong. He’s been proved wrong. I’ll repeat it. He’s wrong. The direction of the multiplier and interest rates has proved that. Something I notice you’re avoiding like the plague.

Why do I have to repeat everything to you multiple times. Both Keynes and the Austrians have pretty much the same theory of credit booms.

Bullshit. Forget the dope, I think you’re doing smack.

Do you get that you can agree with some aspects of a theory without necessarily agreeing with everything, or are you too tribal for that?

Please. You don’t have to be tribal to think Keynesian economic is horseshit. I look at the evidence whereas Keynesians like you rely on faith.

Nice chart of the M1 multiplier, kind of proves I’m right don’t you think? Since 2000 the multiplier has been relatively stable except for the cliff at the end.

As for the financial conditions index, that wouldn’t be a function a fed funds at close to zero would it? We can chuck the PBOC and BOJ into the mix as well. in terms of easy policy. There does seem to be a hell of a lot of money sloshing around out their but I’ll believe credit is easy when the loan officers survey suggests an easier supply of credit and households. CP issuance has stagnated at low levels. It’s going to be interesting when the Fed stops funding the housing market at the end of this month.

For about the 20th time, the impact of the stimulus on economic activity is a separate issue as to the quality of the spending, I have always maintained that some of it is wasteful, I have told you there has been wasteful spending at my kids’ school. Some of it such as the whole insulation fiasco has been downright stupid. You’re a goldfish.

Keynes picked the crisis like a nose. The financial markets did exactly what Keynes said would happen, the increased demand for liquidity in a crisis sends interest rates higher. Why do you think the Fed engaged in QE or credit easing as they apparently like to call it. Have you been asleep for the last two and a half years? The multiplier hasn’t just declined its plummeted, the slump is near vertical.

Why do I have to repeat everything to you multiple times. Both Keynes and the Austrians have pretty much the same theory of credit booms. I disagree with the Austrian remedy. I’m not aware that they have a valid theory of finacnial markets or if they even have one. Considering they think deflation is a good idead I’m thinking not. Do you get that you can agree with some aspects of a theory without necessarily agreeing with everything, or are you too tribal for that?