Why the end is nigh.

Hawkeye123

Every attempt to stabilise the finances of the various European Economies has failed to reassure the markets. Why? Could it be that providing liquidity and stimulus packages are not the solution? Logically these measures should work, after all the great depression ended in the US when the US Federal Reserve released massive financing to build the Hoover dam and stimulate to US economy.
Obviously, the European Finance Ministers are doing something wrong and in order to find that “something” we need to look a bit more closely at the aforementioned Hoover dam stimulus package. What did they do in 1933 that we are not doing today? They answer is this: THEY ALLOWED THE DEPRESSION TO HAPPEN!!! Between 1929 and 1933 there were no stimulus packages just cuts and austerity on a massive scale and the entire economy collapsed. It was the right thing to do; it had to be allowed to happen. By 1933, everything was cheap, the public sector was lean and keen – and crucially, the US Government had a pot of its own revenue (not borrowed money) to invest into the Hoover dam. Of course the markets were reassured and confident with that scenario.
What the present day European Finance Ministers (and the US Fed) are doing is different. They never allowed the recession (let alone the depression) to happen. They have increased the depression that must and will happen – massively. By borrowing billions on top of the billions we already owed back in 2008 when the depression was supposed to start, - they have blown the bubble bigger. These so called stimulus packages/bailouts are not going to solve the problem – they are going to make it much, much, much worse.
Every time the EU finance ministers throw billions at a bank or a country to “reassure” the markets this is what happens: First the short term day traders get all excited and they get in then out of the market to make a quick killing if they can. The medium and long term traders react more slowly but their response is the same – they say “the EU has added to the problem by increasing the debt of this bank or that country. Now, where can I move my money so it will be safe and maybe yield dividends?”
Initially, I (yours truly) thought the EU Finance Ministers knew this but they were just being too cowardly to introduce the necessary austerity. Now, I believe they really think they are doing the right thing. God help us all.

Denerick

I don't buy this argument that some sort of cyclical boom bust cycle is inevitable and necessary. The biggest problem as far as I can tell is that western states had deficits throughout the boom and engaged in populist tax cutting/higher spending fiscal policy. The national debts of many western countries, particularly the US, could have been effectively wiped out during the good years if voters weren't so short sighted and stupid and demanded everything on a plate, all at once.

Another vital difference between the depression and the current malaise was that personal and national debt was nowhere near comparable to what it is today.

You should restrain spending, inflation and wage increases during the good years and then during rougher times you can unlock some of the well managed restraint in the form of national stimulus. The state should act as a pharmacist, doling out lithium during manic episodes and prozac during depressive periods. A happy medium, GDP growth of c. 3% per annum, enough money so that people are comfortable, not so much money that people are engaging in frivolous consumption. A culture of restraint and delayed gratification.

In short, we got exactly what we deserved for our lack of prudence.

I'm also beginning to think that we'd all be better off if our governments were subject to the deliberation of academics and professionals, rather than electorates. Political elites emerge under nominally democratic systems but they're usually cuckolded by populists on the one hand and corporatists on the other... But lets not go there...

Hawkeye123

Hi Denerick. I agree with everything you have said apart from the very first line. The boom bust cycle is inevitable because as you say yourself in your final paragraph - the politicians respond to populism. They will not entertain economic reality until it is forced upon them by the markets - which react in a very direct way to economic reality.

Certainly, the boom/bust cycle could be broken but not until politicians end the client-ism crony pandering policies of the past. National politicians should be elected by the nation and not their local constituents. Personally I believe there should be no public sector/civil service whatsoever and everything should be privatised but that is an argument I will never win. At the very least the government should consider introducing a politburo system whereby the public sector employees get anonymous backhanders for reporting waste and inefficiencies in their workplace.

Denerick

You blame politicians but its the electorate who demand the populist measures. I'm more inclined to blame an unvirtuous citizenry. Politicians in a democratic system are essentially whores and will 'put out' at whim.

Hawkeye123

True, but to be fair to the citizenry - they consistently vote for the very best of an appalling lot. I`ve no doubt they would vote for excellent politicians if we had any to vote for. Also, I believe the politicians consistently misunderstand the electorate as a whole because they judge the mood of the electorate by what they hear on the Joe Duffy show and what people say on the door step. The problem with this is that the real salt of the earth Irish citizenry are out working or studying or volunteering - they are not at home watching fair city and Judge Judy. As for the people who phone the Joe Duffy show - they would not get away with that in the private sector because they would be too busy working. Only layabout public sector people who spent half their lives taking sickies can do that.

Lantus

boom bust cycles exist in economies, stock markets and nature. Any time you have crazy exponential growth you get sudden decline.

We've been living beyond our means as a species not just financially but we've bred ourselves waaaaaaayyyy beyond what nature can sustain naturally. Oil has created a food industry that is keeping all the busy humans running around creating more 'wealth' and more people.

The trouble is that oil has now passed peak. The natural population of the earth is around 1 billion and we are currently at about 7 billion. it's nasty but it's going to happen over the next 30-60 years. It will happen in our lifetimes. The powers that be know this is going to happen and they have known for a very long time.

just a quick read on peak oil and peak population will give you all the facts you need. There is NO substitute for oil and there is nothing even close that can replace it. Everything in our society from our toothbrushes to our clothes to our food is derived, created and delivered using oil. Every piece of plastic, every pesticide, every piece of food shipped around the world. your cars, your clothes, your house and almost everything you buy and consume.

The current financial chaos is a result of our crazy belief in infinite growth, or that growth will continue year on year every year and the physical fact that the power behind that growth namely oil is a finite resource and production has already started to decline.

There is no amount of clever financial restructuring that can escape this fact and as we cannot make any more oil our species is on the brink of the biggest change since the dawn of time itself.

Belfast

Hawkeye123 wrote: »

Every attempt to stabilise the finances of the various European Economies has failed to reassure the markets. Why? Could it be that providing liquidity and stimulus packages are not the solution? Logically these measures should work, after all the great depression ended in the US when the US Federal Reserve released massive financing to build the Hoover dam and stimulate to US economy.
.

The Hoover dam was constructed between 1931 and 1936 during the Great Depression. The Great Depression did end when the hoover dam was built.

Why You've Never Heard of the Great Depression of 1920 | Thomas E. Woods, Jr.

https://www.youtube.com/watch?v=czcUmnsprQI

Belfast

Denerick wrote: »

I don't buy this argument that some sort of cyclical boom bust cycle is inevitable and necessary. The biggest problem as far as I can tell is that western states had deficits throughout the boom and engaged in populist tax cutting/higher spending fiscal policy. The national debts of many western countries, particularly the US, could have been effectively wiped out during the good years if voters weren't so short sighted and stupid and demanded everything on a plate, all at once.

Another vital difference between the depression and the current malaise was that personal and national debt was nowhere near comparable to what it is today.

You should restrain spending, inflation and wage increases during the good years and then during rougher times you can unlock some of the well managed restraint in the form of national stimulus. The state should act as a pharmacist, doling out lithium during manic episodes and prozac during depressive periods. A happy medium, GDP growth of c. 3% per annum, enough money so that people are comfortable, not so much money that people are engaging in frivolous consumption. A culture of restraint and delayed gratification.

In short, we got exactly what we deserved for our lack of prudence.

I'm also beginning to think that we'd all be better off if our governments were subject to the deliberation of academics and professionals, rather than electorates. Political elites emerge under nominally democratic systems but they're usually cuckolded by populists on the one hand and corporatists on the other... But lets not go there...

I no not think this kind of Keynesian economics work very well, apart for the fact politicians who run these economic policies have no incentive to cool down a bubble.
As you say Political elites are more concerned with votes form Political populists and vested interest groups.

academics and professionals in charge would be just under just as much pressure and politicians to keep busts going.

Part of the problem with the state controlling the economy in this way is the trouble finding high minded people whose only interest is the good of the people, who cannot be corrupted by the power to run the economy.

Power will always corrupt.

Belfast

Denerick wrote: »

You blame politicians but its the electorate who demand the populist measures. I'm more inclined to blame an unvirtuous citizenry. Politicians in a democratic system are essentially whores and will 'put out' at whim.

In fairness all the political parties had the same policies during the boom.
the only real difference between them was how much more sate spending should be.

No political party during the boom that said we should pay off the nation debt or limited spending or question that the price of housing always going up was not a problem.

Electorates only choice was big spending parties.

Electorate normal are informed by the media. during the boom they always report increased state speeding and borrow as good news.
House price increasing we also good news.

They never reported the down side of borrowing and spending.

I would say the citizenry were uninformed and uninterested rather than unvirtuous.

We are asking the citizenry to make choices about economic systems they know nothing about, apart for the fact all the parties were using the same economic system so no choice.

Most people in Ireland have never studied economics.