doctor doom’s 2009

Nouriel Roubini has now a weekly column on Forbes, where some synthesis is made of the much richer rge material (unique, very deep and informative news “clusters”; regular blogs or interventions by some of the best macroeconomists). This is an invitation to read regularly, as an amateur, both “Doctor Doom” Forbes column, and the free sections of rge-monitor.com (while a professional economist is obliged to subscribe to rge):

Doctor Doom

A Global Breakdown Of The Recession In 2009

Nouriel Roubini, 01.15.09, 12:01 AM EST

Forecasting pain, from the U.S. to Australia.

pic

With the industrial world already in outright recession and the emerging world navigating toward a hard landing (growth well below potential), I expect global growth to be flat (around -0.5%) in 2009.

This will be the worst global recession in decades as the fallout of the most severe financial crisis since the Great Depression took a toll first on the U.S. and then–via a variety of channels–on the rest of the global economy.

Here is a global breakdown of my forecast.

The United States economy is only halfway through a recession that started in December 2007 and will be the longest and most severe in the post-war period. U.S. gross domestic product will continue to contract throughout all of 2009 for a cumulative output loss of 5%.

One last look at 2008 will reveal a very weak fourth quarter with GDP growth contracting about -6% in the wake of a sharp fall in personal consumption and private domestic investment.

I see the real GDP growth contraction playing out through the year as follows: first quarter 2009: -5%; second quarter 2009: -4%; third quarter 2009: -2.5%; fourth quarter 2009: -1%–adding up to a yearly real GDP growth of -3.4% for the U.S. in 2009.

This forecast is much worse than the current consensus forecast seeing a growth recovery in the second half of 2009; I also predict significantly weak growth recovery–well below potential–in 2010. (…)

The latest cyclical upswing in the Eurozone was largely driven by a temporary but powerful boost to domestic investment from disappearing risk premia in the aftermath of the adoption of the single currency and by external demand from a buoyant world economy.

Both demand sources fizzled out by the second half of 2008, leaving the Eurozone as a whole and its largest members exposed to diverging deleveraging patterns in the face of suboptimal EMU-wide automatic fiscal stabilizer mechanisms.

The latest record-low readings of leading and sentiment indicators point to a severe recession ahead in 2009 that shapes up to be worse than the 1992-93 crisis. For the Eurozone, I expect a below-consensus contraction in real GDP of around -2.5% (…)

We believe China will experience a hard landing in 2009, with growth unlikely to exceed 5%, a sharp slowdown from the 10% average of the last five years. The reversal of capital flows and high credit cost will pull down India‘s growth significantly, to around 5% in 2009 from an estimated 6% in 2008.

END  OF NOURIEL’S QUOTATION

This graph, now in the front page of the Greenberg geo-eco think thank of the CFR (where we always read two of our favourite blogs: Follow the money by the International Economics “Sherlock Holmes” Brad Setser (*); and the delightful political incorrectness of  Amity Shlaes’ Forgotten man: healthy antidotes to FDR or BO’s santifications), is quite informative.

RAQ (Rarely Asked Q.) Did u know, before having looked at it, that the 2nd NewEconomy bubbbbbble (2003-07)  was much more  pervasive cross-country, than the so much advertised 1st one (1994-2001)?

2growths_oneline_cfr

(*) We are much more than friends, in brotherhood from decades with Otaviano Canuto, himself an rge blogger, Catou and all their beautiful family. Nonetheless, our esteem of Otaviano as an economist made a big jump upward a few weeks ago, when we discovered, in an exchange of comments on a recent post, he had … something to teach to Brad. Before, we believed anything alike impossible, i.e. beyond human limits.

Advertisements

G 20: the real start is in April – RIMANDATI AD APRILE

Photo: January 30, 2007. REUTERS/Jason Reed

The Times cartoon. © Peter Brooks

0811_st-barack

QUASI BOCCIATI, RIMANDATI AD APRILE.

ITALIAN SUMMARY.

ASPETTANDO B.Ob. LA TELA DI RAGNO DI GORDON BROWN, laburista annacquato.

LI PENSAVAMO BOCCIATI; INVECE SON SOLO RIMANDATI AD APRILE: e’ un risulato magro ma sopra le aspettative.

Il G20 era atteso come  un buco nell’acqua, invece ha sorpeso, pur senza entusiasmare affatto:

– da un lato, ultimo grido liberista del 2° Millennio, seppellito nel marzo-settembre 2008

– dall’altro, un primo vagito del nuovo millennio Chindiano che avanza: focus sulla regolazione forte (?) della Finanza, anche se .. leggete il testo finale integrale: final statement. Le rating agencies? Devono … registrarsi, e’ tutto. Ma erano ben note e nelle dita di una mano!  Niente guillotine per  il loro top management, non una notte in prigione e nemmeno a casa senza liquidazione. Il FT le aveva trovate con le dita nella marmellata: usavano modelli TRUCCATI per valutare il rischio, lo sapevano e coprivano per mesi e mesi, continuando a barare.  Al confronto, il Watergate era una cosa da educande.

– Occhio Obama: col gradualismo alla Gordon Brown non si va da nessuna parte, si lasciano tutti gli attori e le istituzioni-chiave al loro posto. CI VUOLE UNA RIVOLUZIONE (al momento senza nome, così sarà più creativa ed al passo coi problemi).

 

AND THE WINNER IS …

Surprise surprise: Gordon Brown again, the win-win guy of global summits! 

For  a sorting out lame-duck (GWB, US), another one (GB, GB) stays with us forever. Gordon Brown had reached below zero poll evaluations, for his treacherous delaying tactics on Northern Rock: oh, dear! He was so shy and  timid (Blair complex?),  before statalism became fashionable again (the real Millennium cut is in 2008, either March or September). But now he’s the star, at least before B.Ob. enters the stage.

wsj

 

Brown Wins Reform Demands

U.K. Prime Minister Gordon Brown appeared to win many of his key demands to reform the global regulatory system and restart the Doha round of trade talks at the meeting of G-20 

As expected by everybody, lame duck GWB did not get anything from  Sat. 15th G20 meeting. Markets didn’t bet a buck on such a meeting, so perhaps they will not fall down dramatically on Monday. The G20:

+ has already become a focal institution (as Gordon Brown has underlined), and will have some work to do next year, particularly in the next meeting before April 30. First of all, verify whether the March deadline (see G20 document below) has been met for the emergency Global Finance re-regulation. By now the G20:

did not start any coordination of fiscal stimuli (from now on  the focus of policies), nor of  monetary and credit policy guidelines; in such a way, national and (at most) regional policies are already ending up: either  in “beggar your neighbour”; or becoming a ground for knittimg new international alliances: e.g., see the rge discussion on China’s fiscal plan:

the timing of the Chinese package is likely influenced both by domestic demands, and the external outlook. The timing before the G20 heads of state is clearly significant.

 

The hypothesis sounds right to me. China is trying to knit alliances around the US, to decouple.

+ dealt mainly with the financial meltdown, with a gradual approach (not mentioning the roots of today’s problems);

+ further work might follow, namely in the FSF coordinated by Mr Draghi, which should include BRIC and deal with change in  Bretton Wood institutions;

  –  no real finance reform, nonetheless: look at RATING AGENCIES (perhaps the most bastard subcriminals, the FT found them conspiring and treaching). They just need to … register !!!  Fuckoff.

 Pleaded for pursuing an “Open Global Economy”, AS IF it was not a dead walking: sooner or later bailout protectionism will give the floor to trade protectionism and capital controls; we bet the deadline of resurrecting the Doha Round by December  will NOT work;

apparently ignored the risks of an open deflation, signalled by the lack of response of gold and stock markets to the massive national rescue plans.  

∑ – Final G20 mark: – 5 + 3 = -2.  Only such a nerd as G Brown gets good marks! The other pupils most come back in the April session, with new essays 2B evaluated.

Even if its financial and institutional (IMF and WB) plan had to be timely applied, this would not change much of the current severe global recession by insufficient demand, on the verge of degenerating into a low consumption-led depression in the US – on behalf of the irresponsibility and laissez faire of Pres. Bush and his staff, even after the subcrime bubble imploded in August 2007, i.e. 15 months ago: 15 months lost, waiting for Godot. Luckily Godot is about to come from Chicago. This is why Russia asked to recall the G20 soon, and got it.

The real test will be whether their minimalist approach to focus upon an immediate stabilisation of financial markets will get any result soon. Dedline: March 31. This is the core of their long final statement:

9. We commit to implementing policies consistent with the following common principles for reform.

• Strengthening Transparency and Accountability: We will strengthen financial market transparency, including by enhancing required disclosure on complex financial products and ensuring complete and accurate disclosure by firms of their financial conditions. Incentives should be aligned to avoid excessive risk-taking.

• Enhancing Sound Regulation: We pledge to strengthen our regulatory regimes, prudential oversight, and risk management, and ensure that all financial markets, products and participants are regulated or subject to oversight, as appropriate to their circumstances. We will exercise strong oversight over credit rating agencies, consistent with the agreed and strengthened international code of conduct. We will also make regulatory regimes more effective over the economic cycle, while ensuring that regulation is efficient, does not stifle innovation, and encourages expanded trade in financial products and services. We commit to transparent assessments of our national regulatory systems.

 Promoting Integrity in Financial Markets: We commit to protect the integrity of the world’s financial markets by bolstering investor and consumer protection, avoiding conflicts of interest, preventing illegal market manipulation, fraudulent activities and abuse, and protecting against illicit finance risks arising from non-cooperative jurisdictions. We will also promote information sharing, including with respect to jurisdictions that have yet to commit to international standards with respect to bank secrecy and transparency.

 Reinforcing International Cooperation: We call upon our national and regional regulators to formulate their regulations and other measures in a consistent manner. Regulators should enhance their coordination and cooperation across all segments of financial markets, including with respect to cross-border capital flows. Regulators and other relevant authorities as a matter of priority should strengthen cooperation on crisis prevention, management, and resolution.

• Reforming International Financial Institutions: We are committed to advancing the reform of the Bretton Woods Institutions so that they can more adequately reflect changing economic weights in the world economy in order to increase their legitimacy and effectiveness. In this respect, emerging and developing economies, including the poorest countries, should have greater voice and representation. The Financial Stability Forum (FSF – directed by Mr Draghi, NdR) must expand urgently to a broader membership of emerging economies, and other major standard setting bodies should promptly review their membership. The IMF, in collaboration with the expanded FSF and other bodies, should work to better identify vulnerabilities, anticipate potential stresses, and act swiftly to play a key role in crisis response. 

Today’s rge is full of interesting clusters on G20 related issues:

  •  G20 Nations Agree More Concerted Efforts, Regulatory Coordination
  •  Will Coordinated Policy Interventions Prevent a Global Recession?
  •  Towards A New Financial Order: Regulatory Issues Tackled At The G-20
  •  Liquidity Trap Possibility: What’s the Solution?
     G20 Nations Debate Coordinated Fiscal Stimulus
     Economists Debate: What Should Be Accomplished at the G20?

No rally: full recession, fears of deflation and the spectre of Marx

happiness: http://www.freewebs.com/socialistcommonwealth/bralds_marx-s%20(2).jpg sadness: Tokyo stock exchange on another Black Friday, Oct. 24 2008 (AP)

ITALIAN SECTION

31 ottobre. BREAKING NEWS: – rottura tra CAI e piloti, l’Alitalia ad un passo dal fallimento. IN TAL CASO NON  SUBENTREREBBE NEMMENO UNA COMPAGNIA EUROPEA, ma si venderebbe a pezzi. Colannino a colloquio dal Premier (ore  7pm) – Draghi: non deve essere l’EURIBOR  il tasso di riferimento per i mutui casa

DOPO IL MASSIMO. Speriamo che me la cavo.

La riuscita manifestazione PD dei 750.000 del 25 ottobre, e successivamente lo sciopero generale della scuola,  alzano – ceteris paribus, benche’ non di molto – le chances che rinasca un’opposizione in Italia, quindi la lotta di classe possa ridurre il peso della crisi sugli oppressi, i  pensionati ed il popolo bue. La c.d. “sinistra di governo” taccia per sempre, dopo che mentre stava per crollare il capitalismo finanziario, ha cercato invano di far carte false e convincere  i lavoratori di mettere le loro liquidazioni e pensioni nei FONDI BIDONE. Anche questi Prodi ministri e sindacalisti hanno la faccia come il culo. Per fortuna c’erano i sindacati di base a fare contro-informazione.

ALAN: LA FACCIA COME IL CULO

Per la prima volta sotto il fuoco di fila del Parlamento, alla Commissione Oversight and Government Reform, Alan Greenspan (resp. No. 1 al mondo del crollo del capitale finanziario) fa finta di fare auto-critica ieri: fu “a flaw” non regolare i derivati. MA IL BANCHIERE CRIMINALE DICE PURE IL CONTRARIO:

Greenspan, responding to questions, said only “onerous” regulation would have prevented the financial crisis. Stifling rules would have suppressed growth and hurt Americans’ standards of living, he said. (source: Bloomberg)

IL BANCHIERE BASTARDO, LA FACCIA COME IL CULO, ha sostenuto ancora una ricetta auto-regolativa delle sue, che hanno governato a colpi di bubbles, e stanno portando il mondo alla fame. Quando una finanziaria emette securities, se ne deve tenere per se una certa quota, così e’ incentivata a dare il giusto prezzo al rischio.

I PIFFERAI DI BREMA

Invece il nostro vituperato Cavaliere, in una delle sue 10.000 smentite aveva azzardato che si potevano chiudere i mercati: ebbene, lo dice pure – a Bloomberg – Roubini che se ne intende. Il Cavaliere, ormai lo sappiamo, vale sempre PRIMA della smentita. Il problema e’ che con lui, il geniale Brunetta  e Hood Robin Tremonti al governo vale la

LEGGE DI MURPHY

“Se qualcosa può andar storto, la catastrofe e’ assicurata”. Mentre l’ ultimo governo Prodi tergiversava, questi ci potrebbero portare dritti dritti …

CROZZA-DOLLARO

A share trader behind a false one dollar bill (much similar to the one alive, you see at Crozza Italia TV show) at the German stock exchange in Frankfurt, October 24, 2008.   REUTERS/Kai Pfaffenbach

CHRONICLES FROM A RED PLANET: MARX

Oct. 27 Reuters   Korean Confederation of Trade Union Vice-President Ju Bong-hee takes part in a protest against the ongoing meeting of the Global Forum on Migration and Development (FGMD) as he is blocked by anti-riot police in Manila, Philippines, October 27, 2008. The number of undocumented migrant workers across the world is expected to rise in the face of the global financial crisis, trade unions and business leaders warned on Monday, urging governments to respect labor rights.   MIGRANT ARE NOT COMMODITIES: REUTERS/Romeo Ranoco Oct. 24 Alphaville http://ftalphaville.ft.com/blog/2008/10/24/17413/black-hole-friday/

Recommended reading: Roubini’s latest take: We’ve reached a situation of sheer panic… There will be massive dumping of assets [and] hundreds of hedge funds are going to go bust. Systemic risk has become bigger and bigger… We’re seeing the beginning of a run on a big chunk of the hedge funds… don’t be surprised if policy makers need to close down markets for a week or two in coming days.

Here is our comment  to Fabius Maximus, http://fabiusmaximus.wordpress.com/, posted on rge http://www.rgemonitor.com/globalmacro-monitor/254129#125448

New recommendations to solve our financial crisis (and I admit that I was wrong) Fabius Maximus | Oct 23, 2008 Summary:  Please vote, and do so carefully!  This could be one of the most important elections in American history, as continued economic crisis might require a massive (and hopefully temporary) expansion of government power — unlike anything we have seen except during wars. On September 25 I sketched out A solution to our financial crisis, in three parts. (1)  Stabilize the financial system – Being attempted, probably now it’s too late. (2a)  Stabilize the economy with monetary stimulus– Rates are coming down and money printed, but probably with relatively little effect. (2b)  Stabilize the economy with fiscal stimulus — Just now being considered; will work but slow to implement and slow to have effect. (3)  Arrange long-term financing for steps #1 and #2 with our foreign creditors – Unacceptable to our leaders at this time. Parts 1 and 2 are being implemented, much as described.  Part 3 was described as necessary at some point in the future.  I said that these probably would not work over the medium to long term, but would mitigate the downturn (slow or even reduce the economic decline, and alleviate the resulting suffering). I was wrong.  The rate of decline — destabilization of the global financial system – has become so great that these measures will prove insufficient.  In my opinion (these are, of course, guesses).  Since I doubt our leaders have a Plan B, here is a suggestion. Extreme mobilization by the government of our economic resources, as we have done during wars.

Hei Fab I always read your blog and I quote it, suggest it from mines. Thanks for the self-critique, actually more convincing than Greenspan’s… I agree on a war-like mobilization for the immediate short term, a sort of OBAMA NEW DEAL or even more than that. The war metaphor is important in the US, where only military Keynesianism is allowed by the “public opinion” and pop culture. And beyond? I can’t see how this severe recession and credit meltdown might not go into sharp deflation and then depression, until wealth redistribution is taken seriously and DRASTICALLY into account. Yours Fabius Minimus Reply to this comment By enzo fabio arcangeli on 2008-10-24 03:25:21    Oct. 21.

THE FRENCH STATE entropy: from champions nationaux to no selection, saving everybody.

Sarkozy applies financial socialism and semi-nationalise 6 banks. Meltdown financial capitalism rediscovers “Partecipazioni Statali”, i.e. what Mussolini  already did in the 1930s. ft – France injects €10.5bn into top six banks

The French government’s injection in the form of subordinated loans will shore up balance sheets and maintain credit provision for consumers and businesses – 11:28 Crédit Agricole would receive €3bn, BNP Paribas €2.55bn, Société Générale €1.7bn, Crédit Mutuel €1.2bn, Caisse d’Epargne €1.1bn and Banque Populaire €0.95bn.

WE REPRODUCE HERE THE ABSTRACT OF OUR STATIC PAGE  “AAA UPDATES …”, that we strongly  recommend to our readers and students, since it develops in real time a collection and comment of economic analyses and policies. This ABSTRACT answers the historical FAQ no.1, after the Wall Street collapse.

SUMMARY

THE DEFINITIVE CRISIS OF FINANCIAL CAPITALISM? MAYBE; BUT NOT  NECESSARILY, and the game is not over yet. Its Greenspan – Reaganite standard version is certainly dead forever –  in the earthquake moved by the shadow finance meltdown. But – doing  their business as usual of collaborationists with Rentier Capital –  social-democrats “doc” à la Gordon Brown (followed willy nilly by such neophites as Bush, Merkel and Sarkò) are desperately looking for a “financial socialist” escape from this cul-de-sac, meltdown and ruins of a Glorious Years past.  Most likely, they won’t succeed: a. first of all since their analysis is wrong (it’s not based  on Keynes, Kalecki and Minsky), b. therefore their cures are just palliatives; c. they just use State muscles, not the brain (see a Lex editorial on this, on Oct. 13: Brownian Motion in Europe). We can take these two Marx-Keynesian axioms for granted. For sure: 1) By Bernd Debusmann

WASHINGTON (Reuters) – Capitalism as we used to know it is on its deathbed. And those who predicted that the old brand, the unfettered, American-promoted system, was a danger to the world, are being vindicated. They include Karl Marx … (our red-bold and underlining).

2) Giorgio Ruffolo, following but also updating Marx: “Il capitalismo ha i secoli contati (its end is a matter of centuries)”. Now Financial Capitalism might be dead. But capitalism as such will not disappear soon, not before an evolutionarily fitter “mode of production and distribution” emerges – within the same social evolution and organisation, carrying the irreversible decline of Late Capitalisms (Ernst Mandel). 3) Carlota Perez (in sintonia with Wallerstein, in a LW perspective on deflation – see also Aglietta and Berrebi): behind the financial eltdown catastrophe, there are institutional and political nodes delayed for decades. An ICT-led long wave almost aborted as a result: https://enzofabioarcangeli.files.wordpress.com/2008/06/subcrimebiosocialscience1.pdf 4) Wallerstein, the marxist historian, concludes his Oct. 15 post on  badmatthew: http://badmatthew.blogspot.com/2008/10/wallerstein-on-return-of-depression.html by saying that – 4A)  capitalism IS DEAD – a dissenting view – as a matter of decades, NOT centuries (versus Ruffolo), – 4B) and joining post-Schumpeterian Carlota’s and neo-marxist Aglietta’s regulation arguments: What happens when we reach such a point is that the system bifurcates (in the language of complexity studies). The immediate consequence is high chaotic turbulence, which our world-system is experiencing at the moment and will continue to experience for perhaps another 20-50 years. (…)  We can assert with confidence that the present system cannot survive. What we cannot predict is which new order will be chosen to replace it, because it will be the result of an infinity of individual pressures. But sooner or later, a new system will be installed. This will not be a capitalist system but it may be far worse (even more polarizing and hierarchical) or much better (relatively democratic and relatively egalitarian) than such a system. The choice of a new system is the major worldwide political struggle of our times. As for our immediate short-run ad interim prospects, it is clear what is happening everywhere. We have been moving into a protectionist world (forget about so-called globalization). We have been moving into a much larger direct role of government in production. Even the United States and Great Britain are partially nationalizing the banks and the dying big industries. We are moving into populist government-led redistribution, which can take left-of-center social-democratic forms or far right authoritarian forms.”

ft Man in the News: John Maynard Keynes Keynes’ ideas for saving capitalism from itself look increasingly relevant, and his words are a fair assessment of the dangers we face once again – Oct-17 The cautious, prudent wsj on  Oct.18, Bernanke and the Famous Helicopter:

with even the talk of deflation on the horizon, as unlikely as the prospect may be, get ready for more caricatures of Ben Bernanke sitting in a helicopter and dropping cash from the sky.

BEHIND THE CORNER – the possibility, risk of a  SHORT-TERM ACCELERATION, CONSOLIDATION OF THE LONG-TERM DEFLATIONARY GLOBAL REGIME (analysed by Aglietta and Berrebi in their book), that is already governing the global markets (commodities, finance, money, and final products) from 15 years on.  That is, a sharp fall of prices and (consumer, investment, intermediate) demand delays, in a deadly downward spiral. The Fed is worrying about it; although they believe this risk is still low: A NEW RATE REBATE WILL FOLLOW SOON, and this signals they are worrying a lot, and planning “liquidity trap” policies (at zero real interest rates).

THE SPECTRE OF MARX

(Derrida was right)

Marx reappears after so long on top of Reuters news, with a nice picture (I told you so),  in an Oct. 15 column by  Bernd Debusmann:

Karl Marx and the world financial crisis

Those measures included buying stakes in major banks – in effect partial nationalization – and would make Marx smile if he could rise from his grave. In the Communist Manifesto he and his collaborator Friedrich Engels published in 1848, Marx listed government control of capital as one of the ten essential steps on the road to communism. Step five: “Centralization of credit in the hands of the state …” … the control center of the financial market has already begun shifting from New York to Washington. (…) Amid the gloom and anxiety of the worst financial crisis since the Great Depression, which started in the United States in 1929 and then spread to the rest of the world, there are hopes that Capitalism 2.0 (if it ever comes about) will result in a more equal society. “There is a tremendous opportunity now to narrow the income gap,” says Sam Pizzigati of the Institute for Policy Studies, a Washington think tank.

The ft certifies what markets have announced again and again, with NO rally – after the October 6-10 BLACK WEEK, and the policy answer:

a sudden and massive nationalisation of the entire Atlantic  (US-EU) credit industry.

An interesting debate was occurring in Italy between Alesina and Draghi: Why didn’t you nationalise before? According to Draghi, in August the current scenario was unthinkable.

Shall we suggest the Bank of Italy to read Roudini and de(e)pre(ce)ssion?

ft – Editorial

Saving the banks was just a first step

Published: October 17 2008 20:40 | Last updated: October 17 2008 20:40

The tide, finally, seems to have turned on the banking crisis. More financial institutions will run into trouble, but governments have moved ahead of the crisis and can – at long last – deal with it systematically. If banks now support the real economy by providing credit, more drastic steps – like full-blown nationalisation – ought not be necessary. Despite arguably the worst financial problems in a century, parallels to the Great Depression now seem hyperbolical. That is a serious step forward. We are, however, still heading into a vicious real economy slowdown. Forecasters seem to have been competing in a reverse auction to cut their expectations for growth in the next two years. A prolonged period of stagnation and recession now seems likely for the US, UK and eurozone, likely to be the worst slowdown since the early 1980s. Pain will not be confined to or concentrated in any one sector – patterns of unemployment are impossible to predict. But some industries are particularly vulnerable; makers of hefty durable goods are the first to suffer. Sales of cars, furniture and home appliances are already in free-fall. (…) Governments have, suddenly, risen to the challenges facing them, turning horrifying problems of bank confidence into manageable fiscal woes. They may even need to do the same with problems of growth by expanding public spending.

Better later than never. What is missing in the authoritative London paper, is the implicit class conflict: Hood Robin or Robin Hood? Which fiscal policy? Ask Joe the plumber… The wsj is certifying today (Oct. 18) that the LR deflation (that they ignore) is possibly giving pace to an acute, SR one, the Fed is seriously thinking and even acting about:

Threat of Deflation Looms

Policy makers navigating the U.S. through the global credit crisis may have a new concern on the horizon for 2009: deflation. The risk of deflation remains slim. But the financial shock and a faltering economy can set the stage for a deflationary environment.

Bernanke and the Famous Helicopter

Today’s financial shock and deep economic turmoil are common preconditions for deflation. As reported in Saturday’s Wall Street Journal, however, Federal Reserve officials see a broad-based decline in prices as possible though highly unlikely.

The central bank faced the prospect of deflation five years ago, as core inflation (excluding food and energy) and the federal funds rate sat around 1%. … options to stimulate economic growth even if the federal funds rate were to drop to zero. Among them: using communications to shape public expectations about the course of interest rates; increasing the size of the central bank’s balance sheet; and changing the composition of the balance sheet to target particular areas. (The Fed is already doing some of that targeting with a balance sheet that has expanded enormously in recent weeks.)

Fed speeches and papers on deflation: Deflation: Making Sure “It” Doesn’t Happen Here (Bernanke) Conducting Monetary Policy at Very Low Short-Term Interest Rates (Bernanke and Vincent Reinhart) Monetary Policy Alternatives at the Zero Bound (Bernanke, Reinhart and Brian Sack)

goto subcrime social science

On Palms’ Sunday, the Fed said: back to the 1930s

More in our special report pdf (May 3 updated v.)subcrimesocialscience080503

Palms’ Sunday, we finally realised that a domino effect, potentially self-destroying for most banks and capitalisms was there, at hand and sight (had perhaps Keynes understood something even Marx had missed?). Well, but, if the ‘30s are back, the two greatest John (Steinbeck and Ford) are back as well: we’ll collect and tell the story of every single proletarian, of all the Joad and Ortiz families. Nikola Chesnais will help us to turn the films, since John Ford is his paradigm, and Ford filmed Grapes of Wrath immediately after the book (1939-40).This film was the most popular left-leaning, socialistic-themed film of pre-World War II Hollywood“. At Washington Post, BRIGIDA SCHULTE already started telling us about Gloria Ortiz and her husband: we love them now: they don’t American Dream any more; we dream to encourage and help them. The Joads, the Ortiz, and new gold rush prospectors. FT March 29, p.1: Soaring prices spark fresh rush to find Ca.’s forgotten gold.

subcrime social science is an art

subcrimesocialscience was a 20 pp. (now 30) w-in-p survey, adopting the de(e)pre(ce)ssion Political Economy paradigm (Ricardo- Marx, Keynes- Kalecki, Schumpeter- Minsky- Perez, Aglietta and Chesnais). It briefly reviews, in its early pages, what economic sciences know on ongoing:

KONDRATIEV LONG WAVE (197os +)

Minsky Magic Moments, since Summer 2007

Minsky Financial Meltdown, we are on the border of

2008+ deep&long recession, endowed with a depression potential

FAQ. Might Capitalisms succeed where Socialisms failed: to help us coping with them, undermining and overthrowing them? Then it deals with policies and recession chronicle highlights. Here is a summary on economic policies.

” De(e)pre(ce)ssion 7 capital virtues: remedies for the Minsky Meltdown.

1. Minsky won the bet versus Chicago. The latter did not survive to the great Milton Friedman for longer, and finally died at dawn, Friday March 14, 2008 (on Bear Stearns’ day: p.15 here).
2. States will massively intervene, after decades of anti-State mind washing: how effectively?
3. After March 14, oil into firing debates on credit&fiscal policies: moral hazard of rewarding – again – those fucking rentiers, vampires that already gained 6-0 the early sets of the subprime match.
4. Leaders’ war. March 29 FT (Not yet time for a bail-out of banks) versus March 22 The Economist (Wall street’s crisis): both are over-Bullish, but policies clash. FT delays a bail-out fiscal policy, conditional upon sacking the rentiers (“it should do so only over the dead bodies of shareholders and management” – falling in love with FT). The Eco. advocates hyper-fiscal policies, erecting floors “either in housing, or in asset-backed securities”. FT objects housing prices must stop to a floor before, otherwise you can’t price securities. At 19th C The Eco., they found a Hegelian synthesis: neo-Leviathans will buy the open and the foreclosed apt.s: almost everything. Socialist times.
5. All this policy makers (hyper-)activism is and will be part of the process (Roudini’s blog, Feb. 8), in a self-referential crisis system (Niklas Luhman), where no one is sitting outside the system. As in an ancient Myth, financial accelerators ate Bernanke himself: their father.
6. Minsky’s call for an institutions-specific and even a capitalisms-specific analysis (note 10) might be the compass exploiting the fixed point of an endogenous institutions axiom.
7. The latter fits with self-referential systems theory, and this couple is full of well known (in their proper cognitive, policy theoretical domains), important consequences.”

On Minsky’s suggestions,

see monetary policies in:

Wray 2007; Galbraith,

Giovannoni and Russo 2007.

Please note – from the 7 points above – that we converge much with Roubini, although we get there by different arguments and ways. Knowing already, by him, the most likely end of the story (script of Grapes of Wrath 2: by H. P. Minsky).

Will Super Tuesday somehow affect the recession path?

february 8, 2008. Click this date for a 10 pages file of this week’s (February 8 to the 1st) first entries into this baby blog: depression or recession? At the moment, we might be still before the fork, and the blog title follows. Main arguments, dictated by the quickly unfolding events after the disputed Fed’s move:
FAQ 1: What if the Fed continues to cut the rate, at a rate of 125 points a month?
FAQ 2, Super Tuesday: Prof. Roubini argues the policy maker can’t stop the financial catastrophe. He is right,  but what if  a leadership and a new political process emerge from an America fed up with the establishment  and an overwhelming, unrestricted markets power?
Feb. 8, Frankfurt: ECB on hold (already changing adjectives on € zone inflation)
Feb. 7, Yesterday’s mood in Avenida Paulista (SP) was mixed feelings
Feb.5, Just an IMS Report for another Black Tuesday? The oddness of Wall Street boyz mood
Feb. 1, US non farm employment just negative (first time since August 2003).
MORE: a) in blog page SUBPRIME SURPRISES, there is a_primer_on_subprime.pdf, a 20 pp. still provisional, very draft work-in-progress, with a Political Economy analysis of the unfolding recession\depression, with perhaps original (at least, not textbook) policy implications:1. monetary policies have now counter-intuitive and counter-willing effects:

more money&credit, lower interest rates = deeper depression

2. fiscal policies (in the countries that can afford such a luxury) might do better, wasn’t the recession rooted in long term structural processes (à la Carlota Perez);

b) in the 30 pp. long file: 080131-0707deeprecessionblog.pdf – in blog style and reverse time order, there is the legacy of my posts before this blog started: many useful analyses and comments to what happened to the world economy in the past 9 months (when I had this blog in mind, like Jupiter Minerva, and Gods were planning to strike a recession to humans on some planet).