Tag Archives: Debt

Why The Only Answer Is To Break Up The Biggest Wall Street Banks

By Robert Reich – Glass-Steagall’s key principle was to keep risky assets away from insured deposits. It worked well for more than half century. Then Wall Street saw opportunities to make lots of money by betting on stocks, bonds, and derivatives (bets on bets) – and in 1999 persuaded Bill Clinton and a Republican congress to repeal it.

Nine years later, Wall Street had to be bailed out, and millions of Americans lost their savings, their jobs, and their homes.

Why didn’t America simply reinstate Glass-Steagall after the last financial crisis? Because too much money was at stake. Wall Street was intent on keeping the door open to making bets with commercial deposits. So instead of Glass-Steagall, we got the Volcker Rule – almost 300 pages of regulatory mumbo-jumbo, riddled with exemptions and loopholes.

Now those loopholes and exemptions are about to get even bigger, until they swallow up the Volcker Rule altogether. If the latest proposal goes through, we’ll be nearly back to where we were before the crash of 2008. more>

Fiscal Policy Remains In The Stone Age

By Simon Wren-Lewis – Or maybe the middle ages, but certainly not anything more recent than the 1920s. Keynes advocated using fiscal expansion in what he called a liquidity trap in the 1930s. Nowadays we use a different terminology, and talk about the need for fiscal expansion when nominal interest rates are stuck at the Zero Lower Bound or Effective Lower Bound.

When monetary policy loses its reliable and effective instrument to manage the economy, you need to bring in the next best reliable and effective instrument: fiscal policy.

The Eurozone as a whole is currently at the effective lower bound. Rates are just below zero and the ECB is creating money for large scale purchases of assets: a monetary policy instrument whose impact is much more uncertain than interest rate changes or fiscal policy changes (but certainly better than nothing). The reason monetary policy is at maximum stimulus setting is that Eurozone core inflation seems stuck at 1% or below. Time, clearly, for fiscal policy to start lending a hand with some fiscal stimulus.

You would think that causing a second recession after the one following the GFC would have been a wake up call for European finance ministers to learn some macroeconomics. Yet what little learning there has been is not to make huge mistakes but only large ones: we should balance the budget when there is no crisis. more>

The Tax Cut Effect

By Andrew Soergel – The legislation heaped new debt onto a country already saddled with more than $20 trillion in outstanding obligations. But the overhaul was touted as an economic growth engine likely to drive investment and wage growth in America, eventually allowing the cuts to pay for themselves by virtue of a stronger economy.

The benefits of the income tax cut are really only now really beginning to hit and have yet to really show up in any significant way in spending figures or retail sales. It’s been estimated that, probably, the annual impact of all of that is somewhere north of $100 billion. And all of that money needs to go somewhere, so some of that will move into the spending category.

But we’re advocating on behalf of consumers and investors that they need to be thinking about how to maximize their finances so that they’re taking advantage of saving opportunities and to pay down debt.

Right now, we do see the benefits of the tax cut coming into individuals’ and corporations’ coffers. But as one who came from the Midwest, I’d seize upon a corny line and say “You need to make hay while the sun shines.” We’re in the ninth year of the economic expansion, and the bull market is nine years old as well. And these things will not last forever.

And we’re in a rising interest rate environment, where the cost of borrowing is rising and likely to rise. more>

Three Cheers for Financial Repression

By Tom Streithorst – “Financial repression.” It sounds terrifying, right? It smacks of authoritarian bureaucrats sucking the life-blood out of hard-working, innovative makers and doers.

Umm, no. That’s not even close. It’s about bondholders. Economists started using the term in the 1970s when bondholders were losing money because inflation exceeded the interest rate.

These days, it’s market forces more than government policy that push real interest rates below zero. Whether you call it a savings glut or secular stagnation, our collective desire to save far exceeds our collective desire to invest. Savers want safe assets more than borrowers want to invest in productive capacity.

Don’t cry for the rentier class. For the past forty years (ever since Federal Reserve Chairman Paul Volcker manufactured a brutal recession in order to eliminate 1970s inflation) economic policymakers have concentrated on ensuring the profitability of the bond market more than just about anything else. They focused their attention on financial stability and low inflation rather than the traditional goal of promoting full employment.

Consequently, the financial sector has quadrupled in size relative to the rest of the economy, the rich absorb most of the benefits of growth, and workers’ real wages have stagnated or even declined. Financialization has made wealthholders richer than ever, but it hasn’t done much for the rest of us.

What is good for the bankers has not been good for the economy as a whole. more>

Why Amartya Sen remains the century’s great critic of capitalism

BOOK REVIEW

The Moral Economists: R H Tawney, Karl Polanyi, E P Thompson and the Critique of Capitalism, Author: Tim Rogan.

By Tim Rogan – Critiques of capitalism come in two varieties. First, there is the moral or spiritual critique. This critique rejects Homo economicus as the organizing heuristic of human affairs. Human beings, it says, need more than material things to prosper. Calculating power is only a small part of what makes us who we are. Moral and spiritual relationships are first-order concerns. Material fixes such as a universal basic income will make no difference to societies in which the basic relationships are felt to be unjust.

Then there is the material critique of capitalism. The economists who lead discussions of inequality now are its leading exponents. Homo economicus is the right starting point for social thought. We are poor calculators and single-minded, failing to see our advantage in the rational distribution of prosperity across societies. Hence inequality, the wages of ungoverned growth. But we are calculators all the same, and what we need above all is material plenty, thus the focus on the redress of material inequality. From good material outcomes, the rest follows.

But then there is Amartya Sen. Every major work on material inequality in the 21st century owes a debt to Sen.

But his own writings treat material inequality as though the moral frameworks and social relationships that mediate economic exchanges matter. Famine is the nadir of material deprivation.

But it seldom occurs – Sen argues – for lack of food.

To understand why a people goes hungry, look not for catastrophic crop failure; look rather for malfunctions of the moral economy that moderates competing demands upon a scarce commodity. Material inequality of the most egregious kind is the problem here. more>

How capitalism without growth could build a more stable economy

By Adam Barrett – On a finite planet, endless economic growth is impossible. There is also plenty of evidence that in the developed world, a continued increase of GDP does not increase happiness.

Back in 1930 the economist John Maynard Keynes predicted that growth would end within a century – but he was unclear whether a post-growth capitalism was really possible.

Today, mainstream economic thinking still considers growth to be a vital policy objective – essential to the health of a capitalist economy. There remains a concern that ultimately, a capitalist economy will collapse without growth.

I recently published new research that suggests a different view – that a post-growth economy could actually be more stable and even bring higher wages. It begins with an acceptance that capitalism is unstable and prone to crisis even during a period of strong and stable growth – as the great financial crash of 2007-08 demonstrated.

I found that an end to growth reduces profits for business owners.

Therefore, if it remains relatively easy for money to flow across borders, then investors might abandon a post-growth country for a fast-growing developing country. Also, businesses are beholden to shareholders keen on growth as a means to rapid profit accumulation.

Some mainstream commentators and economists are now predicting a transition to a post-growth era, whatever our environmental policy – which means the study of post-growth economics is a field which itself will grow. more>

Knee-jerk cynicism is a failure of critical reasoning

BOOK REVIEW

Enlightenment Now, Author: Steven Pinker.
The Better Angels of Our Nature, Author: Steven Pinker.

By Thu-Huong Ha – If we see that science and humanism have solved the world’s problems before, Pinker’s argument goes, we’ll see that the problems we face today can be solved again through science and humanism. This hope ought to inoculate us against cynicism.

Despite all this sanguinity, the book also contains plenty of exasperation. Pinker chastises: the mainstream media, liberals bemoaning the state of inequality, white nationalists, communists, anti-vaxxers, social justice warriors, “climate justice warriors,” and Nietzsche.

“Since the time of the Hebrew prophets, who blended their social criticism with fore-warnings of disaster, pessimism has been equated with moral seriousness,” Pinker writes.

“Journalists believe that by accentuating the negative they are discharging their duty as watchdogs, muckrakers, whistle-blowers, and afflicters of the comfortable. And intellectuals know they can attain instant gravitas by pointing to an unsolved problem and theorizing that it is a symptom of a sick society.” more>

‘No Cash’ Signs Everywhere Has Sweden Worried It’s Gone Too Far

By Amanda Billner – “No cash accepted” signs are becoming an increasingly common sight in shops and eateries across Sweden as payments go digital and mobile.

But the pace at which cash is vanishing has authorities worried.

“If this development with cash disappearing happens too fast, it can be difficult to maintain the infrastructure” for handling cash, said Mats Dillen, the head of the parliamentary review.

Sweden is widely regarded as the most cashless society on the planet. Most of the country’s bank branches have stopped handling cash; many shops, museums and restaurants now only accept plastic or mobile payments. But there’s a downside, since many people, in particular the elderly, don’t have access to the digital society.

In response, the central bank is considering whether there’s a need for an official form of digital currency, an e-krona. A final proposal isn’t expected until late next year, but the idea is that the e-krona would work as a complement to cash, not replace it completely. more>

Monopoly Now Wants You to Cheat—Just Like Real Capitalists

BOOK REVIEW

Cornered: The New Monopoly Capitalism & The Economics of Destruction, Author: Barry Lynn.

By Nick Cassella – The year was 1904, and Lizzie Maggie wanted to create a board game that acted as “a harsh criticism of wealth disparity.” Upset by the the inequality around her, Maggie aspired to ridicule and condemn the dire outcomes of unbridled capitalism. So she constructed the Landlord’s Game, which intended to educate players on the rules and regulations of realty and taxation. Eventually, it ended up being the precursor to the game-which-nobody-ever-finishes, Monopoly.

A long time has passed since then and it’s safe to say that Maggie’s hope has not been realized. Monopoly’s creator would look at today’s economic landscape and be disheartened.

It appears as if Hasbro is trying to draw attention to Monopoly’s original purpose by releasing a new “cheaters edition” this autumn.

The cheaters edition follows the rules of classic Monopoly, except this version encourages players to break them…They encourage players to cheat in various ways, from collecting rent on another player’s property or stealing money from the bank.

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Today, inflation. Tomorrow, crisis?

By Robert J. Samuelson – Until recently, inflation seemed to be dead or, at least, in a prolonged state of remission. It was beaten down by cost-saving technologies and a caution against raising wages and prices instilled by the Great Recession. From 2010 to 2015, annual inflation as measured by the CPI averaged about 1.5 percent, often too small to be noticed.

It’s doubtful that many economists believe that inflation is now so high. Remember those erratic month-to-month swings. But the pervasive nature of the inflation suggests that supply is shrinking compared with demand.

Inflation’s rebound seems to vindicate former Federal Reserve chair Janet L. Yellen, who argued that price increases were in hibernation, not the mortuary. Now, her successor, Jerome H. Powell, faces the tricky task of containing inflation without killing the economy.

What’s scarier is the possibility that higher inflation and interest rates will trigger a global financial crisis — some mixture of stock market collapses, bond and loan defaults and banking failures. more>