Australia had a currency tied to the british pound. In 1925 the british pound returned to the gold standard having left it in WWI. The gold price at which they returned was at the pre war level, much below the prevailing rate. This was highly deflationary. Australia leaving adjusting the fix price to the british pound was a reaction to this deflation. And it was a quite rational response. I don’t discount the merits of cutting public spending but I think Australias monetary adjustment was also necessary.

There are very many things you can do. But you better ask for the economist by name or he’ll evade the question. We have an economy in disrepair. With some areas facing overinvestment and others underinvestment. Supposing we were a nation of small businesses, just to make this clearer. People will have invested in all sorts of things that are not justified by the real capital resources available and the market demand.

Beehives, chicken coups, Kiwifruit orchids. Some of these will have to be sold and more investments made to bring them to positive cash flow in much their current form. Other investments of this sort will need to be transformed to more viable FORMS of business.

So the failed Kiwifruit place gets bought by the neighbouring winery, but it takes more resources to transform a failed investment unto a winning project.

The goal would be to make all investments cash flow positive. But to bring forth the resources for this transformation you need government spending cuts, and mass-sackings as well in the overblown financial sector.

Sound monetary policy involves more cash and less ponzi-money. Should overall monetary expansion be too high you will justify bad investments. Should it be too low you will wipe out the good investments along with the bad. But the resources to fix matters up have to come from massive spending cuts and some well-chosen tax cuts.

You will see that there is no rightful way to avoid pain. You can avoid monetary implosion but not pain, Since it must be understood that the damage was done by the prior policy, and not by the onset of the recession. But if the pain is borne by the taxeaters and the bankers, and some proportion of businesses, then the rest of us can be back to work quick-smart. Particularly if we could all be persuaded to take an 18 month pay cut, or something of this nature.

People think that this is contentious stuff. But its not. Those that don’t understand this are ignorant or lying.

Great comments by some people here, but this is a very important youtube. Everyone should watch it many times and make sure they resolve all outstanding issues. Don’t just go on faith. There is very few more important issues around. Note how the lecture contains a great bibliography. Even the supportive comments tend to be made by people who only understand this subject about 40% of the way through.

“The 1930s proved those pre-Keynesians wrong. Letting an economy in deep financial crisis sink is the road to hell.”

You cannot get more ahistorical then this. With a fiat currency there is never any reason to let the money supply collapse in any case.

The main reason that Keynesianism took hold when it did is simply that the size of government had grown to a certain critical size after World War I. Also the idealistic socialists had just become disillusioned with fascism because the Germans were such a distasteful bunch. They had earlier become disillusioned with communism but that turned out to be a temporary thing.

Though Kates doesn’t say this, there is some problem with letting the money supply collapse, but this is more to do with the compounding effect it tends to have on already overpowering debt levels than anything else. This is often neglected even by sound economists, who tend to think that the only problem is downward stickiness in prices and wages.

Of course bankruptcy is the quickest way to clear these debts.

Great comments by some people here, but this is a very important youtube. Everyone should watch it many times and make sure they resolve all outstanding issues. Don’t just go on faith. There is very few more important issues around. Note how the lecture contains a great bibliography. Even the supportive comments tend to be made by people who only understand this subject about 40% of the way through.

“The 1930s proved those pre-Keynesians wrong. Letting an economy in deep financial crisis sink is the road to hell.”

You cannot get more ahistorical then this. With a fiat currency there is never any reason to let the money supply collapse in any case.

The main reason that Keynesianism took hold when it did is simply that the size of government had grown to a certain critical size after World War I. Also the idealistic socialists had just become disillusioned with fascism because the Germans were such a distasteful bunch. They had earlier become disillusioned with communism but that turned out to be a temporary thing.

Though Kates doesn’t say this, there is some problem with letting the money supply collapse, but this is more to do with the compounding effect it tends to have on already overpowering debt levels than anything else. This is often neglected even by sound economists, who tend to think that the only problem is downward stickiness in prices and wages.

Of course bankruptcy is the quickest way to clear these debts.

These idiots kinew ecactly what this crap was, what were the componets and now they’re complaining?
WTF?

I understand that this whole episode, especially the Senate subcommittee hearing probably hasn’t done their reputation any good but can’t see how any charges would stick.

What judge is going to understand synthetic CDO’s anyway.

I’m not on top of the ins and outs, all I really know is what I’ve ready on Reuters, but someone at work was saying Golman’s sold the stuff to banks. If that’s the case then stiff shit. Anyone with half a brain should have known the US housing market was headed for trouble.