Perspectives on the global economic meltdown (Jan 26 2010)

Carl_T · Post by **Carl_T** » 20 Sep 2010 19:13

No, in hyperinflation, the value of liquid assets surges like gold or oil, but things like houses *I don't believe* appreciate in value because as you said there are no buyers. It is like the scenarios Neshant likes to talk about, when everyone realizes they are being paid in pieces of paper and want to unload it ASAP.

Tanaji · Post by **Tanaji** » 20 Sep 2010 19:22

^^ I understand that, since now people dont trust the currency so gold rises

But why would houses rise if there are no buyers, surely not everyone is lining up to buy houses using gold?

ramana · Post by **ramana** » 20 Sep 2010 20:22

Tanaji, Because houses are "real" estate. Not kidding. Its tangible property. All tangible assets will go up. Look at post FSU Russia for recent example.

ShivaS, When this thread first started a couple of years ago you had posted the cycle of events to expect. Can you post it again?

Thanks, ramana

Hari Seldon · Post by **Hari Seldon** » 20 Sep 2010 20:54

Tanaji wrote:^^ I understand that, since now people dont trust the currency so gold rises

But why would houses rise if there are no buyers, surely not everyone is lining up to buy houses using gold?

One explanation I can think of is that houses are essentials - they are needed even if not owned.

So even if there're zero buyers, there will continue to be as many renters as there are (households - full homeowners) only. And in inflationary scenarios, rents tend to inflate too. And since home values are, in theory, the NPV of rental income (or some function thereof), house prices can't stay depressed for long if rentals rise for whatever reason.

JMTPs only, of course.

Hari Seldon · Post by **Hari Seldon** » 20 Sep 2010 20:56

The descent into global C-H-A-O-S (FT)

Shucks, man. Loved the writing style only. Dude could've cooked up and served it right here on this dhaga with none missing a beat only.

Fun read folks, hajaar recommended only.

Hari Seldon · Post by **Hari Seldon** » 20 Sep 2010 21:09

Oh, now the WSJ has to write funny to keep audiences in good humor on the dark subject of the khanomic crisis, eh?

Check this out:The Eurocracy Fiddles While Continent's Economy Declines

If you can't solve a really important problem, create one that you can solve. So while the eurocracy fiddles with charges and countercharges of Nazi-ism over the issue of sending gypsies home, the economy burns. And not because it is overheating.

The word 'panache' comes to mind only.

Grim reading, the rest of it. Oirostan will reclaim the headlines soon, perhaaps. Time will tell, whether we like it or not.

svinayak · Post by **svinayak** » 20 Sep 2010 23:17

http://www.bloomberg.com/news/2010-09-2 ... -n-y-.html

When the 4th biggest mortgage lender in the US suspends foreclosures in 23 states because the system is completely broken and the electronic method for changing mortgage ownership cannot be legally enforced, that's good evidence of chaos.

SwamyG · Post by **SwamyG** » 20 Sep 2010 23:38

Hari Seldon wrote:The Anger of the Rich

All anger is not equal. My sons' anger means only so much when measured against SHQ or my own anger. It is important to consider who gets angry and when. A beggar's anger vs Politician's anger. Which will affect the society?

I am sure, some culture on our planet had discovered such association and there must be a good (or two) proverbs/adages on this subject.

Erin Burnett or Larry Kudlow were rallying their audience against the expiration of "Bush tax-cuts". My guess was they would be some of the few who will get affected. Google University yielded rich dividends, yes their annual salary is high, so is their net-worth. Except a very few, all the talk-show hosts and TV anchors/celebrities will be impacted.

So what are the chances that the media is biased, huh?

http://www.celebritynetworth.com/

ramana · Post by **ramana** » 21 Sep 2010 00:04

I was talking to a very rich doctor. She thanks Ombaba for the Healthcare reform which is driving patients her way. At same time she resents the proposed tax increase on folks making over $250k. She says who is he to give some thing small with one hand and takaway a lot with the other hand! Her tax adviser told her its a very significant chunk at the end of the year.

svinayak · Post by **svinayak** » 21 Sep 2010 00:45

http://www.bis.org/publ/bppdf/bispap46i.pdf
subject of income/wealth inequality, here's a paper from the BIS comparing the U.S. to Japan and how they entered their respective crashes.

It's only 8 pages, but make sure you look at graph 5. Seems almost hard to believe...

It won't be a global descent into chaos because many 2nd and 3rd world countries lead vastly different lives to west that don't depend on welfare states/financial industry/housing/commodity bubbles etc etc. The Western world will suffer chaos,

SwamyG · Post by **SwamyG** » 21 Sep 2010 02:37

ramana wrote:I was talking to a very rich doctor. She thanks Ombaba for the Healthcare reform which is driving patients her way. At same time she resents the proposed tax increase on folks making over $250k. She says who is he to give some thing small with one hand and takaway a lot with the other hand! Her tax adviser told her its a very significant chunk at the end of the year.

Ofcourse doctors are going to resent, and so would most of the humans on this planet. Who wants to pay more tax, if they can get away with not paying more? I hear doctors calling the public radio and conservative radio about and lamenting about it. They cite high loans, which is a valid point. A person who is starting to work after almost a decade of education will have really high loans.

Earnings (making) or Taxable Income? Which is it? Almost all news and blogs use the word "earnings". In a few places I have read it is 'taxable income'; which means it is the (adjusted gross income - exemptions + ( Itemized or standard deductions)). So the person is making more than $250,000. Probably, even Obama has used this word loosely. The Treasury Department has narrowed the definition to taxable income. And because of the tax brackets, the AGA below $250,000 would be taxed under a different tax bracket (not the highest).

1) http://www.newsweek.com/2008/08/26/sorr ... -rich.html
2) Here is a good Fact and Fiction on the tax thingie: http://www.miamiherald.com/2010/09/19/1 ... ebate.html {a must read IMO}

Sanjay M · Post by **Sanjay M** » 21 Sep 2010 03:59

Look, tax is not something which should cavalierly be imposed on people. Tax should be imposed in return for services rendered by the govt. Otherwise, it just becomes a license to grab other peoples' money.

If a guy works hard, studies hard to become a cardiac surgeon, and another guy lazes around and becomes a busboy waiting tables, then you want to punish the guy who made the better decisions and worked harder, while labeling the lazier guy as the downtrodden underdog.

If you keep doing that, then eventually the hardworking, smarter people will get the message and leave your society for one that appreciates them more. Socialism is based on taking for granted those who are better skilled and harder working, and who are fewer in number, while appeasing those who are lazier and whinier, but more numerous.

No wonder nobody wants to immigrate to socialist countries, but everybody from socialist countries want to immigrate to meritocracy-based societies, where greater talent and work ethics are rewarded with greater compensation.

If anything, it's the lazy and the stupid who should be taxed, rather than having their egos stroked through socialist propaganda rationalizing their under-achievement.

SwamyG · Post by **SwamyG** » 21 Sep 2010 04:23

Socialism? Ah....standard allegations. So taxing people is socialism? What next taxing people is equivalent to eating their babies? The fire flies are attracted towards fire too. Just saying.

Neshant · Post by **Neshant** » 21 Sep 2010 05:25

Politicians funneling the public's money into pig troughs like public sector unions to get themselves elected is old hat.

The only kind of fair taxes are those that are either excise or consumption based - maybe excluding taxes on food so the poor don't get hit disproportionately. This was the way the constitution was setup until the federal reserve scam was created and they demanded income taxes be imposed (for their benefit).

The meager revenues from excise and consumption taxes keeps govt on a diet so it does not get bloated to the point where it is now - i.e. bankrupting the productive citizenry by counterfeiting money and taxing even while drowning the nation in debt.

The other aspect is the corruption of individuals in govt the bigger it gets. You can't tell me a guy like Geithner is not dreaming of a 100 million dollar/year salary that awaits him after he's out of office and employed in the banking & scamming sector. They owe him big time for helping to offload their losses onto the backs of the public. He's even going beyond the call of duty to keep honest people like Dr. Elizabeth Warren out of the planned Consumer Protection Agency so there is no protection against his crooked banking cronies.

It all stems from bigger govt, bigger tax bills, bigger debts and hence bigger frauds.

Sanjay M · Post by **Sanjay M** » 21 Sep 2010 06:58

SwamyG wrote:Socialism? Ah....standard allegations. So taxing people is socialism? What next taxing people is equivalent to eating their babies? The fire flies are attracted towards fire too. Just saying.

No, but rampant unconstrained taxation is socialist redistributionism. Taxation may be a necessary evil, in order to maintain the state, but an overly rapacious state that wants to suck in ever more money to aggrandize itself is one that will prey on the most productive people as the most lucrative targets.

People may have to tolerate the state and taxation as necessary evils, but it's wrong to try and glorify taxation and encourage theft in the name of redistributionism.

Just remember Swamy, people are born with free will, and ultimately exercise free choice in one form or another. If you try and onerously shackle them under a redistributionist state, they will eventually revolt against it - even if only by voting with their feet and leaving. Certainly, many of us Indians or our relatives have voted in this very way, and have placed ourselves beyond the greedy reach of Indian socialism. Such Indians have worked hard through their own sweat to make a life for themselves abroad, and owe nothing to the country that forced to them to leave and face an uncertain existence elsewhere. Yet one can't help but notice how the masses back in India paradoxically try to live vicariously through them and affiliate with their success - the ultimate attempt by Indians to have their cake and eat it too. It's like a dad who was hostile and selfish towards his kid, forcing that kid to leave home, and yet when that kid becomes successful later on outside the home, the dad is boasting of how proud he is of his kid while pretending to have helped the kid achieve success.

Hari Seldon · Post by **Hari Seldon** » 21 Sep 2010 07:07

^^^Neshant,

It ain't as if all was hunky dory before the Fed came into being. Scams, bank runs, fraud, scarcity, mass poverty, disease and the like were endemic even in the TFTA world. So its not as if the elimination of the Fed will return us to utopia. There was none there to begin with. Sure, I understand the Fed has tremendously skewed, screwed and enabled pillage of the markets and all that. That the fiat-money-as-debt scam is the biggest of all time, behind only organized religion in its sway and impact. O yes, I buy all that and all.

It's pointless to rail against taxation and levies, IMHO. Taxes are essential for a govt to exist and function. And a functioning govt, unlike what hardline libertarians/ anarchists may say, is indispensable.

My crib is with the growth of govt to a bloat way beyond what the tax base can support. That is a the problem. The choices now are to either shore up the tax base (and raising taxes beyond some latent thresholds may not be the way to it - increasing the productive base of the khanomy is a much better way, IMO. Its also slower and more boring) or cut down the size of gubmint or (preferably) both.

In any case, it doesn't matter how much we rail on here. Reality will take its own course (hat tip, PVNR) and the extant establishment will learn to its own peril, I guess.

Hari Seldon · Post by **Hari Seldon** » 21 Sep 2010 07:14

Certainly, many of us Indians or our relatives have voted in this very way, and have placed ourselves beyond the greedy reach of Indian socialism. Such Indians have worked hard through their own sweat to make a life for themselves abroad, and owe nothing to the country that forced to them to leave and face an uncertain existence elsewhere.

Makes moi wonder if certain Des based uber patriots in the strat forum have a point when they accuse NRIs of being cavalier about India.

BTW, this line of diss-cuss-ion would be OT for this dhaga, perhaps. Shall stop here, hence.

P.S.
Like Vishnugupt tells Amaatya Raakshas: "Loyalty should be to country, not king." Govts come and go in democratic polity, the establishment itself suffers turnover and churn. If PIOs who were 'forced' to leave India are bitter about the govt of that time, it is understandable. But to be bitter towards the country and its people, IMO, is unfortunate. Like singha saar once said somewhere: "The idea of India is above the pettiness of its leaders" or some such thing.

Hari Seldon · Post by **Hari Seldon** » 21 Sep 2010 08:12

Fears of Never Working Again (NYT)

Of the 14.9 million unemployed, more than 2.2 million are 55 or older. Nearly half of them have been unemployed six months or longer, according to the Labor Department. The unemployment rate in the group — 7.3 percent — is at a record, more than double what it was at the beginning of the latest recession.

According to a Gallup poll in April, more than a third of people not yet retired plan to work beyond age 65, compared with just 12 percent in 1995.

Older workers who lose their jobs could pose a policy problem if they lose their ability to be self-sufficient. “That’s what we should be worrying about,” said Carl E. Van Horn, professor of public policy and director of the John J. Heldrich Center for Workforce Development at Rutgers University, “what it means to this class of the new unemployables, people who have been cast adrift at a very vulnerable part of their career and their life.”

Older people who lose their jobs take longer to find work. In August, the average time unemployed for those 55 and older was slightly more than 39 weeks, according to the Labor Department, the longest of any age group. That is much worse than in August 1983, also after a deep recession, when someone unemployed in that age group spent an average of 27.5 weeks finding work.

At this year’s pace of an average of 82,000 new jobs a month, it will take at least eight more years to create the 8 million positions lost during the recession. And that does not even allow for population growth.

Time will soon test Amrika's mettle. I hope the khanate won't throw these unfortunates under the bus. zero savings, retirements, family support, signif debt load, jobless and nowhere to go. Worse still, if they suffer from poor health. Sad indeed.

abhishek_sharma · Post by **abhishek_sharma** » 21 Sep 2010 09:14

Why Is Paul Krugman Blaming Foreigners for the Financial Crisis?
BY RAGHURAM G. RAJAN

http://www.foreignpolicy.com/articles/2 ... ial_crisis

Carl_T · Post by **Carl_T** » 21 Sep 2010 09:23

Good post, looks like Raghu Rajan is Chicago School to the core.

Neshant · Post by **Neshant** » 21 Sep 2010 10:25

Hari Seldon wrote:So its not as if the elimination of the Fed will return us to utopia.

There are a myriad of better monetary systems out there. But they are not allowed to exist (or even co-exist) because of the monopoly these crooks hold over the system. One alternative is to have competition in the currency to end the federal reserve's monopoly over issuing legal tender :

Rep. Ron Paul has introduced a bill called the "Free Competition in Currency Act" (HR 4248)
https://secure.downsizedc.org/etp/campaigns/85

Watch how fast it gets shot down.

SwamyG · Post by **SwamyG** » 21 Sep 2010 11:11

Just remember Swamy, people are born with free will, and ultimately exercise free choice in one form or another.

People have rights and duties. A balance of the two is necessary for a sustainable life on this planet. I have not glorified taxation, I understand if I have to live a life on this planet, then I have to share resources and my money with others. Socialism, Capitalism ityadi labels pale into insignificance before another label dharma.

ShivaS · Post by **ShivaS** » 21 Sep 2010 11:34

our owm MMS saar is going to tax all income tax payers by jacking up the price of cooking gas. He says subsidized cooking only for poor..... who dont have anything to cook anyways or kerosene is already subsidized.

Next the poor will Gas cylinders and make the differential therby growing to middle class...

Ha economics is Rock it signs

nandakumar · Post by **nandakumar** » 21 Sep 2010 14:41

This thread is now two years old if you count the initial set of posts in the global economy thread. Since it is about perspectives perhaps we should now list out some of the key perspectives as to the origin of the crisis; the policy response by the national governments; analysts' assessments of how successful these are going to be in pulling the economies out of their current morass; social implications of the adjustment process in the economies of undergoing some structural readjustment. Lastly, the perspectives on what lies ahead.
As a first step, I have chronicled what i believe to be the key milestones in this unfolding saga. Perhaps others can add or modify these perspectives so that the final product is a compendium that could serve as a source of reference material.
Perspectives
1. If the crisis had an origin at all, it should be seen in the Clinton era changes made to the US banking system. Under this, the earlier separation of wholesale banking (investment banking) and retail banking was done away with. Further the commercial banking industry was permitted to offer stock broking services which was soon expanded to cover the whole range of financial services.
2. That in itself would not have mattered much but for an innovation that financial services industry had already put in place. This has to be the phenomenon of bundling a stream of future cash receivables under a loan or an investment product into a piece of paper or otherwise referred to as ‘securitisation’. More innovations followed suit such as slicing the future receivables in terms of principal repayment and interest/dividend incomes. There was also an additional innovation in the form of bundling a series of cash receivables from entities differing from one another both as to the profile of borrowers/ geographies and asset classes. The idea was to dress it up as inherently more secure than what its plain feature would have suggested. These innovations helped expand the scope of lending/investment operations of the financial services industry.
3. The size of banks’ exposure were successfully camouflaged through devices such as special purpose vehicles, investment trusts etc. The relationship between these entities and the parent bank were opaque so that the true exposure of banks were never fully realized by either by the banking regulator or the investing public at large.
4. The Clinton era also saw the unveiling of a policy of easy access to credit and lowering the cost of such credit as a monetary response to the economic slow down witnessed during the Bush Sr era led to a speculative binge in real estate sector in the US.
5. The fact that US was by far the largest economy in the world and its currency accepted as a global store of wealth meant that every country, most notably China, built their growth strategy around servicing the ever increasing appetite of the US consumer for all manner of goods and services.
6. Since every economy was growing albeit at varying rates it gave rise to a surge in demand for commodities. This in itself would have pushed up prices to new highs. But situation got exacerbated by flow of speculative money by investment banking arms, hedge funds and so on. To compound matters securitization and innovations in structuring securitised financial instruments provided a leverage effect to the core surplus cash that was going into commodity markets. Along the way, frenzy in commodity investments gathered steam by its own internal linkages. Example: The boom in crude petroleum prices (triggered by a growth in global economy) in turn, fed into a frenzy for bio-fuel alternatives pushing prices of such commodities as corn and soya oil.
7. Since the fundamentals of the growth in the US economy through the mid 90s to mid to late 2000s were unsustainable it was only a matter of time before things began to unravel.
8. It started with mortgage defaults of the most sub-prime category of borrowers. This soon led to the collapse of Bear Stearns followed by bankruptcy of Lehmann Brothers. When the crisis soon grew in size and in the range of entities made vulnerable in the process, respective national government intervening. One saw the Government takeover of key financial institutions in the US (Federal mortgage refinance companies), top commercial banks and housing finance/building societies in UK and the continental Europe.
9. This was accompanied by a massive injection of liquidity into the banking system by taking over such of their assets that were under a severe stress with regard to meeting their repayment obligations.
10. These things played themselves out through 2008 and the better part of 2009.
11. The developing nations across the world too, responded to the situation unfolding economic distress in the West- the source of their economic growth model- with their own version of stimulus packages. These consisted of enhancing export subsidies, keeping a tight hold on currency parities with currencies of the advanced world such as the US Dollar, Euro, Yen etc., increasing domestic spending even if it meant raising the public debt to a level that was considered less than prudent if not downright reckless.
12. If these are the perspectives on the origins of the crisis and developments in the immediate aftermath, the world is currently engaged in a debate over a number of issues that have emanated as a logical corollary to whatever had been put in place.
13. The most obvious one is whether the US can get out of the morass that years of profligacy of the average American household has got itself into. Where can the US look to score over the rest of the world in terms of technological breakthroughs so that it retains its leadership in the global economy and secure for its residents a standard of living that they had been accustomed to having, all these years.
14. If there is going to be a period of transition before prosperity is restored (by no means a given) in the US, what would be the impact across different social segments in that society? In particular would it unleash serious societal tension considering that there is greater democratic access to fire arms?
15. What would be the future of dollar as a currency for international transactions in trade and investment? Is there a place for an collectively guaranteed international currency such as the SDR?
16. Will countries resort to erecting trade barriers to give a leg up to the domestic economy? Related to this, is whether China will face a massive retaliatory trade response from the countries that have an adverse trade balance with it especially the US?

vina · Post by **vina** » 21 Sep 2010 15:26

nandakumar wrote: 1. to
....
13..

Recap of history aka "rear view mirror driving" . Water under the bridge.

14. If there is going to be a period of transition before prosperity is restored (by no means a given) in the US, what would be the impact across different social segments in that society? In particular would it unleash serious societal tension considering that there is greater democratic access to fire arms?

Nope. It will be in the form of Tea partyesque popular outrage and revolt targeting the establishment.

15. What would be the future of dollar as a currency for international transactions in trade and investment? Is there a place for an collectively guaranteed international currency such as the SDR?

SDR ? Looks like wampum, walks like wampum, squawks like Wampum, well it IS wampum!.

Wampum guaranteed by Oireopeans, Cheenis , Soddies and other shady trash (include Pakis here if you want) and assorted cut throats? Err.. No thanks, I will take gold and silver.

16. Will countries resort to erecting trade barriers to give a leg up to the domestic economy? Related to this, is whether China will face a massive retaliatory trade response from the countries that have an adverse trade balance with it especially the US?

You bet it is going to happen. Related to point 14. The blue collar working class white has had enough of this Cheeni rubbish and are baying for blood and are going to go for war with the Cheenis over the currency. The room that the Cheenis got last time has been used up /abused by them. That leaves the Amirkhans with no other alternative but to get together with the Oieropeans and Japanese (pups like So Ko , AusTrashalia etc will fall like nine pins when the reading is on the wall) and go for the Cheenis if they dont immediately buckle in and do a 1987 Japanese style float of the currency.

Oh, we know what happened after the japanese floated the yen , dont we ?

Chinmayanand · Post by **Chinmayanand** » 21 Sep 2010 17:07

Am not sure if this belongs here

UK Proposes All Paychecks Go to the State First

The UK's tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer.

Hari Seldon · Post by **Hari Seldon** » 21 Sep 2010 17:36

nandakumar,

I'm sure at least some will disagree with the chronicling you've put-up. One argument is that the rot started not with the Clinton era tinkering with established legislation like G;lass-Steagel (which, btw, is yet to be re-instated in either letter or spirit) but that it goes far deeper.

A fundamental loss of competitiveness in the 70s and 80s in manufacturing might be where some draw the line. Others go back even further and call the departure from the gold standard the symptom of the loss in competitiveness. I call the falling real median wage in the late 60s onwards itself the starkest and darkest symptom of a system gone wrong.

In any case, most success carries within it the the seeds of its own destruction. Kinda. The USD attaining undisputed reserve currency status meant the US would be forced to run large deficits (started in the late 50s itself) to feed the world's appetite for trade-able currency which would someday return to haunt it.

Sure, the past is history and the future is where the action will be. Still, forgetting history might lead to encores and re-runs, who knows? As regards usable gyan for the future, the dhaga does aim to discern and observe the conflicting economic and social interests clash and democratic compromises arise out of the cl-ashes. Only.

BTW, the automatic earth, amongst the best (D&G leaning) economic commentary out there has this outstanding piece on the roots of the current crisis - recommended read. IMHO, of course.
Debt saturation and peak complexity
What an interesting perspective, eh?? IMHO, of course.

Manishw · Post by **Manishw** » 21 Sep 2010 18:09

^ correct '1971 to present' when Nixon lead America out of the quasi gold standard is the time to study and the rot goes even deeper into the 60's or perhaps even further with Bretton wood's agreement or the great depression but as they say it's all history now time to move on I guess.

nandakumar · Post by **nandakumar** » 21 Sep 2010 18:12

Hari Seldon wrote:nandakumar,

I'm sure at least some will disagree with the chronicling you've put-up. One argument is that the rot started not with the Clinton era tinkering with established legislation like G;lass-Steagel (which, btw, is yet to be re-instated in either letter or spirit) but that it goes far deeper.

A fundamental loss of competitiveness in the 70s and 80s in manufacturing might be where some draw the line. Others go back even further and call the departure from the gold standard the symptom of the loss in competitiveness. I call the falling real median wage in the late 60s onwards itself the starkest and darkest symptom of a system gone wrong.

In any case, most success carries within it the the seeds of its own destruction. Kinda. The USD attaining undisputed reserve currency status meant the US would be forced to run large deficits (started in the late 50s itself) to feed the world's appetite for trade-able currency which would someday return to haunt it.

Sure, the past is history and the future is where the action will be. Still, forgetting history might lead to encores and re-runs, who knows? As regards usable gyan for the future, the dhaga does aim to discern and observe the conflicting economic and social interests clash and democratic compromises arise out of the cl-ashes. Only.

BTW, the automatic earth, amongst the best (D&G leaning) economic commentary out there has this outstanding piece on the roots of the current crisis - recommended read. IMHO, of course.
Debt saturation and peak complexity
What an interesting perspective, eh?? IMHO, of course.

Dear Hari Seldon
Sure will look up the link that you have referred. The reason I chronicled the events starting from the legislative initiatives in the Clinton era was that i recall reading some time ago one of the admins (Ramana, i think) expressing a wish for some kind of a capsule being created on the global economic crisis.
There has been so much material - news, analysis, policy comments etc. flagged by postors on this thread. If I recall correctly, Ramana had even mentioned your name specifically. I thought, why not just list some key events from the past and issues that are likely to become hot topics in the days/months to come so that it becomes a framework for some one more experienced than me and more importantly, who has delved deeper into the subject as indeed I have noticed people such as you, Vina, Neshant et al contribute to preparing a detailed compendium that can serve as a reference material.

Hari Seldon · Post by **Hari Seldon** » 21 Sep 2010 20:00

Folks, if you haven't read this, kindly do so. Its a laugh riot/rage riot depending on your POV.
Munger Says ‘Thank God’ Bailouts Came Before Handouts

Charles Munger, the billionaire vice chairman of Berkshire Hathaway Inc., defended the U.S. financial-company rescues of 2008 and told students that people in economic distress should “suck it in and cope.”

“You should thank God” for bank bailouts, Munger said in a discussion at the University of Michigan on Sept. 14, according to a video posted on the Internet. “Now, if you talk about bailouts for everybody else, there comes a place where if you just start bailing out all the individuals instead of telling them to adapt, the culture dies.”

“Hit the economy with enough misery and enough disruption, destroy the currency, and God knows what happens,” Munger said. “So I think when you have troubles like that you shouldn’t be bitching about a little bailout. You should have been thinking it should have been bigger.”

Germany was unable to stabilize its financial system in the 1920s, and, Munger said, “We ended up with Adolf Hitler.”

Wow. What was he smoking? Potent stuff, I bet.

Yup, truth is anyday preferable to pretensions. Good thing sri Munger said it like he saw it, I guess.

SwamyG · Post by **SwamyG** » 21 Sep 2010 20:59

Sanjay M wrote:People may have to tolerate the state and taxation as necessary evils, but it's wrong to try and glorify taxation and encourage theft in the name of redistributionism.

My mind kept going back to the words I highlighted above. I thought I will pour in my perspective on it. As a young student we were thought "friction was a necessary evil". The moment one introduces the judgmental word "evil" the words/phrase portray just one aspect of the existence of friction or state and taxes.

To me such words conjure an entitlement attitude, not of you Sanjay, but of us humans on this planet. We humans have no more rights on this planet than any other living creature; an individual also does not have special privileges/rights over others. We humans are social animals, we seek to live in society (barring few). We do not think twice before walking to the nearest store paying something for a product. Say we bought a meal, the amount we pay is called "price". We pay that money to the creator, distributor or seller of the product. We do not call the price as a "necessary evil". We think it is fair to pay for things we buy or use. So why do we think taxes become a "necessary evil"? It is not glorification of taxes, but a fair question, in my mind, to ask why don't we consider it a fair price to pay to the government for products or services. After all we hold them responsible when things go wrong, no?

I am not sure if it is the Eastern upbringing, but we humans through out the ages, across the globe, have lived closer to each other and the environment. The West has lost that closeness in the last few decades (or century), when individualism over shown all other aspects of our life.

SwamyG · Post by **SwamyG** » 21 Sep 2010 21:02

Hari garu: Something is just not right about what Munger says

Neshant · Post by **Neshant** » 21 Sep 2010 22:12

I remember Warren Buffet hollering for a bailout at the height of the 2008 stock crash. After Congress rejected the bailout the first time round and his company was tanking, he started hollering even more.

So much for his legendary investment skills.

svinayak · Post by **svinayak** » 22 Sep 2010 00:00

Manishw wrote:^ correct '1971 to present' when Nixon lead America out of the quasi gold standard is the time to study and the rot goes even deeper into the 60's or perhaps even further with Bretton wood's agreement or the great depression but as they say it's all history now time to move on I guess.

There was no choice due to cold war and plan to build a large economy with oil money - petro dollars flowing in.

That is the root cause.

vina · Post by **vina** » 22 Sep 2010 06:58

^ correct '1971 to present' when Nixon lead America out of the quasi gold standard is the

It didnt happen by accident. The reasons are partly exactly the same as today. The US was involved in a massive war in Vietnam for nearly 10 years (just as it is today in Iraq and Afghanistan) and the US needed to run huge deficits to finance that war.

Now, you cannot have deficits and gold standard /Bretton woods running together. Hence Nixon ditched that and said bye bye Bretton Woods and hello to fiat money. After that ,the peg between the USD and gold reserves were removed and forever.

vic · Post by **vic** » 22 Sep 2010 08:07

Neshant wrote:I remember Warren Buffet hollering for a bailout at the height of the 2008 stock crash. After Congress rejected the bailout the first time round and his company was tanking, he started hollering even more.

So much for his legendary investment skills.

Warren Buffet was/in a very intelligent man but his deep connections with Goldman Saches has always been papered over

Hari Seldon · Post by **Hari Seldon** » 22 Sep 2010 08:14

SwamyG wrote:Hari garu: Something is just not right about what Munger says

oh, swamygal, try reading this subsequent post from Mish in full. Esp Janet Tavakoli's response.

The days when elitist BS could be swept under the carpet and into the memory hole are passing. Good. Where are the pitchforks?

Neshant · Post by **Neshant** » 22 Sep 2010 08:38

vina wrote: Now, you cannot have deficits and gold standard /Bretton woods running together. Hence Nixon ditched that and said bye bye Bretton Woods and hello to fiat money. After that ,the peg between the USD and gold reserves were removed and forever.

In reality there never was a peg.

The peg was only in name. The only way to redeem dollars for gold was for a foreign govt to approach the US and ask for that swap. Using its global hegemony, the US routinely intimidated countries into not swapping their dollars for gold.

If any foreign govt attempted it, they would be denied access to US markets or capital or loans or have their chains yanked by the IMF or World Bank or have arms shipped to their hostile neighbours.

As US hegemony declined, so too did their ability to maintain this bogus peg. So the shift was made to get the world to accept dollars and efforts were made to surpress the price of gold through all kinds of trickery. But even this is starting to unravel.

nandakumar · Post by **nandakumar** » 22 Sep 2010 09:32

Neshant wrote:
vina wrote: Now, you cannot have deficits and gold standard /Bretton woods running together. Hence Nixon ditched that and said bye bye Bretton Woods and hello to fiat money. After that ,the peg between the USD and gold reserves were removed and forever.

In reality there never was a peg.

The peg was only in name. The only way to redeem dollars for gold was for a foreign govt to approach the US and ask for that swap. Using its global hegemony, the US routinely intimidated countries into not swapping their dollars for gold.

If any foreign govt attempted it, they would be denied access to US markets or capital or loans or have their chains yanked by the IMF or World Bank or have arms shipped to their hostile neighbours.

As US hegemony declined, so too did their ability to maintain this bogus peg. So the shift was made to get the world to accept dollars and efforts were made to surpress the price of gold through all kinds of trickery. But even this is starting to unravel.

The US could have browbeaten smaller countries such as India from doing so. But it was a fact that France converted some of its dollar reserves into gold in the run up to the famous speech by Nixon announcing the end to gold conversion of the dollar. US relations with France under DeGaulle was frequently under stress, partly from political issues but also economic. Even the UK, the ever faithful ally, too did convert some of its dollars into gold.
There is also some indirect confirmation that there was a run on the US gold reserves. This was because a gold pool set up in the 60s in London by UK, US, France, Germany and Switzerland had to be folded up as it ran out of gold stock. Anecdotal evidence available then suggested that over the years the stock at Fort Knox had been run down from 20,000 tonnes to 5000 tonnes.

ShivaS · Post by **ShivaS** » 22 Sep 2010 11:49

Anecdotal evidence available then suggested that over the years the stock at Fort Knox had been run down from 20,000 tonnes to 5000 tonnes.

Yes I heard that happened as consequence of the release of Gold Finger, then Canada came up with Gold member

[size=85]UK Sean Connery { Oh Scotland}
{James Bond uncovers a plot to contaminate the Fort Knox gold reserve.}

Canada: Mike Myers {Oh Canada}
{Dutch-born van der Smut lost his genitals in an unfortunate smelting (or "schmelting", as he pronounces it) accident in the 1970s and has since been known as "Goldmember". }[/size]