debt deflation

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pages: 248 words: 57,419

The New Depression: The Breakdown of the Paper Money Economy by Richard Duncan

Alan Greenspan, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Ben Bernanke: helicopter money, Bretton Woods, business cycle, currency manipulation / currency intervention, debt deflation, deindustrialization, diversification, diversified portfolio, fiat currency, financial innovation, Flash crash, Fractional reserve banking, Glass-Steagall Act, income inequality, inflation targeting, It's morning again in America, Joseph Schumpeter, laissez-faire capitalism, liquidity trap, low interest rates, market bubble, market fundamentalism, mass immigration, megaproject, Mexican peso crisis / tequila crisis, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, Nixon triggered the end of the Bretton Woods system, private sector deleveraging, quantitative easing, reserve currency, risk free rate, Ronald Reagan, savings glut, special drawing rights, The Great Moderation, too big to fail, trade liberalization

Observing that phenomenon firsthand, Irving Fisher explained it in a famous 21-page article published in Econometrica in October 1933. The article was titled “The Debt-Deflation Theory of Great Depressions.” The crisis the world faces today is very much like the one that crushed the global economy in 1930. Both were caused by extraordinarily large fiat-money-denominated credit bubbles. Fisher’s article clearly describes the debt-deflation dynamics that now threaten to drive the global economy into a New Great Depression. This important article will therefore be considered at some length because there is no clearer explanation of the manner in which our economy would collapse should government intervention cease.

There should be no doubt that the natural tendency for the economy—following a 40-year credit boom—is to collapse into a debt-deflation depression. Policy makers understand that. They have read Fisher’s article. That is why they are determined to prevent that outcome from recurring. Try as they might, however, it is far from certain that they can prevent it. Moreover, their attempts to reflate the economy could go astray and actually generate very high rates of inflation or even hyperinflation. In that case, the cure could prove to be just as deadly as the disease. Therefore, over the years ahead, the U.S. economy could suffer either severe debt-deflation or severe inflation. Either scenario would inflict enormous damage on the economy and, therefore, on society.

Banking Crisis Protectionism Geopolitical Consequences Conclusion Note Chapter 9: The Policy Options Capitalism and the Laissez-Faire Method The State of Government Finances The Government’s Options American Solar Conclusion Notes Chapter 10: Fire and Ice, Inflation and Deflation Fire Ice Fisher’s Theory of Debt-Deflation Winners and Losers Ice Storm Fire Storm Wealth Preservation through Diversification Other Observations Concerning Asset Prices in the Age of Paper Money Protectionism and Inflation Consequences of Regulating Derivatives Conclusion Notes Conclusion About the Author Index Copyright © 2012 Richard Duncan.


pages: 363 words: 107,817

Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed by Andrew Jackson (economist), Ben Dyson (economist)

Alan Greenspan, bank run, banking crisis, banks create money, Basel III, Bretton Woods, business cycle, call centre, capital controls, cashless society, central bank independence, credit crunch, David Graeber, debt deflation, double entry bookkeeping, eurozone crisis, financial exclusion, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, Greenspan put, Hyman Minsky, inflation targeting, informal economy, information asymmetry, intangible asset, land bank, land reform, London Interbank Offered Rate, low interest rates, market bubble, market clearing, Martin Wolf, means of production, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, negative equity, Northern Rock, Post-Keynesian economics, price stability, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, risk-adjusted returns, Savings and loan crisis, seigniorage, shareholder value, short selling, South Sea Bubble, technological determinism, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, unorthodox policies

Essentially, banks will favour lending to firms with market power, as their ability to constrain downward price movements during recessions and depressions decreases the risk of them defaulting on a loan. Due to the negative effect of debt deflations on small firms and banks favouritism in lending to firms with market power, once the economy recovers prices are likely to increase, as the remaining large forms exercise their market power in order to increase prices. With government intervention: Alternatively, the government may choose to intervene and attempt to increase cash flows to prevent the debt deflation and associated depression. The most visible interventions in the most recent crisis were the bank bailouts, which were mainly designed to ensure the continual functioning of the financial markets and prevent the spread of panic.

In effect profits are privatised and losses are socialised.9 Consequently, while the government may offset the worst of a financial crisis, its actions may have unintended consequences, namely increasing inflation and making a future crisis more likely: “the economic relations that make a debt deflation and a long-lasting deep depression like that of the 1930s unlikely in a Big Government economy can lead to chronic and, at times, accelerating inflation. In effect, inflation may be the price we pay for depression proofing our economy.” (Minsky, 1986, p. 165) The Financial Instability Hypothesis To sum up, the essence of the Financial Instability Hypothesis is that booms and busts, asset price bubbles, financial crises, depressions, and even debt deflations all occur in the normal functioning of a capitalist economy. What is more, periods of relative stability increase the likelihood of instability and crisis by increasing returns and thus the desirability of leverage.

For the money supply not to shrink as loans are repaid requires that new loans are taken out to replace the loans repaid. If this level of borrowing is not maintained, stagnation and recession may result, which can lead to debt deflation and other negative consequences. Thus the government must design policy in order to encourage individuals and businesses to become indebted, to ensure that growth is maintained and debt deflations and recessions do not occur. In the UK examples of such policies (whether deliberately designed for this purpose or not) include the recent Bank of England ‘Funding for Lending Scheme’ and the ability of firms to deduct interest payments against taxes.


pages: 453 words: 117,893

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bike sharing, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, export processing zone, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, general purpose technology, Gini coefficient, Glass-Steagall Act, global supply chain, Great Leap Forward, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low interest rates, low-wage service sector, manufacturing employment, market bubble, means of production, middle-income trap, mittelstand, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, technological determinism, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

Despite the terrible news, Fisher still believed the depression was bottoming out, and that the economy would quickly move away from depression in 1933. It didn’t. After his experience of the 1930s, Fisher produced a theory of business cycles different from the monetarist version of his earlier work. This was the debt-deflation theory of depression, which he laid out in his 1932 book Booms and Depressions, and summarized a year later in his famous 1933 article in Econometrica entitled ‘The Debt-Deflation Theory of Great Depressions’. Fisher identified all great depressions as starting from a point of overindebtedness: The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.15 In the case of the Great Depression, the overindebtedness originated in reckless borrowing by corporations who had been encouraged by high-pressure salesmanship of investment bankers.

Debt-to-GDP ratios shot up in the 1930s because of deflation, when falling prices increased the value of debt to be repaid. Now they are high because there has been so much borrowing in the recent past. Large debts are, of course, a necessary condition for debt-deflation, but even though inflation rates have fallen below the 2 per cent target set by many major central banks, actual deflation is still the dog that hasn’t yet barked. But does this mean we have escaped debt-deflation? Did policymakers learn the lessons from the 1930s? And what might they still need to do? According to Irving Fisher, when inflation is low and the economy collapses, the central bank should act more aggressively than normal to avoid the onset of deflation.

Buccleuch, Henry Scott, 3rd Duke of budget deficits and austerity Burns, Arthur Burns, Mary business cycle theory Fisher Hayek Schumpeter Callaghan, James Cambridge School see also Keynes, John Maynard; Marshall, Alfred; Robinson, Joan Cambridge University Girton College Kings College Newnham College St Johns and women Canon capital accumulation capital investment capitalism in aftermath of 2008 financial crisis and communism derivation of term and Engels and the financial crisis of 2008 free-market and Hayek inequality and capitalist economies laissez-faire see laissez-faire and Marx and the Occupy movement and Schumpeterian ‘creative destruction’ socialism vs welfare state capitalism car industry Carney, Mark Carter, Jimmy Case, Elizabeth central banks Bank of England Bank of Japan European Central Bank Fed see Federal Reserve forward guidance macroprudential policy monetary policy tools see also quantitative easing (QE) Chamberlin, Edward Chicago School see also Friedman, Milton Chile China 1949 revolution asset management companies banking system Beijing Consensus Communist Party corporate debt Cultural Revolution domestic innovation economic transformation ‘effect’/‘price’ employment system entrepreneurs exports Five Year Plan (1953) foreign direct investment (FDI) and Germany industrialization and reindustrialization inequality innovation challenge legal institutions manufacturing Maoism and Marx national debt openness ‘paradox’ poverty reduction privatization R&D investment regional free trade agreement renminbi (RMB) as second largest economy services sector shadow banking smartphones social networks trade-to GDP ratio and the USSR wage increases women Churchill, Winston class Engels’ The Condition of the Working Class in England and Marx middle see middle class and Ricardo wage earner class Classical School of economics see also Mill, John Stuart; Ricardo, David; Smith, Adam Clinton, Bill Clinton, Hillary cloth clothing Coase, Ronald Cold War Collectivist Economic Planning collectivization Collier, Paul Columbia University communism Bolshevik Party and capitalism Chinese Communist League First International Marxism see Marxism and Robinson Socialist/Second International Third International USSR see Soviet Union Vietnamese vs welfare state capitalism Communist League comparative advantage theory competition ‘competing down’ (Schumpeter) imperfect between money providers perfect and Robinson wages and competitiveness computers Conard, Ed construction consultancy firms consumerism consumption and comparative advantage theory consumer spending and marginal utility analysis convergence hypothesis corn, free trade in Corn Laws repeal and Ricardo corporate debt Cowles Commission Crafts, Nicholas crafts credit crunch credit default swaps (CDS) credit rating Crimean War crypto-currencies currency crises first-generation second-generation third-generation currency stability Cyprus death duties debt Chinese corporate debt-deflation spiral and government bonds indexation and protection from and Minsky’s financial instability hypothesis mortgage debt national see national debt private corporate as share of GDP decentralization defence deflation debt-deflation spiral Fisher and combating deflation Japan self-fulfilling deindustrialization and globalization premature reversing/reindustrialization and trade US Deng Xiaoping depression see Great Depression (1930s); Long Depression (1880s); recession/depression diminishing returns to capital distributive lag model Douglas, David, Lord Reston Douglas, Janet DuPont East Asian ‘tiger’ economies see also Hong Kong; Singapore; South Korea; Taiwan eastern Europe Eastman Kodak Econometric Society Econometrica economic development challenges and Beijing Consensus financial/currency crises and institutions and Lewis model Myanmar and North and path dependence poverty eradication/reduction South Africa Sustainable Development Goals Vietnam and Washington Consensus economic equilibrium economic freedom economic growth and austerity barriers convergence hypothesis development challenges see economic development challenges drivers of 2 see also innovation; institutions; public investment; technology endogenous growth theories inclusive growth through investment Japan’s growth and Japan’s ‘lost decades’ Lewis model mercantilist doctrine of and new technologies policy debates on raising and poverty reduction and productivity debate/challenge slow growth and the future Solow model UK government’s renewed focus on and unemployment Economic Journal economic rent Ricardo’s theory of economies ‘animal spirits’ of crises see financial crises deflation see deflation emerging see emerging economies equilibrium in GDP see gross domestic product global macroeconomic imbalances growth of see economic growth inequality and capitalist economies inflation see inflation and international trade and investment see investment; public investment national debt see national debt QE see quantitative easing rebalancing of recession see recession/depression services economy see services sector and stagnant wages state intervention Economist education higher role in reducing inequality universal Eliot, T.


pages: 823 words: 220,581

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

accounting loophole / creative accounting, Alan Greenspan, banking crisis, banks create money, barriers to entry, behavioural economics, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, book value, business cycle, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, equity risk premium, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Glass-Steagall Act, Greenspan put, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, Kickstarter, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, Money creation, money market fund, open economy, Pareto efficiency, Paul Samuelson, Phillips curve, place-making, Ponzi scheme, Post-Keynesian economics, power law, profit maximization, quantitative easing, RAND corporation, random walk, risk free rate, risk tolerance, risk/return, Robert Shiller, Robert Solow, Ronald Coase, Savings and loan crisis, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

However, this accidental success may not last long if the pressures which have been clearly growing in the financial side of the economy finally erupt (Keen 2001a: 213). Possibility of debt deflation in the USA If a crisis does occur after the Internet Bubble finally bursts, then it could occur in a milieu of low inflation (unless oil price pressures lead to an inflationary spiral). Firms are likely to react to this crisis by dropping their margins in an attempt to move stock, or to hang on to market share at the expense of their competitors. This behavior could well turn low inflation into deflation. The possibility therefore exists that America could once again be afflicted with a debt deflation – though its severity could be attenuated by the inevitable increase in government spending that such a crisis would trigger.

[A footnote adds:] I do not deny the possible importance of irrationality in economic life; however it seems that the best research strategy is to push the rationality postulate as far as it will go. (Ibid.: 43) As we shall see, this is a parody of Minsky’s hypothesis. He devoted slightly more space to Irving Fisher and his debt-deflation theory, but what he presented was likewise a parody of Fisher’s views, rather than a serious consideration of them: The idea of debt-deflation goes back to Irving Fisher (1933). Fisher envisioned a dynamic process in which falling asset and commodity prices created pressure on nominal debtors, forcing them into distress sales of assets, which in turn led to further price declines and financial difficulties.

However, by the end of the 1980s, the cost pressures that coincided with the slump of the early 1970s had long since been eliminated, by fifteen years of high unemployment and the diminution of OPEC’s cartel power. The crisis of the late 1980s thus occurred in a milieu of low inflation, raising the specter of a debt deflation. (Keen 1995: 611–14) I added the following qualification about the capacity for government action to attenuate the severity of a debt deflation – while not addressing its underlying causes – to my précis of Minsky in the first edition of Debunking Economics: If a crisis does occur after the Internet Bubble finally bursts, then it could occur in a milieu of low inflation (unless oil price pressures lead to an inflationary spiral).


pages: 374 words: 113,126

The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bike sharing, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, export processing zone, Fall of the Berlin Wall, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, general purpose technology, Gini coefficient, Glass-Steagall Act, global supply chain, Great Leap Forward, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low interest rates, manufacturing employment, market bubble, means of production, middle-income trap, mittelstand, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, technological determinism, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

Despite the terrible news, Fisher still believed the depression was bottoming out, and that the economy would quickly move away from depression in 1933. It didn’t. After his experience of the 1930s, Fisher produced a theory of business cycles different from the monetarist version of his earlier work. This was the debt-deflation theory of depression, which he laid out in his 1932 book Booms and Depressions, and summarized a year later in his famous 1933 article in Econometrica entitled ‘The Debt-Deflation Theory of Great Depressions’. Fisher identified all great depressions as starting from a point of overindebtedness: The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.15 In the case of the Great Depression, the overindebtedness originated in reckless borrowing by corporations who had been encouraged by high-pressure salesmanship of investment bankers.

Debt-to-GDP ratios shot up in the 1930s because of deflation, when falling prices increased the value of debt to be repaid. Now they are high because there has been so much borrowing in the recent past. Large debts are, of course, a necessary condition for debt-deflation, but even though inflation rates have fallen below the 2 per cent target set by many major central banks, actual deflation is still the dog that hasn’t yet barked. But does this mean we have escaped debt-deflation? Did policymakers learn the lessons from the 1930s? And what might they still need to do? According to Irving Fisher, when inflation is low and the economy collapses, the central bank should act more aggressively than normal to avoid the onset of deflation.

Concerns over economic growth have certainly heated up since the 2008 global financial crisis, which was the worst economic downturn since the Great Depression of the 1930s. America was the epicentre, and Britain was deeply affected. Years later, there are still high levels of debt and less than robust economic growth. Irving Fisher, who lived through it, warned about the danger of the debt-deflation spiral after such crises. It’s what Japan has experienced since its early 1990s real estate crash. As debt was repaid, output fell which led to falling prices or deflation and ‘lost decades’ of growth. What would Fisher advise in order to ensure that countries do not face ‘lost decades’ of growth?


pages: 249 words: 66,383

House of Debt: How They (And You) Caused the Great Recession, and How We Can Prevent It From Happening Again by Atif Mian, Amir Sufi

Andrei Shleifer, asset-backed security, balance sheet recession, bank run, banking crisis, behavioural economics, Ben Bernanke: helicopter money, break the buck, business cycle, Carmen Reinhart, collapse of Lehman Brothers, creative destruction, debt deflation, Edward Glaeser, en.wikipedia.org, financial innovation, full employment, high net worth, Home mortgage interest deduction, housing crisis, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, liquidity trap, Long Term Capital Management, low interest rates, market bubble, Martin Wolf, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, quantitative easing, Robert Shiller, Robert Solow, school choice, seminal paper, shareholder value, subprime mortgage crisis, the payments system, the scientific method, tulip mania, young professional, zero-sum game

See mortgage lenders; savers credit-rating agencies, 103–4 currency in circulation, 154–57 Daley, Suzanne, 119–21 Davidson, Adam, 131–32, 200n21 Davis, Steven, 70 debt, 12–13, 17–30, 39–45, 166; animal spirits view of, 80–81, 196n8; as anti-insurance, 29–30; bubbles and, 110–16, 149, 169–70; equity-like financing of, 168–70, 180–87, 206n13; forgiveness programs for, 60, 135–51, 205n19; government subsidy of, 181–82; in the levered-losses framework, 50–52, 70–71, 134, 170; marginal propensity to consume levels and, 39–44, 194n5; in neglected risks frameworks, 114–15; optimists’ use of, 111–13; risk-sharing principle of, 168–87; risks of home ownership and, 2, 12–13, 17–30, 39, 168–69; spending declines and, 38–41; for student loans, 167–69, 182–83, 206n9; wealth inequality and, 18–21, 23–25, 71. See also household debt debt-deflation cycle, 55, 152–53, 162 “Debt Deflation: Theory and Evidence” (King), 7 debt financing system, 21, 50, 111–13, 180–85 debtors. See borrowers default, 150; probabilities of, 100–101; rates of, 101–5, 198n18 deflation, 55, 152–53, 162 “Deleveraging Myth, The” (Surowiecki), 38–39, 193n4 Del Ray, Elena, 206n9 demand-driven economic activity, 54 DeMarco, Edward, 140–42 Demyanyk, Yuliya, 104 Depression, the, 70, 197n12; bank failures of, 127; central bank policy of, 155–57; debt-deflation cycle of, 55, 152–53, 162; debt forgiveness programs of, 144–45; household debt prior to, 4–5, 44; household spending and, 5–6; personal savings rate prior to, 5 Detroit’s west side, 75–76, 79, 104–5, 196n1 distribution of housing-based losses, 150–51.

The basic argument put forward in these studies is simple: If you had known how much household debt had increased in a country prior to the Great Recession, you would have been able to predict exactly which countries would have the most severe decline in spending during the Great Recession. But is the relation between household-debt growth and recession severity unique to the Great Recession? In 1994, long before the Great Recession, Mervyn King, the recent governor of the Bank of England, gave a presidential address to the European Economic Association titled “Debt Deflation: Theory and Evidence.” In the very first line of the abstract, he argued: “In the early 1990s the most severe recessions occurred in those countries which had experienced the largest increase in private debt burdens.”16 In the address, he documented the relation between the growth in household debt in a given country from 1984 to 1988 and the country’s decline in economic growth from 1989 to 1992.

If an indebted household faces a wage cut while their mortgage payment remains the same, they are likely to cut spending even further. This leads to a vicious cycle in which indebted households cut spending, which leads firms to reduce wages, which leads to higher debt burdens for households, which leads them to cut back even further. This was famously dubbed the “debt-deflation” cycle by Irving Fisher in the aftermath of the Great Depression.9 There are several other important frictions that prevent the economy from adjusting to a severe spending shock. For example, borrowers tend to buy different types of products than savers. If borrowers start buying less, the economy would need to ramp down production of goods that borrowers like and ramp up production of goods that savers like.


pages: 491 words: 131,769

Crisis Economics: A Crash Course in the Future of Finance by Nouriel Roubini, Stephen Mihm

Alan Greenspan, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, bond market vigilante , bonus culture, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, central bank independence, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, dark matter, David Ricardo: comparative advantage, debt deflation, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, Glass-Steagall Act, global pandemic, global reserve currency, Gordon Gekko, Greenspan put, Growth in a Time of Debt, housing crisis, Hyman Minsky, information asymmetry, interest rate swap, invisible hand, Joseph Schumpeter, junk bonds, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Martin Wolf, means of production, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, Northern Rock, offshore financial centre, oil shock, Paradox of Choice, paradox of thrift, Paul Samuelson, Ponzi scheme, price stability, principal–agent problem, private sector deleveraging, proprietary trading, pushing on a string, quantitative easing, quantitative trading / quantitative finance, race to the bottom, random walk, regulatory arbitrage, reserve currency, risk tolerance, Robert Shiller, Satyajit Das, Savings and loan crisis, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, subprime mortgage crisis, Suez crisis 1956, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, too big to fail, tulip mania, Tyler Cowen, unorthodox policies, value at risk, We are all Keynesians now, Works Progress Administration, yield curve, Yom Kippur War

pid=20601110&sid=aK3wlrRdMC38. 138 “gives economists chills”: Peter Goodman, “Fear of Deflation Lurks as Global Demand Drops,” New York Times, October 31, 2008. 138 robust economic growth: Michael D. Bordo and Andrew J. Filardo, “Deflation in a Historical Perspective,” Bank for International Settlements Working Paper no. 186, November 2005, online at http://www.bis.org/publ/work186.pdf?noframes=1. 139 “debt-deflation theory of great depressions”: Irving Fisher, “The Debt-Deflation Theory of Great Depressions,” Econometrica 1 (1933). 140 “The very effort of individuals . . .”: Ibid., 344, 346. 140 “great paradox”: Ibid., 344. 142 brutal economic collapse: Peter Temin, “The Great Depression,” in Stanley L. Engerman and Robert E. Gallman, eds., The Cambridge Economic History of the United States (Cambridge, U.K.: Cambridge University Press, 2000), 3:301-10.

As the level of aggregate demand falls below the supply of goods, the larger economy suffers from price deflation: with every passing day, each dollar purchases more than it did the day before. It sounds like a blessing, but for debtors it’s a curse. Irving Fisher, a Great Depression economist who coined the term “debt deflation” (see chapter 6) to describe this process, observed that if the price of goods falls faster than debts are reduced, the real value of private debts will rise over time. For example, imagine that someone borrows a million dollars to buy a house with no money down. The house is worth a million dollars; the owner owes a million dollars.

While Fisher remains infamous today for claiming, shortly before the market crashed in 1929, that stock prices would remain on a “permanently high plateau,” he redeemed himself by subsequently articulating a compelling theory of the connection between financial crises, deflation, and depression, or what he called the “debt-deflation theory of great depressions.” Put simply, Fisher believed that depressions became great because of two factors: too much debt in advance of a crisis, and too much deflation in its wake. Fisher began by observing that some of the worst crises in American history—1837, 1857, 1893, and 1929—followed on the heels of an excessive accumulation of debt throughout the economy.


pages: 267 words: 71,123

End This Depression Now! by Paul Krugman

airline deregulation, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, bond market vigilante , Bretton Woods, business cycle, capital asset pricing model, Carmen Reinhart, centre right, correlation does not imply causation, credit crunch, Credit Default Swap, currency manipulation / currency intervention, debt deflation, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, full employment, German hyperinflation, Glass-Steagall Act, Gordon Gekko, high-speed rail, Hyman Minsky, income inequality, inflation targeting, invisible hand, it is difficult to get a man to understand something, when his salary depends on his not understanding it, It's morning again in America, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", Joseph Schumpeter, junk bonds, Kenneth Rogoff, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, low skilled workers, Mark Zuckerberg, Minsky moment, Money creation, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, Paul Samuelson, price stability, quantitative easing, rent-seeking, Robert Gordon, Ronald Reagan, Savings and loan crisis, Upton Sinclair, We are all Keynesians now, We are the 99%, working poor, Works Progress Administration

., 83, 198, 232–33, 237 Cowen, Brian, 88 credit booms, 65 credit crunches: of 2008, 41, 110, 113, 117 Great Depression and, 110 credit default swaps, 54, 55 credit expansion, 154 currency, manipulation of, 221 currency, national: devaluation of, 169 disadvantages of, 168–69, 170–71 flexibility of, 169–73, 179 optimum currency area and, 171–72 see also euro Dakotas, high employment in, 37 debt, 4, 34, 131 deregulation and, 50 high levels of, 34, 45, 46, 49–50, 51 self-reinforcing downward spiral in, 46, 48, 49–50 usefulness of, 43 see also deficits; government debt; household debt; private debt “Debt-Deflation Theory of Great Depressions, The” (Fisher), 45 debt relief, 147 defense industry, 236 defense spending, 35, 38–39, 148, 234–35, 235, 236 deficits, 130–49, 151, 202, 238 Alesina/Ardagna study of, 196–99 depressions and, 135–36, 137 exaggerated fear of, 131–32, 212 job creation vs., 131, 143, 149, 206–7, 238 monetary policy and, 135 see also debt deflation, 152, 188 debt and, 45, 49, 163 De Grauwe, Paul, 182–83 deleveraging, 41, 147 paradox of, 45–46, 52 demand, 24–34 in babysitting co-op example, 29–30 inadequate levels of, 25, 29–30, 34, 38, 47, 93, 101–2, 118, 136, 148 spending and, 24–26, 29, 47, 118 unemployment and, 33, 47 see also supply and demand Democracy Corps, 8 Democrats, Democratic Party, 2012 election and, 226, 227–28 Denmark, 184 EEC joined by, 167 depression of 2008–, ix–xii, 209–11 business investment and, 16, 33 debt levels and, 4, 34, 47 democratic values at risk in, 19 economists’ role in, 100–101, 108 education and, 16 in Europe, see Europe, debt crisis in housing sector and, 33, 47 income inequality and, 85, 89–90 inflation rate in, 151–52, 156–57, 159–61, 189, 227 infrastructure investment and, 16–17 lack of demand in, 47 liquidity trap in, 32–34, 38, 51, 136, 155, 163 long-term effects of, 15–17 manufacturing capacity loss in, 16 as morality play, 23, 207, 219 private sector spending and, 33, 47, 211–12 unemployment in, x, 5–12, 24, 110, 117, 119, 210, 212 see also financial crisis of 2008–09; recovery, from depression of 2008– depressions, 27 disproportion between cause and effect in, 22–23, 30–31 government spending and, 135–36, 137, 231 Keynes’s definition of, x Schumpeter on, 204–5 see also Great Depression; recessions deregulation, financial, 54, 56, 67, 85, 114 under Carter, 61 under Clinton, 62 income inequality and, 72–75, 74, 81, 82, 89 under Reagan, 50, 60–61, 62, 67–68 rightward political shift and, 83 supposed benefits of, 69–70, 72–73, 86 derivatives, 98 see also specific financial instruments devaluation, 169, 180–81 disinflation, 159 dot-com bubble, 14, 198 Draghi, Mario, 186 earned-income tax credit, 120 econometrics, 233 economic output, see gross domestic product Economics (Samuelson), 93 economics, economists: academic sociology and, 92, 96, 103 Austrian school of, 151 complacency of, 55 disproportion between cause and effect in, 22–23, 30–31 ignorance of, 106–8 influence of financial elite on, 96 Keynesian, see Keynesian economics laissez-faire, 94, 101 lessons of Great Depression ignored by, xi, 92, 108 liquidationist school of, 204–5 monetarist, 101 as morality play, 23, 207, 219 renewed appreciation of past thinking in, 42 research in, see research, economic Ricardian, 205–6 see also macroeconomics “Economics of Happiness, The” (Bernanke), 5 economy, U.S.: effect of austerity programs on, 51, 213 election outcomes and, 225–26 postwar boom in, 50, 70, 149 size of, 121, 122 supposed structural defects in, 35–36 see also global economy education: austerity policies and, 143, 213–14 depression of 2008– and, 16 income inequality and, 75–76, 89 inequality in, 84 teachers’ salaries in, 72, 76, 148 efficient-markets hypothesis, 97–99, 100, 101, 103–4 Eggertsson, Gauti, 52 Eichengreen, Barry, 236 elections, U.S.: economic growth and, 225–26 of 2012, 226 emergency aid, 119–20, 120, 144, 216 environmental regulation, 221 Essays in Positive Economics (Friedman), 170 euro, 166 benefits of, 168–69, 170–71 creation of, 174 economic flexibility constrained by, 18, 169–73, 179, 184 fixing problems of, 184–87 investor confidence and, 174 liquidity and, 182–84, 185 trade imbalances and, 175, 175 as vulnerable to panics, 182–84, 186 wages and, 174–75 Europe: capital flow in, 169, 174, 180 common currency of, see euro creditor nations of, 46 debtor nations of, 4, 45, 46, 139 democracy and unity in, 184–85 fiscal integration lacking in, 171, 172–73, 176, 179 GDP in, 17 health care in, 18 inflation and, 185, 186 labor mobility lacking in, 171–72, 173, 179 1930s arms race in, 236 social safety nets in, 18 unemployment in, 4, 17, 18, 176, 229, 236 Europe, debt crisis in, x, 4, 40, 45, 46, 138, 140–41, 166–87 austerity programs in, 46, 144, 185, 186, 188, 190 budget deficits and, 177 fiscal irresponsibility as supposed cause of (Big Delusion), 177–79, 187 housing bubbles and, 65, 169, 172, 174, 176 interest rates in, 174, 176, 182–84, 190 liquidity fears and, 182–84 recovery from, 184–87 unequal impact of, 17–18 wages in, 164–65, 169–70, 174–75 European Central Bank, 46, 183 Big Delusion and, 179 inflation and, 161, 180 interest rates and, 190, 202–3 monetary policy of, 180, 185, 186 European Coal and Steel Community, 167 European Economic Community (EEC), 167–68 European Union, 172 exchange rates, fixed vs. flexible, 169–73 executive compensation, 78–79 “outrage constraint” on, 81–82, 83 expansionary austerity, 144, 196–99 expenditure cascades, 84 Fama, Eugene, 69–70, 73, 97, 100, 106 Fannie Mae, 64, 65–66, 100, 172, 220–21 Farrell, Henry, 100, 192 Federal Deposit Insurance Corporation (FDIC), 59, 172 Federal Housing Finance Agency, 221 Federal Reserve, 42, 103 aggressive action needed from, 216–19 creation of, 59 foreign exchange intervention and, 217 inflation and, 161, 217, 219, 227 interest rates and, 33–34, 93, 105, 117, 134, 135, 143, 151, 189–90, 193, 215, 216–17 as lender of last resort, 59 LTCM crisis and, 69 money supply controlled by, 31, 32, 33, 105, 151, 153, 155, 157, 183 recessions and, 105 recovery and, 216–19 in 2008 financial crisis, 104, 106, 116 unconventional asset purchases by, 217 Federal Reserve Bank of Boston, 47–48 Feinberg, Larry, 72 Ferguson, Niall, 135–36, 139, 160 Fianna Fáil, 88 filibusters, 123 financial crisis of 2008–09, ix, x, 40, 41, 69, 72, 99, 104, 111–16 Bernanke on, 3–4 Big Lie of, 64–66, 100, 177 capital ratios and, 59 credit crunch in, 41, 110, 113, 117 deleveraging in, 147 Federal Reserve and, 104, 106 income inequality and, 82, 83 leverage in, 44–46, 63 panics in, 4, 63, 111, 155 real GDP in, 13 see also depression of 2008–; Europe, debt crisis in financial elite: political influence of, 63, 77–78, 85–90 Republican ideology and, 88–89 top 0.01 percent in, 75, 76 top 0.1 percent in, 75, 76, 77, 96 top 1 percent in, 74–75, 74, 76–77, 96 see also income inequality financial industry, see banks, banking industry financial instability hypothesis, 43–44 Financial Times, 95, 100, 203–4 Finland, 184 fiscal integration, 171, 172–73, 176 Fisher, Irving, 22, 42, 44–46, 48, 49, 52, 163 flexibility: currency and, 18, 169–73 paradox of, 52–53 Flip This House (TV show), 112 Florida, 111 food stamps, 120, 144 Ford, John, 56 foreclosures, 45, 127–28 foreign exchange markets, 217 foreign trade, 221 Fox News, 134 Frank, Robert, 84 Freddie Mac, 64, 65–66, 100, 172, 220–21 free trade, 167 Friedman, Milton, 96, 101, 181, 205 on causes of Great Depression, 105–6 Gabriel, Peter, 20 Gagnon, Joseph, 219, 221 Gardiner, Chance (char.), 3 Garn–St.

For high levels of debt leave the economy vulnerable to a sort of death spiral in which the very efforts of debtors to “deleverage,” to reduce their debt, create an environment that makes their debt problems even worse. The great American economist Irving Fisher laid out the story in a classic 1933 article titled “The Debt-Deflation Theory of Great Depressions”—an article that, like the Keynes essay with which I opened chapter 2, reads, stylistic archaisms aside, as if it had been written just the other day. Imagine, said Fisher, that an economic downturn creates a situation in which many debtors find themselves forced to take quick action to reduce their debt.

He argued that this was the real story behind the Great Depression—that the U.S. economy came into a recession with an unprecedented level of debt that made it vulnerable to a self-reinforcing downward spiral. He was almost surely right. And as I’ve already said, his article reads as if had been written yesterday; that is, a similar if less extreme story is the main explanation of the depression we’re in right now. The Minsky Moment Let me try to match Fisher’s pithy slogan about debt deflation with a similarly imprecise, but I hope evocative, slogan about the current state of the world economy: right now, debtors can’t spend, and creditors won’t spend. You can see this dynamic very clearly if you look at European governments. Europe’s debtor nations, the countries like Greece and Spain that borrowed a lot of money during the good years before the crisis (mostly to finance private spending, not government spending, but leave that aside for now), are all facing fiscal crises: they either can’t borrow money at all, or can do so only at extremely high interest rates.


pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

air freight, Alan Greenspan, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, break the buck, Bretton Woods, business cycle, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, foreign exchange controls, forward guidance, Fractional reserve banking, full employment, Glass-Steagall Act, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, Les Trente Glorieuses, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, mandatory minimum, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, Minsky moment, Modern Monetary Theory, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, proprietary trading, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, subprime mortgage crisis, tail risk, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen, Tyler Cowen: Great Stagnation, vertical integration, very high income, winner-take-all economy, zero-sum game

So the growth of the stock of money in the hands of the public declines when the growth of bank lending falls. The fourth reason why post-crisis economies are weak is that inflation may become too low or, worse, deflation may set in. Deflation, or falling prices, creates the danger of what the great American economist Irving Fisher called ‘debt deflation’ in the 1930s – rising real level of debt and debt service within a collapsing economy.61 Such debt deflation is already, alas, in progress in parts of the Eurozone. Yet deflation is not only dangerous because of what it does to the real burden of debt; it is also dangerous if it pushes the real rate of interest too high. Equilibrium real interest rates may become strongly negative in a highly leveraged, crisis-hit economy.

This is because a rapid restoration in competitiveness of countries like Italy or Spain requires falling wages and prices. But falling wages and prices also raise the real burden of debt. The relatively high interest rates on both private and public debt that characterize these economies make the problem of managing debt even harder. This is ‘debt deflation’ – a condition in which debtors are forced to save an ever higher share of their incomes in order to pay down debt, because the latter’s real value is rising over time. The more countries struggle to restore competitiveness and the weaker their growth, the worse the debt trap into which they will fall.

It has happened, more recently, in small open economies, such as Hong Kong after the Asian financial crisis and the Baltic states after the crises that began in in 2007. This is, in effect, the old gold-standard mechanism. If, however, the authorities let the peg go, the adjustment would be accompanied by a depreciation of the nominal exchange rate. That would obviate debt deflation and the need to cut nominal wages and prices. It is likely, though not certain, that the result would be a swifter and less painful adjustment, without a tidal wave of defaults. All this would have been a big economic mess, but it would not have generated a continent-wide maelstrom. Under such an adjustable-peg exchange-rate system, economic adjustment would have occurred and life would have gone on.


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The Price of Time: The Real Story of Interest by Edward Chancellor

"World Economic Forum" Davos, 3D printing, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, asset allocation, asset-backed security, assortative mating, autonomous vehicles, balance sheet recession, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Bernie Sanders, Big Tech, bitcoin, blockchain, bond market vigilante , bonus culture, book value, Bretton Woods, BRICs, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cashless society, cloud computing, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, commodity super cycle, computer age, coronavirus, corporate governance, COVID-19, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cryptocurrency, currency peg, currency risk, David Graeber, debt deflation, deglobalization, delayed gratification, Deng Xiaoping, Detroit bankruptcy, distributed ledger, diversified portfolio, Dogecoin, Donald Trump, double entry bookkeeping, Elon Musk, equity risk premium, Ethereum, ethereum blockchain, eurozone crisis, everywhere but in the productivity statistics, Extinction Rebellion, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, full employment, gig economy, Gini coefficient, Glass-Steagall Act, global reserve currency, global supply chain, Goodhart's law, Great Leap Forward, green new deal, Greenspan put, high net worth, high-speed rail, housing crisis, Hyman Minsky, implied volatility, income inequality, income per capita, inflation targeting, initial coin offering, intangible asset, Internet of things, inventory management, invisible hand, Japanese asset price bubble, Jean Tirole, Jeff Bezos, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, land bank, large denomination, Les Trente Glorieuses, liquidity trap, lockdown, Long Term Capital Management, low interest rates, Lyft, manufacturing employment, margin call, Mark Spitznagel, market bubble, market clearing, market fundamentalism, Martin Wolf, mega-rich, megaproject, meme stock, Michael Milken, Minsky moment, Modern Monetary Theory, Mohammed Bouazizi, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, Northern Rock, offshore financial centre, operational security, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, peer-to-peer lending, pensions crisis, Peter Thiel, Philip Mirowski, plutocrats, Ponzi scheme, price mechanism, price stability, quantitative easing, railway mania, reality distortion field, regulatory arbitrage, rent-seeking, reserve currency, ride hailing / ride sharing, risk free rate, risk tolerance, risk/return, road to serfdom, Robert Gordon, Robinhood: mobile stock trading app, Satoshi Nakamoto, Satyajit Das, Savings and loan crisis, savings glut, Second Machine Age, secular stagnation, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, stock buybacks, subprime mortgage crisis, Suez canal 1869, tech billionaire, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tim Haywood, time value of money, too big to fail, total factor productivity, trickle-down economics, tulip mania, Tyler Cowen, Uber and Lyft, Uber for X, uber lyft, Walter Mischel, WeWork, When a measure becomes a target, yield curve

The ‘barbarous relic’, not the price stabilization policy, was ultimately responsible for the Great Depression. This Great Depression narrative is shaped by two seminal texts: Irving Fisher’s ‘Debt-Deflation Theory of Great Depressions’ (1933) and A Monetary History of the United States by Milton Friedman and Anna Schwartz, published thirty years later. Fisher’s initial expectations that the United States would bounce back after the Great Crash turned out to be as misplaced as his earlier views on the stock market. In his debt-deflation paper, Fisher drew on personal experience to describe how debt becomes harder to handle when the price level declines. A vicious cycle opens up as deflation takes hold: borrowers pay down their debts, thereby depressing household spending; the money supply contracts, which causes prices to fall further; and, as a result, borrowers end up owing more in real terms (i.e., after inflation) than at the outset.

When policymakers ease monetary conditions to ward off such a benign decline in the price level, people are incentivized to borrow more. As Irving Fisher observed, debt deflation starts from a position of over-indebtedness – a point which Bernanke in his writings on the subject conspicuously overlooks. Thus, Hayek concluded that attempts to avoid a good deflation only make ‘bad’ deflation more likely. Furthermore, the bad deflation that appears during a financial crisis should be viewed as a symptom, rather than a cause of economic malaise. Debt deflation, Hayek concluded, is ‘a secondary phenomenon, a process induced by the maladjustments of industry left over from the boom’.74 While Fisher believed that the slide into deflation after a crisis must be arrested, Hayek argued that attempts to resist a fall in prices would hinder the curative process of recession and keep the economy in a state of imbalance.

‘The true story [of the Great Depression],’ maintained the future Federal Reserve chairman Ben Bernanke, ‘is that monetary policy tried overzealously to stop the rise in stock prices.’fn14 The Fed responded to the October Crash by slashing interest rates – the discount rate of the New York Fed went from 6 per cent in October 1929 to 1.5 per cent by the summer of 1931. But the Fed, say its critics, should have done more to prevent a collapse in the money supply. The trouble was that its board members were paralysed with an unjustified fear that any further action would excite another bout of speculation.68 As a result, the Fed allowed a debt deflation to take hold, which further deepened the crisis. These flawed decisions were compounded by the ‘fetters’ of the Gold Standard, which limited the central bankers’ freedom of action: in late 1931, the Fed was forced to raise interest rates after a decline in its gold reserves, and real interest rates (i.e. the cost of borrowing once deflation is taken into account) climbed into double digits.


pages: 537 words: 144,318

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money by Steven Drobny

Albert Einstein, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bear Stearns, Bernie Madoff, Black Swan, bond market vigilante , book value, Bretton Woods, BRICs, British Empire, business cycle, business process, buy and hold, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, commoditize, commodity super cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, equity risk premium, family office, fiat currency, fixed income, follow your passion, full employment, George Santayana, global macro, Greenspan put, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, inverted yield curve, invisible hand, junk bonds, Kickstarter, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, market microstructure, Minsky moment, moral hazard, Myron Scholes, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, proprietary trading, purchasing power parity, quantitative easing, random walk, Reminiscences of a Stock Operator, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, risk/return, savings glut, selection bias, Sharpe ratio, short selling, SoftBank, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, stocks for the long run, stocks for the long term, survivorship bias, tail risk, The Great Moderation, Thomas Bayes, time value of money, too big to fail, Tragedy of the Commons, transaction costs, two and twenty, unbiased observer, value at risk, Vanguard fund, yield curve, zero-sum game

Yet they are creatures of habit, they don’t like being unorthodox. When the Germans and the Chinese said this is wrong, they all listened. Wouldn’t it be ironic if we find out later that there is only one chance against debt deflation and they all missed it? We are spending all of our time looking for inflation because the Fed will be slow in raising interest rates while the roof is caving in. The private sector’s desire to unburden itself of debt is so great that debt deflation seems much more likely. And if it rolls over with everyone loaded up on risk again, playing commodities and inflation expectations, bonds could go parabolic. The bull market in government bonds is one of the greatest bull markets of all time, and bull markets of that magnitude do not end with a whimper.

Debt-fueled overconsumption has historically resulted in a depression, a deep and prolonged recession, or in the case of Japan, a very long stagnation. The common argument, put forward especially by monetarists, is that these episodes occurred and persisted because monetary policy was not eased fast enough or far enough. The Great Macro Experiment, therefore, is an attempt to use aggressive reflationary policies to overcome the effects of debt deflation after the equity bubble burst. We still seem to be in the midst of the Great Macro Experiment, although it is the next phase. It is a hyper-experiment now. The Experiment started with Greenspan, who preemptively and aggressively cut interest rates to head off the looming recession/depression in 2001-2003.

We have institutionalized a behavior that defines risk taking as being a function of market deviations rather than the likelihood of losing clients’ money. Things may have changed, and the next 30 years will prove more challenging, especially when viewed through the prism of the last three decades. Today we are faced with the prospect of debt deflation, which we last experienced globally after the crash of 1929. My argument is that it took 30 to 40 years for society to correct for the previous financial excesses. For instance, did you know that in the absence of dividends, there was no real appreciation in the Dow Jones from 1906 to 1974 (see Figure 13.3)?


Manias, Panics and Crashes: A History of Financial Crises, Sixth Edition by Kindleberger, Charles P., Robert Z., Aliber

active measures, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bonfire of the Vanities, break the buck, Bretton Woods, British Empire, business cycle, buy and hold, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, Corn Laws, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-border payments, currency peg, currency risk, death of newspapers, debt deflation, Deng Xiaoping, disintermediation, diversification, diversified portfolio, edge city, financial deregulation, financial innovation, Financial Instability Hypothesis, financial repression, fixed income, floating exchange rates, George Akerlof, German hyperinflation, Glass-Steagall Act, Herman Kahn, Honoré de Balzac, Hyman Minsky, index fund, inflation targeting, information asymmetry, invisible hand, Isaac Newton, Japanese asset price bubble, joint-stock company, junk bonds, large denomination, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, margin call, market bubble, Mary Meeker, Michael Milken, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, price stability, railway mania, Richard Thaler, riskless arbitrage, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, special drawing rights, Suez canal 1869, telemarketer, The Chicago School, the market place, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, very high income, Washington Consensus, Y2K, Yogi Berra, Yom Kippur War

The failures of firms meant that the banks took over title to the properties and sold them, which put further downward pressure on property prices which complicated the business plans of other firms. There was a downward spiral and concern about a debt deflation trap.23 Commercial and industrial enterprises were going bankrupt at a steady rate of 1000 a month. Three large credit unions were rescued by the government. The capital adequacy problems of the banks and insurance companies were compounded by losses on their portfolios of foreign assets. Two economic experts on Japan have characterized the country’s problems for the next decade as ‘debt, deflation, default, demography and deregulation’.24 Commodity prices, asset prices, and monetary policy The reduction in the Bank of Japan’s discount rate, especially after 1986, which touched off the bubble, was stimulated by pressures from the United States and other industrialized countries and rationalized because the price level in Japan was steady.

Even though nominal interest rates were low, real interest rates were high because of the declines in the consumer price level, and investment spending was depressed. Japan was in the throes of a very modest debt-deflation cycle at the end of the 1990s as its price level declined by 1 percent a year which led to an exceptionally high level of business failures. Hong Kong was in a debt-deflation cycle for six years following the Asian Financial Crisis; the depreciation of the currencies of virtually all the other Asian countries meant that the international competitive positions of firms producing in Hong Kong were declining.

But there was no panic in the money market; interest rates did not increase because the Federal Reserve was providing liquidity to the market.56 In 1893 lack of confidence in the ability of the United States to maintain the gold standard under pressure from the silver interests led to money market pressure, bank failures, and downward pressure on prices of securities.57 The system is one of positive feedback. The debt-deflation cycles involve a decline in prices of assets and commodities which leads to a reduction in the value of collateral and induces banks to call loans or refuse new ones; firms sell commodities and inventories because their prices are in decline, and the decline in prices causes more and more firms to fail.


pages: 444 words: 151,136

Endless Money: The Moral Hazards of Socialism by William Baker, Addison Wiggin

Alan Greenspan, Andy Kessler, asset allocation, backtesting, bank run, banking crisis, Bear Stearns, Berlin Wall, Bernie Madoff, Black Swan, bond market vigilante , book value, Branko Milanovic, bread and circuses, break the buck, Bretton Woods, BRICs, business climate, business cycle, capital asset pricing model, carbon tax, commoditize, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crony capitalism, cuban missile crisis, currency manipulation / currency intervention, debt deflation, Elliott wave, en.wikipedia.org, Fall of the Berlin Wall, feminist movement, fiat currency, fixed income, floating exchange rates, foreign exchange controls, Fractional reserve banking, full employment, German hyperinflation, Great Leap Forward, housing crisis, income inequality, index fund, inflation targeting, Joseph Schumpeter, Kickstarter, laissez-faire capitalism, land bank, land reform, liquidity trap, Long Term Capital Management, lost cosmonauts, low interest rates, McMansion, mega-rich, military-industrial complex, Money creation, money market fund, moral hazard, mortgage tax deduction, naked short selling, negative equity, offshore financial centre, Ponzi scheme, price stability, proprietary trading, pushing on a string, quantitative easing, RAND corporation, rent control, rent stabilization, reserve currency, risk free rate, riskless arbitrage, Ronald Reagan, Savings and loan crisis, school vouchers, seigniorage, short selling, Silicon Valley, six sigma, statistical arbitrage, statistical model, Steve Jobs, stocks for the long run, Tax Reform Act of 1986, The Great Moderation, the scientific method, time value of money, too big to fail, Two Sigma, upwardly mobile, War on Poverty, Yogi Berra, young professional

Part 2 begins by discussing what our monetary system looked like prior to the last hundred years, when it was based upon silver and gold. Then moving into the modern era, accepted monetary theory is critically examined. Its applicability to understanding financial crises is weighed. The current meltdown has challenged its basic underlying assumptions, and it was predicted by not a single academic close to the Fed. Either debt deflation or inflation might occur, depending upon how monetary authorities interpret these theories and what this implies for their policy actions. While the political will to print could build in momentum, it may be difficult to ignore the downside pull of having established excess debt relative to our national income that is on the order of $20 trillion to $25 trillion.

Whatever the storyline, the experience of the United States is that the Great Depression earned its name not only from the depth to which the economy fell by 1932, but also because of its length. While the observations of Higgs are trenchant, if one instead views the period through the simpler explanation of Fisher’s debt deflation theory, the recovery from the Great Depression can be explained by economic actors having repaid debt or had debt extinguished through bankruptcy by 1942, making them feel freer to make use of low interest rates and exploit profitable business expansion. In 1942 total debt including federal, state, and household had fallen to less than 160 percent of GDP from a peak of 300 percent in 1932.

Economic activity remained depressed through 1941 at the earliest and 1946 at the latest. The Academic Orthodoxy There have been a series of papers dealing with the transmission of the Great Depression, like a disease, through the gold standard. What this orthodoxy does is downplay the true cause as identified by Irving Fisher, debt deflation theory. It is a bit like celebrating the genius of those who strung power lines instead of acknowledging Thomas Edison for inventing the light bulb, Anyos Jedlik the dynamo, or Michael Faraday the alternator. Although the transmission mechanism was also described by Fisher in the 1930s, the first economists to trumpet this new thesis in recent times were Ehsan Choudhri and Levis Kochin in their paper: The Exchange Rate and the International Transmission of Flat-Earth Economics 95 Business Cycle Disturbances.20 In this article, regressions show what Bernanke states in his speech and has echoed in his academic work, that nations remaining on the gold standard were worse off, and those that recovered sooner had abandoned gold earlier.


pages: 586 words: 159,901

Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Alan Greenspan, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, bond market vigilante , book value, borderless world, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, capital controls, Carl Icahn, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, disinformation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, Glass-Steagall Act, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, junk bonds, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, long and variable lags, Louis Bachelier, low interest rates, market bubble, Mexican peso crisis / tequila crisis, Michael Milken, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, planned obsolescence, plutocrats, Post-Keynesian economics, price mechanism, price stability, prisoner's dilemma, profit maximization, proprietary trading, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Savings and loan crisis, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, stock buybacks, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

U.S. theories of, 137 function, 59 as "fundamental" (Marx), 244 information asymmetry, 172 market share by lending institution, 81 structure, 58-62 subordination to production (Marx), 237 U.S. international position, 61 see also bond markets; debt; money, psychology of credit crunch 0989-92), 158-161 credit gratuitiVioudhon), 302 credit rationing, 172 in Keynes's Treatise, 193-194 crime, business, 252 crises, corporate, financial interests assert power during, 265 crises, financial, 265 financiers' political uses of, 294-297 increasing prominence starting in 1970s, 222 money and, 93-94 Keynes, 202-205 Marx, 232-236 Third World, 110, 294-295 see also bailouts Crotty, James, 229 crowd psychology, 176-177, 185 currency markets, 41^9 crises, economic causes, 44 gold, 46-49 history, 41^4 mechanics and trading volume, 45—46 during trading week, 130-131 underlying values, 44-45 currency swaps, 35 Dale, James Davidson, 104 Davidson, Paul, 242, 243 Debreu, Gerard, 139 debt appropriate underlying assets, 247 as conservatizing force, 66 ideal level, pre-MM, 150 and 1930s depression, 155-158 and political power, 4, 23 reasons to shun, 149 by sector, 58-59 by type (table), 60 see also credit/credit markets; specific sectors debt deflation (Fisher), 157 modern absence of, 234-235 why there was none in early 1990s, 158-161 deficit financing, 297 deflations. See debt deflation (Fisher) Delaney, Kevin, 265 Democratic Party, 87 deposit insurance, 88 Depository Intermediary Deregulation and Monetary Control Act of 1980, 87 depreciation, 140 Depression, 1930s financial mechanisms, 155-158 Friedman and Schwartz on, 200 derivatives, 28-41 custom, 34-37 defined, 28 early, 29 economic logic, 37-41 market-traded standardization and centralization, 32-33 technical details, 29 more complex strategies, 31 motives for, 31 and risk, individual and systemic, 40-41 short selling, 29-30 trading prowess, 32 winners, long-term, 32 development, 322 protectionism and, 300 Dickens, Edwin, 219 DiNapoli, Tom, 180 direct investment vs. portfolio investment, 109 Third World, 110-111 in U.S., dismal returns, 117 disclosure requirements, corporate, 91 discounting, interest rates and, 119-120 distribution Gini index, 115 income CEO vs. worker pay, 239 Manhattan's inequality, 79 polarization in 1920s, 200 wealth, 4, 64-68 dividends, 73, 135 changes in, and excess volatility, 175 payout ratios, and investment, 154 retention ratio, 75 unexpected changes in, 169 yields, 125 dollar, U.S.

In a classic paper, Irving Fisher (1933) argued that financial involvement made all the difference between routine downturns (not yet called recessions) and big-time collapses like 1873 and 1929. Typically, such a collapse followed upon a credit-powered boom, which left businesses excessively debt-burdened, unable to cope with an economic slowdown. The process, which he labeled a debt deflation, was fairly simple, and makes great intuitive sense, but it was an argument largely forgotten by mainstream economics in the years after World War II. A mild slowdown, caused perhaps by some shock to confidence, leaves debtors unable to meet their obligations out of current cash flows. To satisfy their creditors, they liquidate assets, which depresses the prices of real goods.

Even the extraordinary fiscal stringency of recent years can be seen in this light, as the U.S. government's own financial capacity was severely strained, and deficit reduction kept the brake on real economic activity from the 1990 budget deal onwards (the mirror image of the intensely stimulative Reagan deficits of the 1980s).^^ When the early 1990s recession officially began in July 1990, it was not unreasonable to expect the first debt deflation in 60 years. Total debts of MARKET MODELS nonfinancial corporations (NFCs) were almost 15 times pretax profits, compared with under 11 times in 1929. Interest payments claimed 39% of pretax profits, compared with 14% in 1929.^^ Here again, Bernanke and colleagues (Bernanke and Campbell 1988; Bernanke, Campbell, and Whited 1990 — BCW) have done illuminating work.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

"hyperreality Baudrillard"~20 OR "Baudrillard hyperreality", accounting loophole / creative accounting, bank run, banking crisis, banks create money, behavioural economics, Bernie Madoff, bitcoin, Bitcoin Ponzi scheme, blockchain, borderless world, Bretton Woods, BRICs, business cycle, capital controls, capitalist realism, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computer age, conceptual framework, credit crunch, cross-subsidies, currency risk, David Graeber, debt deflation, dematerialisation, disintermediation, Dogecoin, emotional labour, eurozone crisis, fiat currency, financial engineering, financial exclusion, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, gentrification, German hyperinflation, Goldman Sachs: Vampire Squid, Herbert Marcuse, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kickstarter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liberal capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, Minsky moment, mobile money, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, National Debt Clock, Neal Stephenson, negative equity, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, peer-to-peer, peer-to-peer lending, Ponzi scheme, post scarcity, post-Fordism, Post-Keynesian economics, postnationalism / post nation state, predatory finance, price mechanism, price stability, quantitative easing, quantitative trading / quantitative finance, remote working, rent-seeking, reserve currency, Richard Thaler, risk free rate, Robert Shiller, Satoshi Nakamoto, scientific management, Scientific racism, seigniorage, Skype, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, Veblen good, Wave and Pay, Westphalian system, WikiLeaks, Wolfgang Streeck, yield curve, zero-coupon bond

“Yesterday’s 50 basis-point Fed funds rate cut was a very positive signal that Fed policy makers grasp that we’re facing a debt-deflation Minsky Moment,” he warned in January 2001 (McCulley 2001a: 4). Three months later, he wrote, “Macroeconomic life after bubbles is not a self-correcting process of renewal, but a self-feeding process of debt deflation—to wit, it’s a Minsky Moment” (McCulley 2001b: 4). 40 This expression was first used in relation to the bailout of Continental Illinois in 1984. 41 Irving Fisher also captured the dynamics of debt deflation in “The Debt-Deflation Theory of Great Depressions” (Fisher 1933). 42 Money manager capitalism refers to an economy dominated by fund managers as opposed to banks.

This speculation is simply what banks rationally do: substituting time deposits for demand deposits, replacing lines of credit with actual credit, varying the efficiency with which reserves are used through interbank transactions in reserves, and selling debt as commercial paper in the open market, further activating short-term cash balances.37 According to Minsky, trouble always starts for Ponzi finance as inflation builds and the authorities try to exorcise it through monetary restraint. Rising interest rates lead to rising debt costs, whereupon “the net worth of previous Ponzi units will quickly evaporate” (Minsky 1992: 8). This situation leads to debt deflation, as units short of cash try to sell out their positions, and asset values rapidly fall. From this point onward, the very financing techniques that had been used to fuel the credit expansion now exaggerate the speed and severity of the contraction. In the later stages of the boom, loan terms would have risen sharply and would increasingly have been financed with short-term borrowings.

Keynes described this assumption as a tendency to fall back on convention. It is caused not by an underlying belief that nothing ever changes. Rather, it is an expectation that nothing will change in the near future.38 Just as investors feel relatively secure during a boom, during the subsequent debt deflation, the guiding wisdom is that all debts lead to disaster: “Each state nurtures forces that lead to its own destruction” (Minsky 1975: 126). In April 2006, the IMF’s “Global Financial Stability Report” noted a “growing recognition that the dispersion of credit risk by banks to a broader and more diverse group of investors, rather than warehousing such risks on their balance sheets, has helped to make the banking and overall financial system more resilient” (IMF 2006: 51).


pages: 82 words: 24,150

The Corona Crash: How the Pandemic Will Change Capitalism by Grace Blakeley

Anthropocene, asset-backed security, basic income, Big Tech, bond market vigilante , Bretton Woods, business cycle, capital controls, carbon tax, central bank independence, coronavirus, corporate governance, COVID-19, creative destruction, credit crunch, crony capitalism, debt deflation, decarbonisation, degrowth, deindustrialization, don't be evil, financial deregulation, Francis Fukuyama: the end of history, full employment, gig economy, global pandemic, global value chain, green new deal, Greenspan put, income inequality, informal economy, inverted yield curve, invisible hand, Jeff Bezos, liberal capitalism, light touch regulation, lockdown, low interest rates, Martin Wolf, Modern Monetary Theory, moral hazard, move fast and break things, Network effects, North Sea oil, Northern Rock, offshore financial centre, pensions crisis, Philip Mirowski, post-war consensus, price mechanism, quantitative easing, regulatory arbitrage, rent control, reshoring, Rishi Sunak, savings glut, secular stagnation, shareholder value, social distancing, structural adjustment programs, too big to fail, universal basic income, unorthodox policies, Washington Consensus, yield curve

‘But however much of a plan they may create’, he added, ‘we still remain under capitalism – capitalism, it is true, in its new stage, but still, unquestionably, capitalism.’ Without emergency action by governments, the coronavirus crisis would have immediately spiralled beyond all control. Fire sales of assets undertaken either by desperate debtors or during insolvency proceedings would have catalysed a process of debt deflation, where falling asset prices increase the real value of outstanding debts.2 Seeing the value of their assets fall relative to their liabilities, even formerly creditworthy households, businesses and financial institutions would have found themselves facing insolvency. This debt-deflationary cycle was avoided at the cost of providing near-unlimited support and guarantees to corporations and financial institutions – in other words, corporate welfare designed to save capitalism from itself.

But it was not long before these debts began to accrue once again. 37 See, for example, ‘Coronavirus: Cancel the Debts of Countries in the Global South’, Jubilee Debt Campaign, 18 March 2020, jubileedebt.org.uk. 38 Sarah-Jayne Clifton, ‘Coronavirus Could Collapse the World’s Poorest Economies’, Tribune, 11 April 2020, tribunemag.co.uk. 4 Reconstruction 1 ‘Republicans Suddenly Find a Bailout They Can Back’, Politico, 18 March 2020; ‘Trump Pivots to “Phase Two”, Risking More Death to Save Economy’, Bloomberg, 6 May 2020. 2 Irving Fisher, The Debt-Deflation Theory of Great Depressions, Cleveland: Econometric Society, 1933. 3 CEIC Data, ‘Private Consumption: % of GDP by Country Comparison’, 2020, ceicdata.com. 4 Gary Stevenson, ‘Following the Coronavirus Money Trail’, Open Democracy, 27 March 2020. 5 Luke Savage, ‘One Cheque Isn’t Enough’, Jacobin, 26 May 2020. 6 Richard Partington, ‘Living Costs Rising Faster for UK’s Poorest Families Than Richest’, Guardian, 25 April 2019. 7 Claer Barrett, ‘Inside the UK’s Debt Crisis’, Financial Times, 26 April 2019. 8 Richard Partington, ‘UK Households Spend above Their Income for Longest Period Since 1980s’, Guardian, 29 March 2019. 9 Ann Pettifor, The Case for the Green New Deal, London and New York: Verso, 2019. 10 David Wallace-Wells, The Uninhabitable Earth: Life After Warming, New York: Tim Duggan/Random House, 2020. 11 Alejandra Borunda, ‘The Last Five Years Were the Hottest Ever, NASA and NOAA Declare’, National Geographic, 9 April 2019, nationalgeographic.co.uk. 12 Laurie Laybourn-Langton, Lesley Rankin and Darren Baxter, This Is a Crisis: Facing up to the Age of Environmental Breakdown, London: Institute for Public Policy Research, 2019. 13 Will Steffen et al., ‘Trajectories of the Earth System in the Anthropocene’, PNAS August 2018, 115, no. 33: 8252–59, pnas.org. 14 Fiona Harvey, ‘What Is the Carbon Bubble and What Will Happen if It Bursts?’


pages: 466 words: 127,728

The Death of Money: The Coming Collapse of the International Monetary System by James Rickards

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Bear Stearns, Ben Bernanke: helicopter money, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bretton Woods, BRICs, business climate, business cycle, buy and hold, capital controls, Carmen Reinhart, central bank independence, centre right, collateralized debt obligation, collective bargaining, complexity theory, computer age, credit crunch, currency peg, David Graeber, debt deflation, Deng Xiaoping, diversification, Dr. Strangelove, Edward Snowden, eurozone crisis, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, G4S, George Akerlof, global macro, global reserve currency, global supply chain, Goodhart's law, Growth in a Time of Debt, guns versus butter model, Herman Kahn, high-speed rail, income inequality, inflation targeting, information asymmetry, invisible hand, jitney, John Meriwether, junk bonds, Kenneth Rogoff, labor-force participation, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market design, megaproject, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mutually assured destruction, Nixon triggered the end of the Bretton Woods system, obamacare, offshore financial centre, oil shale / tar sands, open economy, operational security, plutocrats, Ponzi scheme, power law, price stability, public intellectual, quantitative easing, RAND corporation, reserve currency, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Silicon Valley startup, Skype, Solyndra, sovereign wealth fund, special drawing rights, Stuxnet, The Market for Lemons, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, trade route, undersea cable, uranium enrichment, Washington Consensus, working-age population, yield curve

In deflation, the real value of cash increases, so individuals and businesses hoard cash instead of spending it or investing in new land, plant, and equipment. This entire process of asset sales, hoarding, and price declines is called a liquidity trap, famously described by Irving Fisher in his 1933 work The Debt-Deflation Theory of Great Depressions and by John Maynard Keynes in his most influential work, The General Theory of Employment, Interest and Money. In a liquidity trap, the response to money printing is generally weak, and from a Keynesian perspective, fiscal policy is the preferred medicine. While the response to money printing may be weak, it is not nil.

Past is not necessarily prelude; still, the combination of extreme leverage, economic weakness, and a looming recession all put the stock market at risk of a historic crash. Any such crash would result in a blow to confidence that no amount of Fed money printing could assuage. It would trigger an extreme version of Fisher’s debt-deflation cycle. In this scenario, deflation would finally gain the upper hand over inflation, and the economic dynamics of the early 1930s would return with a vengeance. Another factor that could contribute to a worst-case result is the hidden leverage on bank balance sheets in the form of derivatives and asset swaps.

The contract theory of money has philosophical and legal roots as old as Aristotle and, in more recent centuries, John Locke and Samuel von Pufendorf. It is presented here in an updated version for the purpose of illuminating the intrinsic rather than extrinsic value of money. the quantity theory of money . . . : Irving Fisher, “The Debt-Deflation Theory of Great Depressions,” Econometrica (1933), available from the Federal Reserve Bank of St. Louis, http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf; and Milton Friedman, Studies in the Quantity Theory of Money (Chicago: University of Chicago Press, 1967). the state theory of money . . . : Georg Friedrich Knapp, The State Theory of Money (San Diego: Simon, 2003).


pages: 376 words: 109,092

Paper Promises by Philip Coggan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Alan Greenspan, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, bond market vigilante , Bretton Woods, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, Goodhart's law, Greenspan put, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, John Meriwether, joint-stock company, junk bonds, Kenneth Rogoff, Kickstarter, labour market flexibility, Les Trente Glorieuses, light touch regulation, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, market clearing, Martin Wolf, Minsky moment, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, negative equity, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, Suez crisis 1956, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce, zero-sum game

The second problem was outlined in the last chapter. A lot of debt is secured against asset values. If debtors have to sell assets to repay loans, the price of those assets will fall, lowering the collateral of all lenders. The value of the debt is fixed; the value of the assets is variable. The danger is a debt-deflation spiral, first described by Irving Fisher in the 1930s,22 in which falling prices depress activity. Consumers never spend today on the grounds that goods will be cheaper tomorrow. Fisher described a process with nine links. Debt liquidation leads to distress selling, followed by a contraction of the deposit currency, a fall in prices, a greater fall in the net worth of businesses, a decline in profits, falls in output and employment, resulting in loss of confidence, hoarding and disruptions to interest rates.

The combination of paper money and the adoption of floating exchange rates, in the developed world at least, facilitated a massive increase in the volume of debt. While individual countries can recover from debt crises, global debt crises are much more dangerous. The problems experienced in the 1930s – the debt/deflation spiral, the paradox of thrift – have returned. Let us start with some simplified sums. Assume that a country has government debt equivalent to 100 per cent of its GDP, or annual output. And let us assume that the average interest rate on its debt is 5 per cent. This means the government pays out 5 per cent of economic output in interest payments.

Mohanty and Fabrizio Zampolli, ‘The Future of Public Debt: Prospects and Implications’, Bank for International Settlements, Working Papers 300. 21 Quoted in Arnaud Mares, ‘Ask Not Whether Governments Will Default, But How’, Morgan Stanley research note, 20 September 2010. 22 Irving Fisher, ‘The Debt-Deflation Theory of Great Depressions’, Econometrica , 1 (4), 1933. 23 Reinhart and Rogoff, in ‘Ask Not Whether Governments Will Default’. 24 For a sweeping critique, see John Irons and Josh Bivens, ‘Government Debt and Economic Growth: Overreaching Claims of Debt “Threshold” Suffer from Theoretical and Empirical Flaws’, Economic Policy Institute briefing paper no. 271, July 2010. 25 Antonio Afonso and Davide Furceri, ‘Government Size, Composition, Volatility and Economic Growth’, School of Economics and Management, Technical University of Lisbon, working paper ISSN 0874-4548, January 2008. 11 .


pages: 585 words: 151,239

Capitalism in America: A History by Adrian Wooldridge, Alan Greenspan

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, agricultural Revolution, air freight, Airbnb, airline deregulation, Alan Greenspan, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, barriers to entry, Bear Stearns, Berlin Wall, Blitzscaling, Bonfire of the Vanities, book value, Bretton Woods, British Empire, business climate, business cycle, business process, California gold rush, Charles Lindbergh, cloud computing, collateralized debt obligation, collective bargaining, Corn Laws, Cornelius Vanderbilt, corporate governance, corporate raider, cotton gin, creative destruction, credit crunch, debt deflation, Deng Xiaoping, disruptive innovation, Donald Trump, driverless car, edge city, Elon Musk, equal pay for equal work, Everybody Ought to Be Rich, Fairchild Semiconductor, Fall of the Berlin Wall, fiat currency, financial deregulation, financial engineering, financial innovation, fixed income, Ford Model T, full employment, general purpose technology, George Gilder, germ theory of disease, Glass-Steagall Act, global supply chain, Great Leap Forward, guns versus butter model, hiring and firing, Ida Tarbell, income per capita, indoor plumbing, informal economy, interchangeable parts, invention of the telegraph, invention of the telephone, Isaac Newton, Jeff Bezos, jimmy wales, John Maynard Keynes: technological unemployment, Joseph Schumpeter, junk bonds, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, labor-force participation, land bank, Lewis Mumford, Louis Pasteur, low interest rates, low skilled workers, manufacturing employment, market bubble, Mason jar, mass immigration, McDonald's hot coffee lawsuit, means of production, Menlo Park, Mexican peso crisis / tequila crisis, Michael Milken, military-industrial complex, minimum wage unemployment, mortgage debt, Myron Scholes, Network effects, new economy, New Urbanism, Northern Rock, oil rush, oil shale / tar sands, oil shock, Peter Thiel, Phillips curve, plutocrats, pneumatic tube, popular capitalism, post-industrial society, postindustrial economy, price stability, Productivity paradox, public intellectual, purchasing power parity, Ralph Nader, Ralph Waldo Emerson, RAND corporation, refrigerator car, reserve currency, rising living standards, road to serfdom, Robert Gordon, Robert Solow, Ronald Reagan, Sand Hill Road, savings glut, scientific management, secular stagnation, Silicon Valley, Silicon Valley startup, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, stem cell, Steve Jobs, Steve Wozniak, strikebreaker, supply-chain management, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, total factor productivity, trade route, transcontinental railway, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, Unsafe at Any Speed, Upton Sinclair, urban sprawl, Vannevar Bush, vertical integration, War on Poverty, washing machines reduced drudgery, Washington Consensus, white flight, wikimedia commons, William Shockley: the traitorous eight, women in the workforce, Works Progress Administration, Yom Kippur War, young professional

Even Britain, which had championed free trade since the repeal of the Corn Laws in 1846, embraced protectionism in February 1932, by raising tariffs and providing special preferences for the empire and a few favored trading partners. The volume of global business shrunk from some $36 billion of traffic in 1929 to about $12 billion by 1932.17 The Depression’s tendency to feed on itself was reinforced by what Irving Fisher called “debt deflation.” The explosion of lending in the 1920s had worked very well so long as people earned a regular (and rising) income. The combination of rising unemployment and stagnating (or falling) real incomes magnified economic problems. Society’s debt obligations rose while its ability to meet those obligations declined.

Society’s debt obligations rose while its ability to meet those obligations declined. Deflation forced debtors to reduce consumption, leading to more declines in prices. Declines in prices led to general economic contraction. By the beginning of 1934, more than a third of homeowners in the average American city were behind in their mortgage payments. Debt deflation also amplified the malign effects of tariffs in general and Smoot-Hawley’s new tariffs in particular. Tariffs were levied on the volume of imports (so many cents per pound, say) rather than value. So as deflation took hold after 1929, effective tariff rates climbed, discouraging imports. By 1932, the average American tariff on dutiable imports was 59 percent, higher than it had ever been before except for a brief moment in 1830.

By 1932, the average American tariff on dutiable imports was 59 percent, higher than it had ever been before except for a brief moment in 1830. If the Tariff Act raised duties by 20 percent, deflation accounted for half as much again. Global trade collapsed. In 1932, U.S. imports and exports were both one-third of what they had been in 1929. Debt deflation was pronounced in agriculture. American farmers had thrived as never before during the Great War because their European competitors were frequently unable to operate. Agricultural prices doubled during the war as foreign demand surged, and farmers borrowed heavily in order to invest in agricultural machinery or reclaim marginal land.


pages: 241 words: 81,805

The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis by Tim Lee, Jamie Lee, Kevin Coldiron

active measures, Alan Greenspan, Asian financial crisis, asset-backed security, backtesting, bank run, Bear Stearns, Bernie Madoff, Bretton Woods, business cycle, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, currency risk, debt deflation, disinformation, distributed ledger, diversification, financial engineering, financial intermediation, Flash crash, global reserve currency, implied volatility, income inequality, inflation targeting, junk bonds, labor-force participation, Long Term Capital Management, low interest rates, Lyft, margin call, market bubble, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, negative equity, Network effects, Ponzi scheme, proprietary trading, public intellectual, purchasing power parity, quantitative easing, random walk, rent-seeking, reserve currency, rising living standards, risk free rate, risk/return, sharing economy, short selling, short squeeze, sovereign wealth fund, stock buybacks, tail risk, TikTok, Uber and Lyft, uber lyft, yield curve

This is what they believe. The earlier chart (Figure 7.1) showed household holdings of money as a percentage of total household financial assets. Figure 7.3 shows money as a percentage of GDP. Looked at in this way, deposits have recaptured most of the loss that took place during the 1990s. Given the tendency to debt deflation, this is reasonable, but it still falls short of what might have been expected. 60 55 50 45 40 35 30 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 FIGURE 7.3 US household holdings of money as a percentage of GDP Source of data: Federal Reserve Board, US Bureau of Economic Analysis The picture changes when we look at Figure 7.4.

The Monetary Ramifications of the Carry Regime 121 This perspective can then help to explain more simply phenomena that were observable in the years leading up to the 2007–2009 financial crisis and subsequently. First, as should be expected in the wake of a huge financial crisis and with an underlying trend toward debt deflation, the demand to hold money actually did rise substantially. Second, that increased desire to hold money was at least partly satisfied by the perception of what constitutes a monetary asset being hugely broadened as a result of central bank actions. From a monetary perspective this is the essence of the carry regime.

See also currency carry trades bailouts of, 197, 198 central bank balance sheets as, 216–217 in commodities, 128–129 credit growth and, 37–42 in dollars, 14–23, 15f, 16f Euro-funded, 31 exchange rate stability and returns from, 52 INDEX by Federal Reserve, 103 government policies and returns from, 48 by hedge funds, 73–75 leverage in, 33–35 leveraged buyouts as, 78–80 as liquidity-providing trades, 35–36 measuring flow of, 41 non-currency forms of, 34 oil, 128–133 profit explanation attempts for, 48 sovereign wealth funds and, 75–76 S&P 500 as, 160–162 carry trades characteristics of, 3–5 defining, 2 risk of, 3, 5 sawtooth return pattern of, 4 short volatility of, 4 types of, 4 cash yields, 204 CBOE (Chicago Board Options Exchange), 57 CDOs (collateralized debt obligations), 36–37, 95, 135 CDS (credit default swap), 34, 36, 135 celebrity, 186, 187 central banks balance sheets of, as carry trades, 216–217 carry and, 5–8 carry regime and policies of, 86–89, 107, 208, 210 carry regime and power of, 123 carry regime collapses and, 215–216 carry regime weakening, 7 credit demand and, 13 deflationary pressures and, 115 foreign exchange markets and, 11, 13, 20 interventionist policies of, 201–202 liquidity and, 110–111 market stabilization by, 5–6 moral hazard and, 195, 200 volatility selling by, 101–105 Chicago Board Options Exchange (CBOE), benchmark indexes by, 57 China, 19 circular flow of dollars, 18–19, 18f classical equilibrium model of economy, 142 currency carry trade returns and, 10 223 collateralized debt obligations (CDOs), 36–37, 95, 135 Columbia MusicLab, 181–182, 184, 188 commodities, carry trade in, 128–129 compensation incentives hedge fund strategies and, 73 proprietary trading and, 77 constant leverage, 93 consumer price index, Turkey, 44 consumption utility, 100 corporations carry strategies by, 80–83 debt issuance by, 81–83, 82f, 83f share buybacks by, 82, 83f covered interest parity principle, 21, 22 credit Australia growth of, 40f, 41 availability of, 4 carry bubbles and demand for, 114 carry trades and growth of, 37–42 central bank influence on demand for, 13 debt levels and demand for, 114 interest rates and demand for, 110 moral hazard issues and, 199 credit booms, currency carry trades contributing to, 13 credit bubbles carry bubbles and, 37–38, 41 mid-2000s, 36 credit carry trades, risk mispricing and, 35–37 credit default swap (CDS), 34, 36, 135 credit demand, 13 credit derivatives, 135 cross-currency basis, 22 cryptocurrencies, 211, 212 cumulative advantage carry as, 181–184 evolution and, 188–190 self-perpetuation and, 186–188 currency carry trades, 9, 129 academic interest in, 47–49 covered interest parity principle and, 21–22 credit bubbles and, 36 credit creation by, 20 current account deficits and, 17 emerging markets and returns from, 55 equity carry correlation with, 56–59, 58f 224 currency carry trades (continued) equity volatility and returns from, 59 exchange rate risks of, 17 exchange rate stability and returns from, 52 expected returns, 10 global financial crisis of 2007-2009 and, 28–29 historical returns, 50–52, 50f, 51f, 53f history of, 23–31, 24f identifying, 11–12 interest rate differentials and returns from, 60–62 Japan and, 17–18 liquidity provision and, 88 liquidity swaps and, 104–105 market pricing efficiency and, 11 money supply effects of, 20–21 net claims as proxy for measuring, 41 portfolio for analyzing, 49–50 real economy links with, 56 United States and, 17–20 volatility signs of collapse in, 215 currency markets, 10 currency risk, 12 currency risk aversion, 13 currency volatility, 62 current account deficit of Thailand, 25 of United States, 17 debt. See also collateralized debt obligations carry regime and levels of, 168 corporate issuance of, 81–83, 82f, 83f credit demand and levels of, 114 deflation from high levels of, 114 of oil producers, 130 Turkish, 202 debt deflation, 119, 121 deflation carry crashes and, 170 carry regime and, 113–121, 203, 210, 213 central bank interventions and, 115 debt, 119, 121 debt levels and, 114 deflation shock, 7, 121–124 deleveraging, 98 short squeezes on liquidity and, 165 INDEX delta, 149 delta hedging, 149–151 Depp, Johnny, 184 Divisia money, 111 dollar (US) carry trade in, 14–23, 15f, 16f circular flow of, 14–23 dominant international financial system role of, 22, 196 value of, 100 dollars, circular flow of, 18–19, 18f Doyle, Joseph, 59 economic indicators, 56 carry bubbles distorting, 44–45 emerging currencies, 55, 55n6 liquidity of, 62 emerging markets carry crashes in, 201 carry strategy returns and, 55 employee compensation hedge funds and, 73 proprietary trading and, 77 reporting horizons and, 71 equity leverage and, 93–94 volatility of, currency carry returns and, 59 volatility premiums in, 162 equity carry trade, currency carry correlation with, 56–59, 58f equity indexes, sovereign bonds correlation to, 161 equity risk trades, S&P 500 correlation with, 99 ETFs (exchange-traded funds), 111–112 ETNs (exchange-traded notes), 90, 92 EU.


pages: 394 words: 85,734

The Global Minotaur by Yanis Varoufakis, Paul Mason

active measures, Alan Greenspan, AOL-Time Warner, banking crisis, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business climate, business cycle, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, declining real wages, deindustrialization, Easter island, endogenous growth, eurozone crisis, financial engineering, financial innovation, first-past-the-post, full employment, Glass-Steagall Act, Great Leap Forward, guns versus butter model, Hyman Minsky, industrial robot, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, light touch regulation, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market fundamentalism, Mexican peso crisis / tequila crisis, military-industrial complex, Money creation, money market fund, mortgage debt, Myron Scholes, negative equity, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, paper trading, Paul Samuelson, planetary scale, post-oil, price stability, quantitative easing, reserve currency, rising living standards, Ronald Reagan, special economic zone, Steve Jobs, structural adjustment programs, Suez crisis 1956, systematic trading, too big to fail, trickle-down economics, urban renewal, War on Poverty, WikiLeaks, Yom Kippur War

But since, at the level of the national economy, society’s overall demand is the sum of private and public expenditure, when a large segment of the business community tries to reduce debt (by cutting expenditure), overall demand declines, sales drop, businesses close their doors, unemployment rises and prices fall. As prices fall, consumers decide to wait for them to fall further before buying costly items. A vicious debt–deflation cycle thus takes hold. Now, since this is a deficit country, the government is more likely than not to be labouring under an already considerable budget deficit (with tax revenue less than expenditure) and a large accumulated public debt. The recession squeezes taxes, boosts the state’s deficit and forces the government to pay higher interest rates to service its increasing debts.

The proposal was both simple and audacious: the ICU would grant each member country an overdraft facility, i.e. the right to borrow at zero interest from the international central bank. Loans in excess of 50 per cent of a deficit country’s average trade volume (measured in bancors) would also be made, but at the cost of a fixed interest rate. In this manner, deficit countries would be given the flexibility to boost demand in order to arrest any debt–deflation cycle without having to devalue the currency. At the same time, there would be a penalty for excess trade surpluses: recognizing that a systematic surplus is the obverse of a systematic deficit, Keynes’ proposal stipulated that any country with a trade surplus that exceeded a certain percentage of its trade volume should be charged interest, which would force its currency to appreciate.

., 149, 156, 157 Byrnes, James, 68 capital, and the human will, 18–19 capitalism: dynamic system, 139–40; free market, 68; generation of crises, 34; global, 58, 72, 114, 115, 133; Greenspan and, 11–12; Marxism, 17–18; static system, 139; supposed cure for poverty, 41–2; surplus recycling mechanisms, 64–5 capitalists, origin of, 31 car production, 70, 103, 116, 157–8 carry trade, 189–90 Carter, Jimmy, 99, 100 CDOs (collateralized debt obligations), 141–2, 147–8, 149, 150, 153; for crops, 163; eurozone, 205; explanation, 6–9; France, 203; function, 130–2; Greece, 206 see also EFSF; Geithner–Summers Plan CDSs (credit default swaps), 149, 150, 153, 154, 176, 177 CEOs (chief executive officers), 46, 48, 49 Chamber of Commerce, British, 152 cheapness, ideology of, 124 Chiang Kai-shek, 76 Chicago Commodities Exchange, 120 Chicago Futures Exchange, 163 China: aggregate demand, 245; Crash of 2008, 156, 162; currency, 194, 213, 214, 217, 218, 252; economic development, 106–7; effects of the Crash of 2008, 3; financial support for the US, 216; global capital, 116; Global Plan, 76; growth, 92; rise and impact, 212–18, 219–20 Chrysler, 117, 159 CIA (Central Intelligence Agency), 69 Citigroup, 149, 156, 158 City of London: Anglo-Celtic model, 12; Crash of 2008, 148, 152; debt in relation to GDP, 4–5; financialization, 118–19; under Thatcher, 138; wealth of merchants, 28 civilization, 27, 29–30, 128 Clinton, Hillary, 212, 215–16 Cold War, 71, 80, 81, 86 collateralized debt obligations see CDOs commodification: resistance to, 53–4; rise of, 30, 33, 54; of seeds, 175 commodities: global, 27–8; human nature not, 53; labour as, 45, 49, 54; money as, 45, 49; prices, 96, 98, 102, 125; trading, 31, 175 common market, European, 195 communism, collapse of, 22, 107–8 complexity, and economic models, 139–40 Condorcet, Nicholas de Caritat, marquis de, 29, 32 Congress (US): bail-outs, 77, 153–4, 155; import tariff bill, 45 Connally, John, 94–5 council houses, selling off, 137, 138 Crash of 1907, 40 Crash of 1929, 38–43, 44, 181 Crash of 2008, 146–68; aftermath, 158–60; chronicle, 2007, 147–9; chronicle, 2008, 149, 151–8; credit default swaps, 150; effects, 2–3; epilogue, 164–8; explanations, 4–19; in Italy, 237; review, 160–4; in Spain, 237; warnings, 144–5 credit crunch, 149, 151 credit default swaps (CDSs), 149, 150, 153, 154, 176, 177 credit facilities, 127–8 credit rating agencies, 6–7, 8, 9, 20, 130 crises: as laboratories of the future, 28; nature of, 141; pre-1929, 40; pre-2008, 2; proneness to, 30; redemptive, 33–5, 35 currency unions, 60–1, 61–2, 65, 251 Cyprus, Britain’s role in, 69, 79 Daimler-Benz, 117 DaimlerChrysler, 117 Darling, Alistair, 159 Darwinian process, 167 Das Kapital (Marx), 49 de Gaulle, Charles, 76, 93 Debenhams, takeover of, 119 debt: and GDP, 4–5; unsecured, 128; US government, 92; US households, 161–2 see also CDOs; leverage debt–deflation cycle, 63 deficits: in the EU, 196; US budget, 22–3, 25, 112, 136, 182–3, 215–16; US trade, 22–3, 25, 111, 182–3, 196, 227 Deng Xiao Ping, 92, 212 Depressions: US 1873–8, 40; US Great Depression, 55, 58, 59, 80 deregulations, 138, 143, 170 derivatives, 120, 131–2, 174, 178 Deutschmark, 74, 96, 195, 197 Dexia, 154 distribution, and production, 30, 31, 54, 64 dollar: devaluing, 188; flooding markets, 92–3; pegging, 190; reliance on, 57, 60, 102; value of, 96, 204; zone, 62, 78, 89, 164 dotcom bubble, 2, 5 Draghi, Mario, 239 East Asia, 79, 143, 144, 194 see also Asia; specific countries East Germany, 201, 202 see also Germany Eastern Europe, 108, 198, 203 ECB (European Central Bank): aftermath of Crash of 2008, 158; bank bail-outs, 203, 204; Crash of 2008, 148, 149, 155, 156, 157; European banking crisis, 208, 209–10; Greek crisis, 207; LTRO, 238; Maastricht Treaty, 199–200; toxic theory, 15 economic models, 139–42 Economic Recovery Advisory Board (ERAB), 180, 181 Economic Report of the President (1999), 116 ECSC (European Coal and Steel Community), 74, 75–6 Edison, Thomas, 38–9 Efficient Market Hypothesis (EMH), 15 EFSF (European Financial Stability Facility), 174, 175–7, 207, 208–9 EIB (European Investment Bank), 210 Eisenhower, Dwight D., 82 Elizabeth II, Queen, 4, 5 ERAB (Economic Recovery Advisory Board), 180, 181 ERM (European Exchange Rate Mechanism), 197 EU (European Union): economies within, 196; EFSF, 174; European Financial Stability Mechanism, 174; financial support for the US, 216; origins, 73, 74, 75; SPV, 174 euro see eurozone eurobonds, toxic, 175–7 Europa myth, 201 Europe: aftermath of Crash of 2008, 162; bank bail-outs, 203–5; Crash of 2008, 2–3, 12–13, 183; end of Bretton Woods system, 95; eurozone problems, 165; Geithner–Summers Plan, 174–7; oil price rises, 98; unemployment, 164 see also specific countries European Central Bank see ECB European Coal and Steel Community (ECSC), 74, 75–6 European Commission, 157, 203, 204 European Common Market, 195 European Exchange Rate Mechanism (ERM), 197 European Financial Stability Facility (EFSF), 174, 207, 208–9 European Financial Stability Mechanism, 174, 175–7 European Investment Bank (EIB), 210 European Recovery Progam see Marshall Plan European Union see EU eurozone, 61, 62, 156, 164; crisis, 165, 174, 204, 208–9, 209–11; European banks’ exposure to, 203; formation of, 198, 202; France and, 198; Germany and, 198–201; and Greek crisis, 207 exchange rate system, Bretton Woods, 60, 63, 67 falsifiability, empirical test of, 221 Fannie Mae, 152, 166 Fed, the (Federal Reserve): aftermath of Crash of 2008, 159; Crash of 2008, 148, 149, 151, 153, 155, 156, 157; creation, 40; current problems, 164; Geithner–Summers Plan, 171–2, 173, 230; Greenspan and, 3, 10; interest rate policy, 99; sub-prime crisis, 147, 149; and toxic theory, 15 feudalism, 30, 31, 64 Fiat, 159 finance: as a pillar of industry, 31; role of, 35–8 Financial Crisis Inquiry Commission, 166 financialization, 30, 190, 222 First World War, Gold Standard suspension, 44 food: markets, 215; prices, 163 Ford, Henry, 39 formalist economic model, 139–40 Forrestal, James, 68 Fortis, 153 franc, value against dollar, 96 France: aid for banks, 157; colonialism criticized, 79; EU membership, 196; and the euro, 198; gold request, 94; Plaza Accord, 188; reindustrialization of Germany, 74; support for Dexia, 154 Freddie Mac, 152, 166 free market fundamentalism, 181, 182 French Revolution, 29 G7 group, 151 G20 group, 159, 163–4 Galbraith, John Kenneth, 73 GATT (General Agreement on Tariffs and Trade), 78 GDP (Gross Domestic Product): Britain, 4–5, 88, 158; eurozone, 199, 204; France, 88; Germany, 88, 88; Japan, 88, 88; US, 4, 72, 73, 87, 88, 88, 161; world, 88 Geithner–Summers Plan, 159, 169–83; in Europe, 174–7; results, 178–81; in the US, 169–74, 170, 230 Geithner, Timothy, 170, 173, 230 General Motors (GM), 131–2, 157–8, 160 General Theory (Keynes), 37 geopolitical power, 106–8 Germany: aftermath of the Second World War, 68, 73–4; competition with US, 98, 103; current importance, 251; and Europe, 195–8; and the eurozone, 198–201, 211; global capital, 115–16; Global Plan, 69, 70; Greek crisis, 206; house prices, 129; Marshall Plan, 73; reunification, 201–3; support for Hypo Real Estate, 155; trade surplus, 251; trade surpluses, 158 Giscard d’Estaing, Valery, 93 Glass–Steagall Act (1933), 10, 180 global balance, 22 global imbalances, 251–2 Global Plan: appraisal, 85–9; architects, 68; end of, 100–1, 182; geopolitical ideology, 79–82; Germany, 75; Marshall Plan, 74; origins, 67–71; real GDP per capita, 87; unravelling of, 90–4; US domestic policies, 82–5 global surplus recycing mechanism see GSRM global warming, 163 globalization, 12, 28, 125 GM (General Motors), 131–2, 157–8, 160 gold: prices, 96; rushes, 40; US reserves, 92–3 Gold Exchange Standard, collapse, 43–5 Goodwin, Richard, 34 Great Depression, 55, 58, 59, 80 Greece: currency, 205; debt crisis, 206–8 greed, Crash of 2008, 9–12 Greek Civil War, 71, 72, 79 Greenspan, Alan, 3, 10–11 Greenwald, Robert, 125–6 Gross Domestic Product see GDP GSRM (global surplus recycling mechanism), 62, 66, 85, 90, 109–10, 222, 223, 224, 248, 252–6 HBOS, 153, 156 Heath, Edward, 94 hedge funds, 147, 204; LTCM, 2, 13; toxic theory, 15 hedging, 120–1 history: consent as driving force, 29; Marx on, 178; as undemocratic, 28 Ho Chi Minh, 92 Holland, 79, 120, 155, 196, 204 home ownership, 12, 127–8; reposessions, 161 Homeownership Preservation Foundation, 161 Hoover, Herbert, 42–3, 44–5, 230 House Committee on Un-American Activities, 73 house prices, 12, 128–9, 129, 138; falling, 151, 152 human nature, 10, 11–12 humanity, in the workforce, 50–2, 54 Hypo Real Estate, 155 Ibn Khaldun, 33 IBRD (International Bank for Reconstruction and Development) see World Bank Iceland, 154, 155, 156, 203 ICU (International Currency Union) proposal, 60–1, 66, 90, 251 IMF (International Monetary Fund): burst bubbles, 190; cost of the credit crunch, 151; Crash of 2008, 155–6, 156, 159; demise of social services, 163; on economic growth, 159; European banking crisis, 208; G20 support for, 163–4; Greek crisis, 207; origins, 59; South East Asia, 192, 193; Third World debt crisis, 108; as a transnational institution, 253, 254 income: distribution, 64; national, 42; US national, 43 India: Britain’s stance criticized, 79; Crash of 2008, 163; suicides of farmers, 163 Indochina, and colonization, 79 Indonesia, 79, 191 industrialization: Britain, 5; Germany, 74–5; Japan, 89, 185–6; roots of, 27–8; South East Asia, 86 infinite regress, 47 interest rates: CDOs, 7; post-Global Plan, 99; prophecy paradox, 48; rises in, 107 International Bank for Reconstruction and Development (IBRD) see World Bank International Currency Union (ICU) proposal, 60–1, 66, 90, 253 International Labour Organisation, 159 International Monetary Fund see IMF Iran, Shah of, 97 Ireland: bankruptcy, 154, 156; EFSF, 175; nationalization of Anglo Irish Bank, 158 Irwin, John, 97 Japan: aftermath of the Second World War, 68–9; competition with the US, 98, 103; in decline, 186–91; end of Bretton Woods system, 95; financial support for the US, 216; global capital, 115–16; Global Plan, 69, 70, 76–8, 85–6; house prices, 129; labour costs, 105; new Marshall Plan, 77; Plaza Accord, 188; post-war, 185–91; post-war growth, 185–6; relations with the US, 187–8, 189; South East Asia, 91, 191–2; trade surpluses, 158 joblessness see unemployment Johnson, Lyndon B.: Great Society programmes, 83, 84, 92; Vietnam War, 92 JPMorgan Chase, 151, 153 keiretsu system, Japan, 186, 187, 188, 189, 191 Kennan, George, 68, 71 Kennedy, John F., New Frontier social programmes, 83, 84 Keynes, John Maynard: Bretton Woods conference, 59, 60, 62, 109; General Theory, 37; ICU proposal, 60, 66, 90, 109, 254, 255; influence on New Dealers, 81; on investment decisions, 48; on liquidity, 160–1; trade imbalances, 62–6 Keynsianism, 157 Kim Il Sung, 77 Kissinger, Henry, 94, 98, 106 Kohl, Helmut, 201 Korea, 91, 191, 192 Korean War, 77, 86 labour: as a commodity, 28; costs, 104–5, 104, 105, 106, 137; hired, 31, 45, 46, 53, 64; scarcity of, 34–5; value of, 50–2 labour markets, 12, 202 Labour Party (British), 69 labourers, 32 land: as a commodity, 28; enclosure, 64 Landesbanken, 203 Latin America: effect of China on, 215, 218; European banks’ exposure to, 203; financial crisis, 190 see also specific countries lead, prices, 96 Lebensraum, 67 Left-Right divide, 167 Lehman Brothers, 150, 152–3 leverage, 121–2 leveraging, 37 Liberal Democratic Party (Japan), 187 liberation movements, 79, 107 LIBOR (London Interbank Offered Rate), 148 liquidity traps, 157, 190 Lloyds TSB, 153, 156 loans: and CDOs, 7–8, 129–31; defaults on, 37 London School of Economics, 4, 66 Long-Term Capital Management (LTCM) hedge fund collapse, 13 LTCM (Long-Term Capital Management) hedge fund collapse, 2, 13 Luxembourg, support for Dexia, 154 Maastricht Treaty, 199–200, 202 MacArthur, Douglas, 70–1, 76, 77 machines, and humans, 50–2 Malaysia, 91, 191 Mao, Chairman, 76, 86, 91 Maresca, John, 106–7 Marjolin, Robert, 73 Marshall, George, 72 Marshall Plan, 71–4 Marx, Karl: and capitalism, 17–18, 19, 34; Das Kapital, 49; on history, 178 Marxism, 181, 182 Matrix, The (film), 50–2 MBIA, 149, 150 McCarthy, Senator Joseph, 73 mercantilism, in Germany, 251 merchant class, 27–8 Merkel, Angela, 158, 206 Merrill Lynch, 149, 153, 157 Merton, Robert, 13 Mexico: effect of China on, 214; peso crisis, 190 Middle East, oil, 69 MIE (military-industrial establishment), 82–3 migration, Crash of 2008, 3 military-industrial complex mechanism, 65, 81, 182 Ministry for International Trade and Industry (Japan), 78 Ministry of Finance (Japan), 187 Minotaur legend, 24–5, 25 Minsky, Hyman, 37 money markets, 45–6, 53, 153 moneylenders, 31, 32 mortgage backed securities (MBS) 232, 233, 234 NAFTA (North American Free Trade Agreement), 214 National Bureau of Economic Research (US), 157 National Economic Council (US), 3 national income see GDP National Security Council (US), 94 National Security Study Memorandum 200 (US), 106 nationalization: Anglo Irish Bank, 158; Bradford and Bingley, 154; Fortis, 153; Geithner–Summers Plan, 179; General Motors, 160; Icelandic banks, 154, 155; Northern Rock, 151 NATO (North Atlantic Treaty Organization), 76, 253 negative engineering, 110 negative equity 234 neoliberalism, 139, 142; and greed, 10 New Century Financial, 147 New Deal: beginnings, 45; Bretton Woods conference, 57–9; China, 76; Global Plan, 67–71, 68; Japan, 77; President Kennedy, 84; support for the Deutschmark, 74; transfer union, 65 New Dealers: corporate power, 81; criticism of European colonizers, 79 ‘new economy’, 5–6 New York stock exchange, 40, 158 Nietzsche, Friedrich, 19 Nixon, Richard, 94, 95–6 Nobel Prize for Economics, 13 North American Free Trade Agreement (NAFTA), 214 North Atlantic Treaty Organization (NATO), 76 North Korea see Korea Northern Rock, 148, 151 Obama administration, 164, 178 Obama, Barack, 158, 159, 169, 180, 230, 231 OECD (Organisation for Economic Co-operation and Development), 73 OEEC (Organisation for European Economic Co-operation), 73, 74 oil: global consumption, 160; imports, 102–3; prices, 96, 97–9 OPEC (Organization of the Petroleum Exporting Countries), 96, 97 paradox of success, 249 parallax challenge, 20–1 Paulson, Henry, 152, 154, 170 Paulson Plan, 154, 173 Penn Bank, 40 Pentagon, the, 73 Plaza Accord (1985), 188, 192, 213 Pompidou, Georges, 94, 95–6 pound sterling, devaluing, 93 poverty: capitalism as a supposed cure for, 41–2; in China, 162; reduction in the US, 84; reports on global, 125 predatory governance, 181 prey–predator dynamic, 33–5 prices, flexible, 40–1 private money, 147, 177; Geithner–Summers Plan, 178; toxic, 132–3, 136, 179 privatization, of surpluses, 29 probability, estimating, 13–14 production: cars, 70, 103, 116, 157–8; coal, 73, 75; costs, 96, 104; cuts in, 41; in Japan, 185–6; processes, 30, 31, 64; steel, 70, 75 production–distribution cycle, 54 property see real estate prophecy paradox, 46, 47, 53 psychology, mass, 14 public debt crisis, 205 quantitative easing, 164, 231–6 railway bubbles, 40 Rational Expectations Hypothesis (REH), 15–16 RBS (Royal Bank of Scotland), 6, 151, 156; takeover of ABN-Amro, 119–20 Reagan, Ronald, 10, 99, 133–5, 182–3 Real Business Cycle Theory (RBCT), 15, 16–17 real estate, bubbles, 8–9, 188, 190, 192–3 reason, deferring to expectation, 47 recession predictions, 152 recessions, US, 40, 157 recycling mechanisms, 200 regulation, of banking system, 10, 122 relabelling, 14 religion, organized, 27 renminbi (RMB), 213, 214, 217, 218, 253 rentiers, 165, 187, 188 representative agents, 140 Reserve Bank of Australia, 148 reserve currency status, 101–2 risk: capitalists and, 31; riskless, 5, 6–9, 14 Roach, Stephen, 145 Robbins, Lionel, 66 Roosevelt, Franklin D., 165; attitude towards Britain, 69; and bank regulation, 10; New Deal, 45, 58–9 Roosevelt, Theodore (‘Teddy’), 180 Royal Bank of Scotland (RBS), 6, 151, 156; takeover of ABN-Amro, 119–20 Rudd, Kevin, 212 Russia, financial crisis, 190 Saudi Arabia, oil prices, 98 Scandinavia, Gold Standard, 44 Scholes, Myron, 13 Schopenhauer, Arthur, 19 Schuman, Robert, 75 Schumpter, Joseph, 34 Second World War, 45, 55–6; aftermath, 87–8; effect on the US, 57–8 seeds, commodification of, 163 shares, in privatized companies, 137, 138 silver, prices, 96 simulated markets, 170 simulated prices, 170 Singapore, 91 single currencies, ICU, 60–1 slave trade, 28 SMEs (small and medium-sized enterprises), 186 social welfare, 12 solidarity (asabiyyah), 33–4 South East Asia, 91; financial crisis, 190, 191–5, 213; industrialization, 86, 87 South Korea see Korea sovereign debt crisis, 205 Soviet Union: Africa, 79; disintegration, 201; Marshall Plan, 72–3; Marxism, 181, 182; relations with the US, 71 SPV (Special Purpose Vehicle), 174 see also EFSF stagflation, 97 stagnation, 37 Stalin, Joseph, 72–3 steel production, in Germany, 70 Strauss-Kahn, Dominique, 60, 254, 255 Summers, Larry, 230 strikes, 40 sub-prime mortgages, 2, 5, 6, 130–1, 147, 149, 151, 166 success, paradox of, 33–5, 53 Suez Canal trauma, 69 Suharto, President of Indonesia, 97 Summers, Larry, 3, 132, 170, 173, 180 see also Geithner–Summers Plan supply and demand, 11 surpluses: under capitalism, 31–2; currency unions, 61; under feudalism, 30; generation in the EU, 196; manufacturing, 30; origin of, 26–7; privatization of, 29; recycling mechanisms, 64–5, 109–10 Sweden, Crash of 2008, 155 Sweezy, Paul, 73 Switzerland: Crash of 2008, 155; UBS, 148–9, 151 systemic failure, Crash of 2008, 17–19 Taiwan, 191, 192 Tea Party (US), 162, 230, 231, 281 technology, and globalization, 28 Thailand, 91 Thatcher, Margaret, 117–18, 136–7 Third World: Crash of 2008, 162; debt crisis, 108, 219; interest rate rises, 108; mineral wealth, 106; production of goods for Walmart, 125 tiger economies, 87 see also South East Asia Tillman Act (1907), 180 time, and economic models, 139–40 Time Warner, 117 tin, prices, 96 toxic theory, 13–17, 115, 133–9, 139–42 trade: balance of, 61, 62, 64–5; deficits (US), 111, 243; global, 27, 90; surpluses, 158 trades unions, 124, 137, 202 transfer unions, New Deal, 65 Treasury Bills (US), 7 Treaty of Rome, 237 Treaty of Versailles, 237 Treaty of Westphalia, 237 trickle-down, 115, 135 trickle-up, 135 Truman Doctrine, 71, 71–2, 77 Truman, Harry, 73 tsunami, effects of, 194 UBS, 148–9, 151 Ukraine, and the Crash of 2008, 156 UN Security Council, 253 unemployment: Britain, 160; Global Plan, 96–7; rate of, 14; US, 152, 158, 164 United States see US Unocal, 106 US economy, twin deficits, 22–3, 25 US government, and South East Asia, 192 US Mortgage Bankers Association, 161 US Supreme Court, 180 US Treasury, 153–4, 156, 157, 159; aftermath of the Crash of 2008, 160; Geithner–Summers Plan, 171–2, 173; bonds, 227 US Treasury Bills, 109 US (United States): aftermath of the Crash of 2008, 161–2; assets owned by foreign state institutions, 216; attitude towards oil price rises, 97–8; China, 213–14; corporate bond purchases, 228; as a creditor nation, 57; domestic policies during the Global Plan, 82–5; economy at present, 184; economy praised, 113–14; effects of the Crash of 2008, 2, 183; foreign-owned assets, 225; Greek Civil War, 71; labour costs, 105; Plaza Accord, 188; profit rates, 106; proposed invasion of Afghanistan, 106–7; role in the ECSC, 75; South East Asia, 192 value, costing, 50–1 VAT, reduced, 156 Venezuela, oil prices, 97 Vietnamese War, 86, 91–2 vital spaces, 192, 195, 196 Volcker, Paul: 2009 address to Wall Street, 122; demand for dollars, 102; and gold convertibility, 94; interest rate rises, 99; replaced by Greenspan, 10; warning of the Crash of 2008, 144–5; on the world economy, 22, 100–1, 139 Volcker Rule, 180–1 Wachowski, Larry and Andy, 50 wage share, 34–5 wages: British workers, 137; Japanese workers, 185; productivity, 104; prophecy paradox, 48; US workers, 124, 161 Wal-Mart: The High Cost of Low Price (documentary, Greenwald), 125–6 Wall Street: Anglo-Celtic model, 12; Crash of 2008, 11–12, 152; current importance, 251; Geithner–Summers Plan, 178; global profits, 23; misplaced confidence in, 41; private money, 136; profiting from sub-prime mortgages, 131; takeovers and mergers, 115–17, 115, 118–19; toxic theory, 15 Wallace, Harry, 72–3 Walmart, 115, 123–7, 126; current importance, 251 War of the Currents, 39 Washington Mutual, 153 weapons of mass destruction, 27 West Germany: labour costs, 105; Plaza Accord, 188 Westinghouse, George, 39 White, Harry Dexter, 59, 70, 109 Wikileaks, 212 wool, as a global commodity, 28 working class: in Britain, 136; development of, 28 working conditions, at Walmart, 124–5 World Bank, 253; origins, 59; recession prediction, 149; and South East Asia, 192 World Trade Organization, 78, 215 written word, 27 yen, value against dollar, 96, 188, 193–4 Yom Kippur War, 96 zombie banks, 190–1


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The Economics of Belonging: A Radical Plan to Win Back the Left Behind and Achieve Prosperity for All by Martin Sandbu

air traffic controllers' union, Airbnb, Alan Greenspan, autonomous vehicles, balance sheet recession, bank run, banking crisis, basic income, Berlin Wall, Bernie Sanders, Big Tech, Boris Johnson, Branko Milanovic, Bretton Woods, business cycle, call centre, capital controls, carbon footprint, carbon tax, Carmen Reinhart, centre right, collective bargaining, company town, debt deflation, deindustrialization, deskilling, Diane Coyle, Donald Trump, Edward Glaeser, eurozone crisis, Fall of the Berlin Wall, financial engineering, financial intermediation, full employment, future of work, gig economy, Gini coefficient, green new deal, hiring and firing, income inequality, income per capita, industrial robot, intangible asset, job automation, John Maynard Keynes: technological unemployment, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, liquidity trap, longitudinal study, low interest rates, low skilled workers, manufacturing employment, Martin Wolf, meta-analysis, mini-job, Money creation, mortgage debt, new economy, offshore financial centre, oil shock, open economy, pattern recognition, pink-collar, precariat, public intellectual, quantitative easing, race to the bottom, Richard Florida, Robert Shiller, Robert Solow, Ronald Reagan, secular stagnation, social intelligence, TaskRabbit, total factor productivity, universal basic income, very high income, winner-take-all economy, working poor

Overindebted companies spend their revenues servicing their obligations rather than investing in expansion or productivity. Overstretched banks reduce their balance sheets to lower their bankruptcy risk. And overindebted governments feel unable to engage in aggressive deficit spending. In all cases, a surfeit of debt slows down the impulses of growth, which makes reducing debt all the harder. This is the “debt deflation” dynamic first identified in the 1930s and then reintroduced by observers of the Japanese economy after its financial crash in the early 1990s.13 An economy of belonging needs to avoid this trap if it can, and find a way out if it cannot. The solution is twofold. First, steer the economy away from funding its spending with debt in favour of other forms of finance such as equity.

Luigi Zingales, “Does Finance Benefit Society?,” Journal of Finance 70, no. 4 (2015): 1328, https://faculty.chicagobooth.edu/luigi.zingales/papers/research/Finance.pdf. 12. Raghuram Rajan, Fault Lines: How Hidden Fractures Still Threaten the World Economy, Princeton, NJ: Princeton University Press, 2010. 13. Irving Fisher, “The Debt-Deflation Theory of Great Depressions,” Econometrica 1, no. 4 (1933): 337–57; Richard Koo, “Balance Sheet Recession Is the Reason for ‘Secular Stagnation,’ ” VoxEU, 11 August 2014, https://voxeu.org/article/balance-sheet-recession-reason-secular-stagnation. 14. See Robert Shiller, Finance and the Good Society, Princeton, NJ: Princeton University Press, 2012, for more on equity-like financial products to make people’s lives less risky. 15.

., as driver of voter behaviour, 15–16, 37–49, 230–31; economic grievance expressed in, 48; economic inequality as influence on, 31; nationalism and, 14–15, 38; political significance of, 15–16, 37, 41–42, 47–49; populism and, 15, 38, 42–43; populist vs. elite, 14–15 deaths of despair, 36, 194 Deaton, Angus, 194 debt deflation, 156 debt financing, 155–60 debt restructuring, 159–60, 166 deindustrialisation, 29, 56–62 DeLong, Bradford, 145 demand management, 106, 132–33, 138–44, 146–47, 151, 216–17 Denmark: economic change as trigger for populism in, 42; education policy in, 108; egalitarianism and prosperity in, 99; employment in, 110; job mobility in, 107–8; job training programmes in, 108 digital revolution, market abuse facilitated by, 30, 113, 128–30 Dustmann, Christian, 47 eastern Europe, 191–92 Eatwell, Roger, 38 eBay, 69 economic change, 17–36; causes of, 18, 21; community-level effects of, 9–10, 29–31, 45–47, 49; cultural values elicited by, 48; cultural values vs., as driver of voter behaviour, 15–16, 37–49; gender as factor in, 33–34; government response to, 9, 11–13, 21, 51, 54–70; grievances about, 8, 18, 35–36, 48; harms suffered by the vulnerable in, 9, 35, 61–62, 68, 135, 137–38, 141; illiberalism linked to, 8, 15, 36, 38–49, 39; manufacturing sector and, 22–26; nationalism linked to, 8; populism linked to, 21, 26, 39–44; role of cognitive skills in, 27–29; structural change and, 55–62; usurpation story about, 18, 21–22, 26; Western income stagnation and, 19–21 economic insecurity: community-level effects of, 9–10; illiberal attitudes mobilised by, 48; income inequality linked to, 58–60; policy decisions exacerbating, 61; precarious employment and, 58–61; social contract undermined by, 58–62; in Sweden, 44.


EuroTragedy: A Drama in Nine Acts by Ashoka Mody

Alan Greenspan, Andrei Shleifer, asset-backed security, availability heuristic, bank run, banking crisis, Basel III, Bear Stearns, Berlin Wall, book scanning, book value, Bretton Woods, Brexit referendum, call centre, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, credit crunch, currency risk, Daniel Kahneman / Amos Tversky, debt deflation, Donald Trump, eurozone crisis, Fall of the Berlin Wall, fear index, financial intermediation, floating exchange rates, forward guidance, George Akerlof, German hyperinflation, global macro, global supply chain, global value chain, hiring and firing, Home mortgage interest deduction, income inequality, inflation targeting, Irish property bubble, Isaac Newton, job automation, Johann Wolfgang von Goethe, Johannes Kepler, Kenneth Rogoff, Kickstarter, land bank, liberal capitalism, light touch regulation, liquidity trap, loadsamoney, London Interbank Offered Rate, Long Term Capital Management, low interest rates, low-wage service sector, Mikhail Gorbachev, mittelstand, money market fund, moral hazard, mortgage tax deduction, neoliberal agenda, offshore financial centre, oil shock, open borders, pension reform, precautionary principle, premature optimization, price stability, public intellectual, purchasing power parity, quantitative easing, rent-seeking, Republic of Letters, Robert Gordon, Robert Shiller, Robert Solow, short selling, Silicon Valley, subprime mortgage crisis, The Great Moderation, The Rise and Fall of American Growth, too big to fail, total factor productivity, trade liberalization, transaction costs, urban renewal, working-age population, Yogi Berra

The risk now was that a debt-​deflation cycle—​a continued decline in inflation, feeding into higher debt burdens—​could take hold in large parts of the euro area. On November 7, 2013, Draghi finally acknowledged that Property price deflation in Italy (Price Index in 2010=100) 125 Italian government debt rises faster than expected (Debt-to-GDP ratio, percent) 135 Germany 115 130 105 125 95 April 2014 April 2013 120 April 2012 Italy 85 115 75 2007 110 September 2011 09 11 13 15 2010 11 12 13 14 15 16 17 Figure 7.9. Italy begins to slide into a debt-​deflation cycle. Note: Dashed lines refer to projections at the time.

ECB’s July 7 decision creates panicked search for US dollars. 301 7.7. More ECB liquidity spurs Spanish and Italian banks to load up on government bonds. 305 7.8. Euro-area inflation rate continues dropping while US inflation rate stabilizes in mid-​2013. 316 7.9. Italy begins to slide into a debt-​deflation cycle. 318 8.1. The great divergence in euro-area incomes and employment. 340 x   l i s t of figures 8.2. Italy seen in the mirror of Japan’s lost decade. 345 8.3. Young, college-educated Italians leave Italy in growing numbers. 347 8.4. The euro area’s inflation divergence. 355 8.5. US and Japanese QE cause the euro to strengthen. 358 8.6.

It had a hopeful prognosis for the US economy.173 And it aptly noted that euro-​area recovery would be sluggish, pointing to rising unemployment and the need for further financial-​sector repair.174 But the WEO missed the breaking news. Although it was published on October 15, it did not recognize that the euro area’s rolling crisis had crossed into Greece. And it certainly did not foresee that a debt-​deflation dynamic, propelled by the ideology of monetary and fiscal austerity, would carry the crisis to Italy. after the bust, the denial 231 Chapt er 6 Delays and Half Measures Greece and Ireland, 2010 T he date was October 1, 2009. George Papandreou was campaigning to be the next Greek prime minister.


pages: 324 words: 90,253

When the Money Runs Out: The End of Western Affluence by Stephen D. King

Alan Greenspan, Albert Einstein, Apollo 11, Asian financial crisis, asset-backed security, banking crisis, Basel III, Bear Stearns, Berlin Wall, Bernie Madoff, bond market vigilante , British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, currency risk, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, Ford Model T, full employment, George Akerlof, German hyperinflation, Glass-Steagall Act, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, junk bonds, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, low interest rates, market clearing, mass immigration, Minsky moment, moral hazard, mortgage debt, Neil Armstrong, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, risk free rate, Savings and loan crisis, seminal paper, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

Stock markets collapsed, the technology sector was no longer able to raise funds and recession threatened. Keen to avoid a repeat of Japan's ongoing stagnation, and confident that they had the tools to do so, Western policy-makers offered massive monetary and fiscal stimulus: interest rates tumbled, budget deficits rose and the threat of debt deflation – of falling prices that would increase the real value of debt – was averted. However, all was not well. With low interest rates and gossamer-thin regulation, housing markets boomed, as did the issuance of mortgage-backed securities, which offered higher returns than government bonds and, so it seemed, more safety than jittery stock markets.

Krugman is quick to emphasize the similarities with the 1930s but silent on the many differences. Back then, the collapse in US nominal demand – the value of national income – was far greater than the collapse in real demand – the volume of national income. In other words, the US in the 1930s was suffering from what Irving Fisher described as debt deflation. Today, the situation is entirely different. Relative to the expectations of economists whose job it is to forecast such things, there has most definitely been a shortfall in the volume of US national income. However, even allowing for the impact of the financial crisis, there has been no significant shortfall in the value of national income.

(i) Asian crisis (i) recovery from (i), (ii), (iii) asset prices (i) asset-backed securities (i) Audit Commission (i) austerity (i), (ii), (iii), (iv), (v) and political extremism (i) Statute of Labourers (i) versus stimulus (i) wartime (i), (ii) see also Snowden's budget Australia (i), (ii), (iii), (iv) Austria (i) baby boomers (i), (ii), (iii) bailouts (i), (ii) Balls, Ed (i) Bank Negara (i) Bank of England (i), (ii), (iii) economic growth forecasts (i) interest rates (i), (ii) and Libor (i) Bank of Japan (i) banking free (i), (ii) and protectionism (i) union (eurozone) (i) banks (i), (ii) bankers' rewards (i) failure (i), (ii) liquidity buffers (i), (ii) mortgage loan-to-value ratios (i) regulatory uncertainty (i) and savers (i) see also central banks Barclays Bank plc (i), (ii) Basel III regulations (i) Bean, Charlie (i), (ii) Bear Stearns (i) Belgium (i) Ben Ali, Zine al-Abidine (i) Benedetti, Count (i) benefits (i), (ii) see also social spending Bernanke, Ben (i), (ii) Beveridge, William (i) bimetallism (i) Bismarck, Otto von (i) Black Death (i), (ii) blame culture (i), (ii), (iii), (iv), (v) Blenheim Palace (i) bonds (i), (ii), (iii), (iv), (v) borrowers (i), (ii), (iii) borrowing, government borrower of last resort (i) heavy (i) international (i) and low interest rates (i), (ii) and the New Deal (i) to offset private saving (i) relative to national income (i), (ii) rising (i) see also credit: queues Botswana (i) Brazil (i), (ii), (iii) Britain see UK (United Kingdom) British Empire (i), (ii), (iii) Bryan, William Jennings (i) budget deficits (i), (ii), (iii), (iv), (v) France (i) Germany (i) Spain (i) UK (i), (ii), (iii) US (i), (ii), (iii) Buenos Aires (i) Business Week (i) Buxton, Thomas Fowell (i) California (i) Calonne, Charles-Alexandre de (i) Canada (i), (ii) capital adequacy ratios (i) controls (i), (ii), (iii), (iv) flight and the euro (i) foreign (i), (ii) immobile (i) markets (i), (ii) and the rise of living standards (i) Carr, Jimmy (i) Case-Shiller house price index (i) Catalonia (i) Central African Republic (i) central banks and bailouts (i) expansion of remit (i) and government debt (i) and illusory wealth (i) interest rates (i) and a new monetary framework (i) nominal GDP targeting (i) and politics (i), (ii), (iii) and redistribution (i) see also quantitative easing (QE) Chicago (i) China and commodity prices (i) financial systems (i) and globalization (i) income inequality (i), (ii) living standards (i) per capita incomes (i) and regional tensions (i) renminbi currency (i) silver standard (i), (ii) trading partners (i) and the US (i), (ii) Chinese Exclusion Act (i) Chrysi Avgi (i) Churchill, Winston (i) circuit breakers (i), (ii) Coinage Act (i) Committee on National Expenditure (i) commodity prices (i), (ii), (iii) conduits (i) Connecticut (i) consumer credit (i), (ii), (iii) contingent redistribution (i) credit consumer (i), (ii), (iii) derivation of word (i) expansion (i) and the property boom (i) and protectionism (i) queues (i), (ii), (iii), (iv) Creditanstalt (i) creditors creditor nations (i), (ii) and debtors (i), (ii), (iii), (iv), (v) foreign (i), (ii), (iii) home grown (i) Japan (i) cross-subsidization, of banking services (i) currencies (i), (ii) ‘currency wars’ (i), (ii) see also eurozone; renminbi; ringgit; sterling Darling, Alistair (i) debt and asset prices (i) and central banks (i) eurozone crisis (i), (ii) excessive (i), (ii) France (i) household (i), (ii), (iii) and inflation (i) Japan (i) and national incomes (i), (ii), (iii) and quantitative easing (QE) (i) repaying (i) debt deflation (i) debtors and creditors (i), (ii), (iii), (iv), (v) eurozone (i) home grown (i) deficient demand (i), (ii) deficit expansion (i) deficit reduction (i) deficits (i), (ii), (iii), (iv), (v) France (i) Germany (i) Korea (i) pension funds (i), (ii) Spain (i) and surpluses (i), (ii) UK (i), (ii), (iii) US (i), (ii), (iii) deflation (i), (ii) democratic deficit (i), (ii) Deng Xiaoping (i), (ii) Denmark (i) the Depression (i), (ii), (iii), (iv), (v) and the UK (i), (ii) Dexia (i) Diamond, Bob (i) Dickens, Charles (i) disaster-avoidance (i) District of Columbia (i) dollar standard (i) dotcom bubble (i) Draghi, Mario (i) economics profession (i), (ii), (iii) Edelman Trust Barometer (i) education (i) financial (i) literacy (i) training (i) Edward III (i) Egana, Amaia (i) emerging nations (i), (ii) employment (i) see also labour; unemployment enfranchisement (i), (ii) the Enlightenment (i), (ii), (iii) entitlement culture (i), (ii), (iii), (iv), (v), (vi) absent from Asia (i), (ii) need to reduce (i), (ii) equities (i), (ii) ethics (i) Ethiopia (i) European Central Bank (ECB) (i), (ii), (iii), (iv), (v) eurozone banking union (i) crisis (i), (ii) and the European Central Bank (i) northern creditors and southern debtors (i), (ii), (iii), (iv), (v), (vi) and trust (i) and the UK (i), (ii) variations in borrowing costs (i) exchange rates (i), (ii), (iii), (iv) executive pay (i) exports (i), (ii) extremism, political (i) Fannie Mae (i) Federal Reserve (i), (ii), (iii), (iv) and the Great Depression (i), (ii) Ferguson, Niall (i) Ferguson, Roger (i) feudalism (i) financial services (i) innovations (i), (ii), (iii) Financial Services Authority (FSA) (i) Finland (i) First World War (i), (ii) ‘fiscal club’ concept (i) fiscal policy (i), (ii), (iii), (iv), (v) fiscal trap (i) fiscal unions (i) Fisher, Irving (i), (ii) football (i) forecasting (i), (ii), (iii), (iv), (v) Fortis (i) France age-related expenditure (i) ancien régime and the Revolution (i) and Austria (i) benefits (i) budget deficit (i) exports (i) Latin monetary union (i) per capita incomes (i), (ii) and political extremism (i) and public spending (i) Franco-Prussian War (i) Frank, Barney (i) fraudulent acts (i) Freame, John (i) Freddie Mac (i) free banking (i), (ii) French Revolution, and the ancien régime (i) Freud, Sigmund (i) Friedman, Milton (i), (ii), (iii), (iv), (v) Fuld, Dick (i) GDP forecasts (i), (ii) targeting (i) General Strike (i) generational divide (i), (ii), (iii) see also ageing populations Germany ageing population (i), (ii), (iii) benefits (i) budget deficit (i) and the eurozone crisis (i), (ii), (iii), (iv), (v) exports (i) Franco-Prussian War reparations (i), (ii) government borrowing (i), (ii) interest rates (i) late 19th-century economy (i), (ii) living standards (i) national income (i) per capita incomes (i), (ii) and the Protestant work ethic (i) and public spending (i) surplus (i) Treaty of Versailles (i) unification (i) Weimar Republic (i), (ii) GfK/NOP Inflation Attitudes Survey (i) globalization (i), (ii), (iii), (iv), (v) Gold Standard (i) and Germany (i) and the UK (i), (ii), (iii), (iv), (v) and the US (i), (ii), (iii) gold standards (i), (ii) Golden Dawn Party (i) Goodwin, Fred (i) Gordon, Robert J.


pages: 443 words: 98,113

The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay by Guy Standing

"World Economic Forum" Davos, 3D printing, Airbnb, Alan Greenspan, Albert Einstein, Amazon Mechanical Turk, anti-fragile, Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Bernie Sanders, Big bang: deregulation of the City of London, Big Tech, bilateral investment treaty, Bonfire of the Vanities, Boris Johnson, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, cashless society, central bank independence, centre right, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, commons-based peer production, credit crunch, crony capitalism, cross-border payments, crowdsourcing, debt deflation, declining real wages, deindustrialization, disruptive innovation, Doha Development Round, Donald Trump, Double Irish / Dutch Sandwich, ending welfare as we know it, eurozone crisis, Evgeny Morozov, falling living standards, financial deregulation, financial innovation, Firefox, first-past-the-post, future of work, Garrett Hardin, gentrification, gig economy, Goldman Sachs: Vampire Squid, Greenspan put, Growth in a Time of Debt, housing crisis, income inequality, independent contractor, information retrieval, intangible asset, invention of the steam engine, investor state dispute settlement, it's over 9,000, James Watt: steam engine, Jeremy Corbyn, job automation, John Maynard Keynes: technological unemployment, labour market flexibility, light touch regulation, Long Term Capital Management, low interest rates, lump of labour, Lyft, manufacturing employment, Mark Zuckerberg, market clearing, Martin Wolf, means of production, megaproject, mini-job, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, Neil Kinnock, non-tariff barriers, North Sea oil, Northern Rock, nudge unit, Occupy movement, offshore financial centre, oil shale / tar sands, open economy, openstreetmap, patent troll, payday loans, peer-to-peer lending, Phillips curve, plutocrats, Ponzi scheme, precariat, quantitative easing, remote working, rent control, rent-seeking, ride hailing / ride sharing, Right to Buy, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Altman, savings glut, Second Machine Age, secular stagnation, sharing economy, Silicon Valley, Silicon Valley startup, Simon Kuznets, SoftBank, sovereign wealth fund, Stephen Hawking, Steve Ballmer, structural adjustment programs, TaskRabbit, The Chicago School, The Future of Employment, the payments system, The Rise and Fall of American Growth, Thomas Malthus, Thorstein Veblen, too big to fail, Tragedy of the Commons, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, Y Combinator, zero-sum game, Zipcar

In 1928, across seventeen industrialised countries, only 30 per cent of bank lending was for property; by 2007, the proportion was nearly 60 per cent.10 When central banks cut interest rates to practically zero or indulge in quantitative easing, more money flows into the property market, raising house prices, enriching landlords and encouraging speculative property buying. Eventually, this precipitates an asset crash and a ‘debt-deflation’ recession in which firms and households, faced with dwindling asset values, slash spending to try to meet increasingly onerous debt repayments. There is a historical parallel. Early in the twentieth century, financiers in industrialised countries sowed the seeds for debt deflation by channelling funds into imperialistic ventures, drawn by promises of spectacular riches in exotic places. This led to what the British economist John Hobson depicted as systemic underconsumption at home.

In the USA, critics such as Thorstein Veblen saw finance distorting production and, in Germany as early as 1910, Rudolf Hilferding warned against financial capitalism for similar reasons. Finance fuelled the imperialistic rivalries that contributed to the First World War. Once an exhausted peace had been restored, Europe was afflicted by debt deflation, partly due to US demands for payment for armaments it had supplied to the UK and France. They in turn pushed impoverished Germany to pay heavy war reparations, plunging it into economic depression and paving the way for Nazism. Meanwhile, the elite in the USA and Europe continued their lavish lifestyles, mostly funded from rentier income, until the bubble burst in the Great Crash of 1929.


pages: 397 words: 112,034

What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale

"World Economic Forum" Davos, affirmative action, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Berlin Wall, biodiversity loss, Black Swan, Bretton Woods, business cycle, capital controls, carbon credits, carbon tax, Cass Sunstein, central bank independence, classic study, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, debt deflation, declining real wages, deindustrialization, diversification, energy security, Erik Brynjolfsson, Fall of the Berlin Wall, financial engineering, financial innovation, floating exchange rates, foreign exchange controls, full employment, Gini coefficient, Glass-Steagall Act, global macro, global reserve currency, global village, high net worth, high-speed rail, Home mortgage interest deduction, housing crisis, index fund, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), inverted yield curve, invisible hand, Just-in-time delivery, Kenneth Rogoff, Long Term Capital Management, low interest rates, Mahatma Gandhi, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, military-industrial complex, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Network effects, new economy, Nicholas Carr, oil shale / tar sands, oil shock, open economy, passive investing, payday loans, peak oil, Ponzi scheme, post-oil, precautionary principle, price stability, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, risk/return, Robert Shiller, Ronald Reagan, Savings and loan crisis, sovereign wealth fund, special drawing rights, subprime mortgage crisis, technology bubble, The Great Moderation, Thomas Kuhn: the structure of scientific revolutions, Tobin tax, too big to fail, total factor productivity, trade liberalization, Tragedy of the Commons, Washington Consensus, Westphalian system, WikiLeaks, women in the workforce, yield curve

The Western World’s Two Distinct Problems The first problem the OECD faces is that from 2000 to 2010 the private sector created a lot of assets (real estate in the United States, Spain, the United Kingdom, Ireland, etc.) against which a considerable amount of debt has been collateralized by commercial banks. As the prices of these assets fall, a Fisher-like “debt deflation” looms. The second problem is that, for structural reasons, a growing number of OECD countries are confronting a very challenging budgetary situation. The credit crunch, bank bailouts, and recession only account for 9 percent of the increase in long-term public debt burdens in major advanced economies.

CUSTOMS UNION: A free trade area that also establishes a common tariff and other trade policies with nonmember countries. DAVOS: Annual meeting held by the World Economic Forum that gathers politicians, business leaders, economists, and other luminaries to discuss key issues facing the global economy. DEBT DEFLATION: Economic theory originally articulated by Irving Fisher that holds that recessions and depressions are due to the overall level of debt shrinking. DEBT SPIRAL: The phenomenon of a country’s debt load growing rapidly, which leads to even more debt in the form of increased interest payments. The increased interest payments lead to bigger deficits, which in turn lead to an increased national debt load.

See credit default swaps (CDSs) Central Africa, 126 central banks, Asia, 82–83; asset buying by, 81; demand for gold by, 169–170, 174–175; money supply and, 246–248; selling public debt to, 259 Chile, 8, 33, 48, 49, 51 China, xv, xx; Australian exports to, 145–146; climate change and, xxvi, 225; consumption in, 89–90; currency intervention by, 10; economic growth in, 10, 52; economy of, xxiii, 24; equity markets, 83–84, 85; excess of thrift in, 88–89; as financial capital, 245–246; financial sector in, xxvii; fiscal deficit, 257; gold market in, 170–171; gold reserves, xxv, 168–169, 170, 174; household incomes in, 89; influence of, in Africa, 122–123; labor costs in, 86–87, 89–90; monetary policy, 10; savings rate in, 245–246; structural shift in, 84–85 Citigroup, 272 Clean Development Mechanism (CDM), 225 climate change, adaptation to, 227–229; Canada and, xviii, 27–28; future outcomes for, 224–225; international agreements on, 220–223; oil industry and, xxv, 189–191; public policy and, xxvi–xxvii, 219–230; South Africa and, xxii coal, 125 Coates, John, 290 cognitive abilities, 293–294 cognitive biases, 287, 288–289 collateralized debt obligations (CDOs), 275 Colombia, 33, 48, 49 commodity prices, xv, xxii, 50, 52–54, 117, 195 Common Market for Eastern and Southern Africa (COMESA), 122 compensation plans, 277 composite currencies, 161–163 Conference of the Parties to the Convention (COP), 222 confirmatory evidence, 288 conflicts, in Sub-Saharan Africa, 123–124 Congdon, Tim, xxvii Constitutionalist Revolution (1906), 206 consumer debt, 18–19 Consumer Protection Financial Bureau, 267, 269 consumer spending, 8, 18 consumption-based taxes, 261–263 Copenhagen Accord, 222, 225 Cordero, Ernesto, 45 corporate compliance, xxviii–xxix, 271–282 corporate governance, 267, 268 corporate profits, 8 corporate sector: Canada, 20; US, xvi, 4, 8 corporate taxes, 260 cortisol, 290 Costa Rica, 48 Côte D’Ivoire, 127 credit default swaps (CDSs), 275 creditor status, 156 Creel, Santiago, 37, 45 crime, in Mexico, 43 culture of ethics, 276–280 currencies: African, 122; composite, 161–163; domestic, 155; international, 155–156; synthetic, 161–163. See also dollar; reserve currency currency intervention, 9–10 currency speculation, 250–255 Daragahi, Borzou, 209 Davos consensus, 285–286 debt deflation, 80–81 Decalogue, 39–44 Deepwater Horizon oil spill, 41, 185–186 deficit reduction, xvii, 5, 10–11 deflation, xxi, 96–97, 100, 173, 247 Democratic Party, 6, 12–13 Democratic Party of Japan (DPJ), xxi, 102–104, 106, 109–111, 113–114 Democratic Republic of the Congo (DRC), xxii, 126 Demographics: in Canada, 25–26; fiscal imbalances and, 258; in Latin America, xx, 51 Denmark, 113 derivatives, 267, 268 developing countries, climate change and, 225, 226 Dodd, Christopher, 264 Dodd-Frank Wall Street Reform and Consumer Protection Act, xxviii, 264–270 Dollar: Australian, 146; Canadian, 23; devaluation of US, xvii, 7, 25; US, as reserve currency, xxiv, 153–165; weakening of US, and commodity prices, 53 domestic currency, 155 DPJ.


pages: 263 words: 80,594

Stolen: How to Save the World From Financialisation by Grace Blakeley

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, basic income, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Big Tech, bitcoin, bond market vigilante , Bretton Woods, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, capitalist realism, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, credit crunch, Credit Default Swap, cryptocurrency, currency peg, David Graeber, debt deflation, decarbonisation, democratizing finance, Donald Trump, emotional labour, eurozone crisis, Extinction Rebellion, extractivism, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, full employment, G4S, gender pay gap, gig economy, Gini coefficient, global reserve currency, global supply chain, green new deal, Greenspan put, housing crisis, Hyman Minsky, impact investing, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), Jeremy Corbyn, job polarisation, junk bonds, Kenneth Rogoff, Kickstarter, land value tax, light touch regulation, low interest rates, low skilled workers, market clearing, means of production, Modern Monetary Theory, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, offshore financial centre, paradox of thrift, payday loans, pensions crisis, Phillips curve, Ponzi scheme, Post-Keynesian economics, post-war consensus, price mechanism, principal–agent problem, profit motive, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Right to Buy, rising living standards, risk-adjusted returns, road to serfdom, Robert Solow, savings glut, secular stagnation, shareholder value, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, the built environment, The Great Moderation, too big to fail, transfer pricing, universal basic income, Winter of Discontent, working-age population, yield curve, zero-sum game

A Preliminary Analysis’, Economy and Society, 29, no. 1: 111-145; Stockhammer (2008); Stockhammer, E. (2004) “Financialisation and the Slowdown of Accumulation”, Cambridge Journal of Economics, vol. 28; Palley, T. (2007), ‘Financialization: What It Is and Why It Matters’, Working Paper No. 525, New York: The Levy Economics Institute at Bard College; Duménil G. and Lévy D. (2004) Capital Resurgent: roots of the neoliberal revolution, Cambridge: Harvard University Press; Duménil G. and Lévy D. (2005) ‘Costs and benefits of neoliberalism: a class analysis’ in Epstein (2005); Duménil G and Lévy, D (2011) The Crisis of Neoliberalism, Cambridge: Harvard University Press; Hudson, M. (2012) The Bubble and Beyond: Fictitious Capital, Debt Deflation and the Global Crisis, London: Islet 15 This account draws on: Hudson (2012); Hudson, M. (2015) Killing the Host: How Financial Parasites and Debt Destroyed the Global Economy, London: Isley; Mazzucato, M. (2018) The Value of Everything: Making and Taking in the Global Economy, London: Allen Lane; Pettifor, A. (2017) The Production of Money, London: Verso; Keen, S. (2017) Can We Avoid Another Financial Crisis?

The Elgar Companion to Political Economy, London: Edward Elgar Publishing; Shiller, R. (2000) Irrational Exuberance, USA: Princeton University Press; Wray (2011; 2015); Jayadev, A. (2016) “Minsky’s Many Moments”, Institute for New Economic Thinking, 5 August. https://www.ineteconomics.org/perspectives/blog/minskys-many-moments; Muñoz, J. (2011) “Orthodox versus Heterodox (Minskyan) Perspectives of Financial Crises: Explosion in the 1990s versus Implosion in the 2000s”, Levy Economics Institute Working Paper 695 http://www.levyinstitute.org/pubs/wp_695.pdf; Whalen, C. (2017) “Understanding Financialization: Standing on the Shoulders of Minsky”, Levy Economics Institute Working Paper 892. http://www.levyinstitute.org/pubs/wp_892.pdf; Knight, F. (1921) Risk, Uncertainty and Profit; Fisher, I. (1933) The Debt-Deflation Theory of Great Depressions; Wray, L.R. and Tymoigne, É. (2008) “Macroeconomics Meets Hyman P. Minsky: The Financial Theory of Investment”, Levy Economics Institute Working Paper 543. http://www.levyinstitute.org/publications/macroeconomics-meets-hyman-p-minsky; Bhattacharya, S., Goodhart, C., Tsomocos, D.P. and Vardoulakis, A.P. (2014) “A Reconsideration of Minsky’s Financial Instability Hypothesis”, Journal of Money, Credit and Banking, vol. 45 http://eprints.lse.ac.uk/64218/ 5 OECD (2011) “International Capital Flows: Structural Reforms and Experience with the OECD Code of Liberalisation of Capital Movements”, Report from the OECD to the G20 Sub-Group on Capital Flow Management. https://www.oecd.org/economy/48972216.pdf 6 Lane, P. (2012) “Financial Globalisation and the Crisis”, BIS Working Paper 397. https://ssrn.com/abstract=2248065 7 This account draws on: Blakeley (2018a); Lane (2012); Favilukis, J., Kohn, D., Ludvigson, S.C. and Van Nieuwerburgh, S. (2012), “International Capital Flows and House Prices: Theory and Evidence”, in Housing and the Financial Crisis, Chicago: University of Chicago Press. https://static1.squarespace.com/static/54397369e4b0446f66937a73/t/56590b88e4b0702d37f626e1/1448676232727/nbh.pdf; Ferrero, A. (2012) “House Price Booms, Current Account Deficits, and Low Interest Rates”, Staff Report Number 541, Federal Reserve Bank of New York. https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr541.pdf; Felix, D. (2005) “Why International Capital Mobility Should Be Curbed and How It Could Be Done”, in Epstein (2005); Geet, P. (2015) “Housing Demand, Savings Gluts and Current Account Dynamics”, Globalization and Monetary Policy Institute Working Paper 221 https://www.dallasfed.org/~/media/documents/institute/wpapers/2015/0221.pdf; Guschanski, A. and Stockhammer, E. (2017) “Are Current Accounts Driven by Competitiveness or Asset Prices?


pages: 504 words: 143,303

Why We Can't Afford the Rich by Andrew Sayer

"World Economic Forum" Davos, accounting loophole / creative accounting, Alan Greenspan, Albert Einstein, Anthropocene, anti-globalists, asset-backed security, banking crisis, banks create money, basic income, biodiversity loss, bond market vigilante , Boris Johnson, Bretton Woods, British Empire, Bullingdon Club, business cycle, call centre, capital controls, carbon footprint, carbon tax, collective bargaining, corporate raider, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, degrowth, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial engineering, financial innovation, financial intermediation, Fractional reserve banking, full employment, G4S, Goldman Sachs: Vampire Squid, green new deal, high net worth, high-speed rail, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", James Dyson, job automation, Julian Assange, junk bonds, Kickstarter, labour market flexibility, laissez-faire capitalism, land bank, land value tax, long term incentive plan, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, mass immigration, means of production, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Philip Mirowski, plutocrats, popular capitalism, predatory finance, price stability, proprietary trading, pushing on a string, quantitative easing, race to the bottom, rent-seeking, retail therapy, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, tacit knowledge, TED Talk, The Nature of the Firm, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, wealth creators, WikiLeaks, Winter of Discontent, working poor, Yom Kippur War, zero-sum game

But the higher the rate of interest, the more these gains are siphoned off by lenders, reducing the benefits to the economy.46 ‘Consumptive loans’, including mortgages and credit cards, allow consumers to bring forward purchases, and so may boost growth for a while, though in the long run their consumption is reduced by the burden of paying off the interest. Whatever the benefits of credit, interest charges add deadweight costs, diminishing those benefits. This depression of consumption and investment by the payment of interest is sometimes called ‘debt deflation’. Lenders generally demand higher rates of interest from those who are more at risk of defaulting. In the US, the poor pay 50–60% more in interest on auto loans than the better-off. From the point of view of the lender, this may be rationalised as a form of insurance against risk, but it has the ironic effect of making those in a weaker position for getting credit even more likely to default.

Although neoliberal politicians now like to blame the debt mountain on profligate consumer and government borrowing, so as to provide an excuse for cutting public spending, the financial sector itself was the main debt growth sector, as a result of loans between different financial organisations.47 You might think that creating ever greater volumes of credit money would cause inflation. It did, only not in the prices of consumer goods but in asset values, especially property values – the kind of inflation neoliberals love. It increases the wealth of asset holders relative to the asset-poor, who experience wage stagnation and debt deflation.48 As long as the bubbles are growing, banks lend out more and get still more interest. In John Merryman’s words: What the people in charge came to understand is that lots of money can be created, without causing general inflation, if it can be largely kept out of the regular economy. While a lot is loaned back into the economy, much is cycled within the banking system.

., Haslam, C. and Williams, K. (2001) ‘Accumulation under conditions of inequality’, Review of International Political Economy, 8(1), pp 66–95. 43 Shutt (2009), pp 128–9. 44 See Chapter Eighteen. 45 Lysandrou, P. (2011) ‘Global inequality as one of the root causes of the financial crisis: a suggested explanation’, Economy and Society, 40(3), pp 323–44. 46 At the time of writing, European Union citizens’ bank deposits were protected up to €100,000 (£85,000) in any one banking group. 47 Turner, A. (2009) The Turner Review: A regulatory response to the global banking crisis, London: Financial Services Authority, p 18. 48 For a definition of debt deflation, see Chapter Four. On how Wall Street engineered asset inflation at the end of the 20th century and enhanced the unearned income of the top 1% in the US who were bondholders, see Canterbery, E.R. (2000) Wall Street capitalism; The theory of the bondholding class, Singapore: World Scientific Publishing Company. 49 Merryman, J. (2012) Occupying money, 17 May, http://source.yeeyan.org/view/430335_f43/Occupying%20Money.%20-%20welcome%20to%20exterminating%20angel%20press.


pages: 328 words: 96,678

MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them by Nouriel Roubini

"World Economic Forum" Davos, 2021 United States Capitol attack, 3D printing, 9 dash line, AI winter, AlphaGo, artificial general intelligence, asset allocation, assortative mating, autonomous vehicles, bank run, banking crisis, basic income, Bear Stearns, Big Tech, bitcoin, Bletchley Park, blockchain, Boston Dynamics, Bretton Woods, British Empire, business cycle, business process, call centre, carbon tax, Carmen Reinhart, cashless society, central bank independence, collateralized debt obligation, Computing Machinery and Intelligence, coronavirus, COVID-19, creative destruction, credit crunch, crony capitalism, cryptocurrency, currency manipulation / currency intervention, currency peg, data is the new oil, David Ricardo: comparative advantage, debt deflation, decarbonisation, deep learning, DeepMind, deglobalization, Demis Hassabis, democratizing finance, Deng Xiaoping, disintermediation, Dogecoin, Donald Trump, Elon Musk, en.wikipedia.org, energy security, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, eurozone crisis, failed state, fake news, family office, fiat currency, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, future of work, game design, geopolitical risk, George Santayana, Gini coefficient, global pandemic, global reserve currency, global supply chain, GPS: selective availability, green transition, Greensill Capital, Greenspan put, Herbert Marcuse, high-speed rail, Hyman Minsky, income inequality, inflation targeting, initial coin offering, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of movable type, Isaac Newton, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, junk bonds, Kenneth Rogoff, knowledge worker, Long Term Capital Management, low interest rates, low skilled workers, low-wage service sector, M-Pesa, margin call, market bubble, Martin Wolf, mass immigration, means of production, meme stock, Michael Milken, middle-income trap, Mikhail Gorbachev, Minsky moment, Modern Monetary Theory, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Mustafa Suleyman, Nash equilibrium, natural language processing, negative equity, Nick Bostrom, non-fungible token, non-tariff barriers, ocean acidification, oil shale / tar sands, oil shock, paradox of thrift, pets.com, Phillips curve, planetary scale, Ponzi scheme, precariat, price mechanism, price stability, public intellectual, purchasing power parity, quantitative easing, race to the bottom, Ralph Waldo Emerson, ransomware, Ray Kurzweil, regulatory arbitrage, reserve currency, reshoring, Robert Shiller, Ronald Reagan, Salesforce, Satoshi Nakamoto, Savings and loan crisis, Second Machine Age, short selling, Silicon Valley, smart contracts, South China Sea, sovereign wealth fund, Stephen Hawking, TED Talk, The Great Moderation, the payments system, Thomas L Friedman, TikTok, too big to fail, Turing test, universal basic income, War on Poverty, warehouse robotics, Washington Consensus, Watson beat the top human players on Jeopardy!, working-age population, Yogi Berra, Yom Kippur War, zero-sum game, zoonotic diseases

However, inflation is not a panacea for towering debt. Steeper inflation might erase debt faster, but at the cost of imposing unsustainable interest rates on new borrowers and borrowers who must roll over their debt. Deflation works in the opposite direction. Every dollar borrowed has higher real value than the same dollar when it is repaid in the future. A phenomenon called debt deflation wallops borrowers. The real value of debt grows more burdensome. Suppose MegaCorp takes out a loan at 3 percent and deflation is 2 percent. Forget the windfall that inflation bestows. The real cost of borrowing adds the rate of deflation to the rate of interest.


pages: 354 words: 105,322

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis by James Rickards

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bayesian statistics, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Benoit Mandelbrot, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, blockchain, Boeing 747, Bonfire of the Vanities, Bretton Woods, Brexit referendum, British Empire, business cycle, butterfly effect, buy and hold, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, cellular automata, cognitive bias, cognitive dissonance, complexity theory, Corn Laws, corporate governance, creative destruction, Credit Default Swap, cuban missile crisis, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, disintermediation, distributed ledger, diversification, diversified portfolio, driverless car, Edward Lorenz: Chaos theory, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, fiat currency, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, Fractional reserve banking, G4S, George Akerlof, Glass-Steagall Act, global macro, global reserve currency, high net worth, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Isaac Newton, jitney, John Meriwether, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, Long Term Capital Management, low interest rates, machine readable, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, Minsky moment, Money creation, money market fund, mutually assured destruction, Myron Scholes, Naomi Klein, nuclear winter, obamacare, offshore financial centre, operational security, Paul Samuelson, Peace of Westphalia, Phillips curve, Pierre-Simon Laplace, plutocrats, prediction markets, price anchoring, price stability, proprietary trading, public intellectual, quantitative easing, RAND corporation, random walk, reserve currency, RFID, risk free rate, risk-adjusted returns, Robert Solow, Ronald Reagan, Savings and loan crisis, Silicon Valley, sovereign wealth fund, special drawing rights, stock buybacks, stocks for the long run, tech billionaire, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transfer pricing, value at risk, Washington Consensus, We are all Keynesians now, Westphalian system

The next crisis will come before the current easing cycle has been reversed. Central banks will be defenseless except through the use of massive new quantitative easing programs. This new money creation binge will test the outer limits of confidence in central bank money. In addition to this list of catalysts from gold, debt, deflation, and default, there are exogenous threats that emerge in geopolitical space and spill over quickly into financial panics. These threats include conventional wars, cyberwars, assassinations, prominent suicides, power grid outages, and terror attacks. Finally there are natural disasters such as earthquakes, volcanic eruptions, tsunamis, category five hurricanes, and deadly epidemics.

The endgame has emerged. Debt is compounding faster than growth. Monetary policy is impotent except to blow bubbles and buy time. Structural change is impeded by political dysfunction. Substitution of sovereign debt for private debt has run its course; now the sovereigns themselves are stretched. Debt, deflation, demographics, and depression are demolishing elite dreams of free trade, free markets, and free capital flows. Elites hope for the turn of a friendly card, but the deck is stacked by decades of denial about income inequality and lost jobs. Some elites are abandoning ship, taking their winnings and buying condos, private jets, even islands, storing bullion and fine art in private vaults.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

"there is no alternative" (TINA), accounting loophole / creative accounting, Alan Greenspan, balance sheet recession, bank run, banking crisis, Bear Stearns, Black Swan, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Greenspan put, Growth in a Time of Debt, high-speed rail, Hyman Minsky, income inequality, information asymmetry, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, low interest rates, market bubble, market clearing, Martin Wolf, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, Philip Mirowski, Phillips curve, Post-Keynesian economics, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Solow, savings glut, short selling, structural adjustment programs, tail risk, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, Two Sigma, unorthodox policies, value at risk, Washington Consensus, zero-sum game

It’s hard to see this as either welfare improving or politically sustainable in any meaningful sense. Third, you don’t have to be a Keynesian to acknowledge that economies do not necessarily self-heal. One of America’s Great Depression–era monetary economists, Irving Fisher, analyzed how, much to his dismay, depressions do not in fact “right themselves” owing to a phenomenon called debt deflation.55 Simply put, as the economy deflates, debts increase as incomes shrink, making it harder to pay off debt the more the economy craters. This, in turn, causes consumption to shrink, which in the aggregate pulls the economy down further and makes the debt to be paid back all the greater. Fourth, just as it does not follow that governments should always intervene to stave off market adjustments, as the “Greenspan put” and Ireland’s bank rescue showed only too well, to argue that there should never be intervention presumes knowledge of the system—it will return to full employment if left alone—that Austrians themselves say is impossible to attain.

John Maynard Keynes, The General Theory of Employmemt, Interest and Money (New York: Harcourt Brace, 1963), 3. 54. United States Bureau of Labor Statistics, News Release, “Union Members Summary,” January 27, 2012, http://www.bls.gov/news.release/union2.nr0.htm. 55. Irving Fisher, “The Debt Deflation Theory of Great Depressions,” Econometrica, 1, 4 (1933): 337–357. 56. John Quiggin “Austrian Economics: A Response to Boettke” posted on Johnquiggin.com, March 18, 2009, http://johnquiggin.com/2009/03/18/austrian-economics-a-response-to-boettke/. 57. Good luck with that. Somalia is a shining example of such zero-state political economies. 58.


pages: 297 words: 108,353

Boom and Bust: A Global History of Financial Bubbles by William Quinn, John D. Turner

accounting loophole / creative accounting, Alan Greenspan, algorithmic trading, AOL-Time Warner, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Big bang: deregulation of the City of London, bitcoin, blockchain, book value, Bretton Woods, business cycle, buy and hold, capital controls, Celtic Tiger, collapse of Lehman Brothers, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, debt deflation, deglobalization, Deng Xiaoping, different worldview, discounted cash flows, Donald Trump, equity risk premium, Ethereum, ethereum blockchain, eurozone crisis, fake news, financial deregulation, financial intermediation, Flash crash, Francis Fukuyama: the end of history, George Akerlof, government statistician, Greenspan put, high-speed rail, information asymmetry, initial coin offering, intangible asset, Irish property bubble, Isaac Newton, Japanese asset price bubble, joint-stock company, Joseph Schumpeter, junk bonds, land bank, light touch regulation, low interest rates, margin call, market bubble, market fundamentalism, Martin Wolf, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, negative equity, Network effects, new economy, Northern Rock, oil shock, Ponzi scheme, quantitative easing, quantitative trading / quantitative finance, railway mania, Right to Buy, Robert Shiller, Shenzhen special economic zone , short selling, short squeeze, Silicon Valley, smart contracts, South Sea Bubble, special economic zone, subprime mortgage crisis, technology bubble, the built environment, total factor productivity, transaction costs, tulip mania, urban planning

Rubinstein, ‘Cycling’, pp. 48–50; Guardian, ‘Freewheeling to equality’, 18 June 2015; Independent, ‘How the bicycle set women free’, 9 November 2017. 77. Vivanco, Reconsidering the Bicycle, p. 33. CHAPTER 7: THE ROARING TWENTIES AND THE WALL STREET CRASH 1. Fitzgerald, The Great Gatsby, p. 3. 2. Fisher, ‘The debt-deflation theory’, 341. 3. Jordá, Schularick and Taylor, ‘Macrofinancial history’. 4. Kang and Rockoff, ‘Capitalizing patriotism’, 46–52. 5. Hilt and Rahn, ‘Turning citizens into investors’, 93. 6. Kang and Rockoff, ‘Capitalizing patriotism’, 57. 7. Hilt and Rahn, ‘Turning citizens into investors’, 94. 8.

., Haines, M. R. and Kantor, S. ‘Births, deaths, and New Deal relief during the Great Depression’, Review of Economics and Statistics, 89, 1–14, 2007. Fisher, C. and Kent, C. ‘Two depressions, one banking collapse’, Reserve Bank of Australia Research Discussion Paper, No. 1999–06, 1999. Fisher, I. ‘The debt-deflation theory of great depressions’, Econometrica, 1, 337–57, 1933. Fitzgerald, F. S. The Great Gatsby, New York: Scribner, 1925. Flandreau, M., Gaillard, N. and Packer, F. ‘Ratings performance, regulation and the great depression: lessons from foreign government securities’, CEPR Discussion Paper, No.


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

"there is no alternative" (TINA), accounting loophole / creative accounting, air traffic controllers' union, Airbnb, Alan Greenspan, basic income, behavioural economics, Ben Bernanke: helicopter money, billion-dollar mistake, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, creative destruction, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, disruptive innovation, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, fixed income, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, information asymmetry, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, junk bonds, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, liberal capitalism, low interest rates, market bubble, means of production, military-industrial complex, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, tacit knowledge, technological determinism, The Future of Employment, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, Vilfredo Pareto, winner-take-all economy, Wolfgang Streeck

While in the 1970s inflation was public enemy number one, now desperate efforts are being made throughout the OECD world to raise it to at least 2 per cent, hitherto without success. By comparison with the 1970s, when it was the coincidence of inflation and unemployment that left economists clueless, now it is very cheap money coexisting with deflationary pressures, raising the spectre of ‘debt deflation’ and of a collapse of a pyramid of accumulated debt by far exceeding in size that of 2008. How much of a mystery the present phase of the long crisis of contemporary capitalism presents to its would-be management24 is nowhere more visible than in the practice of ‘quantitative easing’, adopted, under different names, by the leading central banks of the capitalist world.

This regime, fashioned after the German model, soon proved unable to enforce fiscal discipline even on Germany. It also failed to prevent the post-2008 Eurocrisis, when public and private debtors in a number of EMU member countries suddenly appeared over-indebted and lost the confidence of their creditors, especially as their national economies became locked into stagnation, with a possibility of debt deflation. As a consequence, risk premiums on public debt in several EMU member countries began to rise; in countries like Italy, Greece, Spain and Ireland they reached an unmanageable level. As indicated, there are no general economic limits to public debt, which requires strictly individualized, case-by-case risk assessment on the part of creditors.


pages: 448 words: 142,946

Sacred Economics: Money, Gift, and Society in the Age of Transition by Charles Eisenstein

Albert Einstein, back-to-the-land, bank run, Bernie Madoff, big-box store, bread and circuses, Bretton Woods, capital controls, carbon credits, carbon tax, clean water, collateralized debt obligation, commoditize, corporate raider, credit crunch, David Ricardo: comparative advantage, debt deflation, degrowth, deindustrialization, delayed gratification, disintermediation, diversification, do well by doing good, fiat currency, financial independence, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, full employment, global supply chain, God and Mammon, happiness index / gross national happiness, hydraulic fracturing, informal economy, intentional community, invisible hand, Jane Jacobs, land tenure, land value tax, Lao Tzu, Lewis Mumford, liquidity trap, low interest rates, McMansion, means of production, megaproject, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, multilevel marketing, new economy, off grid, oil shale / tar sands, Own Your Own Home, Paul Samuelson, peak oil, phenotype, planned obsolescence, Ponzi scheme, profit motive, quantitative easing, race to the bottom, Scramble for Africa, special drawing rights, spinning jenny, technoutopianism, the built environment, Thomas Malthus, too big to fail, Tragedy of the Commons

Soon the outstanding balance is so high that they have to borrow money even to pay interest, which means that money is no longer flowing, and can no longer flow, from debtor to creditor. This is the final stage, usually short, though prolonged in our day by Wall Street’s financial “wizardry.” The loans and any derivatives built on them begin to lose their value, and debt deflation ensues. Essentially, the proximate financial crisis and the deeper growth crisis of civilization are connected in two ways. Interest-based debt-money compels economic growth, and a debt crisis is a symptom that shows up whenever growth slows. The present crisis is the final stage of what began in the 1930s.

If it did, then the story under which the Middle East ships us its oil, Japan its electronics, India its textiles, and China its plastic would come to an end. Unfortunately, or rather fortunately, that story cannot be saved forever. The fundamental reason is that it depends on the maintenance of exponentially growing debt in a finite world. When money evaporates as it is doing in the current cycle of debt deflation, little changes right away in the physical world. Stacks of currency do not go up in flames; factories do not blow up; engines do not grind to a halt; oil wells do not run dry; people’s economic skills do not disappear. All of the materials and skills that are exchanged in human economy, upon which we rely for food, shelter, transportation, entertainment, and so on, still exist as before.


pages: 182 words: 53,802

The Production of Money: How to Break the Power of Banks by Ann Pettifor

Alan Greenspan, Ben Bernanke: helicopter money, Bernie Madoff, Bernie Sanders, bitcoin, blockchain, bond market vigilante , borderless world, Bretton Woods, capital controls, Carmen Reinhart, central bank independence, clean water, credit crunch, Credit Default Swap, cryptocurrency, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, distributed ledger, Donald Trump, eurozone crisis, fiat currency, financial deregulation, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Fractional reserve banking, full employment, Glass-Steagall Act, green new deal, Hyman Minsky, inflation targeting, interest rate derivative, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, land bank, Leo Hollis, light touch regulation, London Interbank Offered Rate, low interest rates, market fundamentalism, Martin Wolf, mobile money, Money creation, Naomi Klein, neoliberal agenda, offshore financial centre, Paul Samuelson, Ponzi scheme, Post-Keynesian economics, pushing on a string, quantitative easing, rent-seeking, Satyajit Das, savings glut, secular stagnation, The Chicago School, the market place, Thomas Malthus, Tobin tax, too big to fail

Recovery, especially in Europe, was worse than from the Great Depression of the 1930s, when it took far less time for countries to return to pre-crisis levels of employment, incomes and activity. As I write, the ‘austerity’ mood has changed. Global institutions are panic-struck by the volatility of the financial system, by the threats of debt-deflation, a slowing global economy, and by the rise of political populism. In response, by way of extraordinary U-turns, they have radically altered their advice on fiscal consolidation. The IMF, in a May 2016 note, questioned whether neoliberalism had been oversold. The OECD warned policy-makers several times in 2016 to ‘act now!


Investment: A History by Norton Reamer, Jesse Downing

activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, algorithmic trading, asset allocation, backtesting, banking crisis, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, book value, break the buck, Brownian motion, business cycle, buttonwood tree, buy and hold, California gold rush, capital asset pricing model, Carmen Reinhart, carried interest, colonial rule, Cornelius Vanderbilt, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, debt deflation, discounted cash flows, diversified portfolio, dogs of the Dow, equity premium, estate planning, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, family office, Fellow of the Royal Society, financial innovation, fixed income, flying shuttle, Glass-Steagall Act, Gordon Gekko, Henri Poincaré, Henry Singleton, high net worth, impact investing, index fund, information asymmetry, interest rate swap, invention of the telegraph, James Hargreaves, James Watt: steam engine, John Bogle, joint-stock company, Kenneth Rogoff, labor-force participation, land tenure, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, managed futures, margin call, means of production, Menlo Park, merger arbitrage, Michael Milken, money market fund, moral hazard, mortgage debt, Myron Scholes, negative equity, Network effects, new economy, Nick Leeson, Own Your Own Home, Paul Samuelson, pension reform, Performance of Mutual Funds in the Period, Ponzi scheme, Post-Keynesian economics, price mechanism, principal–agent problem, profit maximization, proprietary trading, quantitative easing, RAND corporation, random walk, Renaissance Technologies, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Sand Hill Road, Savings and loan crisis, seminal paper, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spinning jenny, statistical arbitrage, survivorship bias, tail risk, technology bubble, Teledyne, The Wealth of Nations by Adam Smith, time value of money, tontine, too big to fail, transaction costs, two and twenty, underbanked, Vanguard fund, working poor, yield curve

Born in 1867 in New York, Irving Fisher was a prolific American economist who made contributions to indexing theory as it pertains to measuring quantities like inflation (James Tobin called him the “greatest expert of all time” in this topic), produced work distinguishing between real interest rates and nominal interest rates, and improved the quantity theory of money.4 He also proposed debt deflation as the mechanism that wreaked havoc on the economy in the Great Depression. While John Maynard Keynes’s economic formulations became largely favored over Fisher’s in their own time, interest in debt deflation reemerged in the wake of the global financial crisis of 2007–2009. Given these achievements, it is not entirely surprising that Milton Friedman would call Fisher the “greatest economist the United States has ever produced.”5 Fisher’s primary contribution to investment theory was the development of a metric to assess which income stream represents the optimal investment: “rate of return over cost,” a concept related to what is today referred to as net present value (NPV).


pages: 665 words: 146,542

Money: 5,000 Years of Debt and Power by Michel Aglietta

accelerated depreciation, Alan Greenspan, bank run, banking crisis, Basel III, Berlin Wall, bitcoin, blockchain, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, cashless society, central bank independence, circular economy, collapse of Lehman Brothers, collective bargaining, corporate governance, David Graeber, debt deflation, dematerialisation, Deng Xiaoping, double entry bookkeeping, energy transition, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, forward guidance, Francis Fukuyama: the end of history, full employment, German hyperinflation, income inequality, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, joint-stock company, Kenneth Arrow, Kickstarter, land bank, liquidity trap, low interest rates, margin call, means of production, Money creation, money market fund, moral hazard, Nash equilibrium, Network effects, Northern Rock, oil shock, planetary scale, plutocrats, precautionary principle, price stability, purchasing power parity, quantitative easing, race to the bottom, reserve currency, secular stagnation, seigniorage, shareholder value, special drawing rights, special economic zone, stochastic process, Suez crisis 1956, the payments system, the scientific method, tontine, too big to fail, trade route, transaction costs, transcontinental railway, Washington Consensus

In mid-1919, Keynes demonstrated the dangers that the Treaty posed to the restoration of an international balance, showing that it was impossible for Germany to honour the commitments that had been imposed upon it. See Keynes, The Economic Consequences of the Peace, New York: Harcourt Brace, 1920. 7 Barry Eichengreen and Kris Mitchener, ‘The great depression as a credit boom gone wrong’, BIS Working Paper, no. 137, 2003. 8 Irving Fisher, ‘The Debt-Deflation Theory of Great Depressions’, Econometrica, vol. 1, no. 4, 1933, pp. 337–57. 9 Charles P. Kindleberger, The World in Depression 1929–1939, Berkeley: University of California Press, 1973. 10 For a presentation and an analysis of the tripartite agreement, see Ian M. Drummond, ‘London, Washington and the Management of the Franc, 1936–39’, Princeton Studies in International Finance, no. 45, 1979. 11 On Keynes and White’s rival expectations and conceptions, and the difficult reconciliation that led to the Bretton Woods accords, see Michel Aglietta and Sandra Moatti, Le FMI.

Fields, David and Matías Vernengo (2013), ‘Hegemonic currencies during the crisis: The dollar versus the euro in a cartelist perspective’, Review of International Political Economy, vol. 20, no. 4, pp. 740–59. Financial Stability Board (2015), ‘Assessment Methodologies for Identifying Non-Bank, Non-Insurer Global Systematically Important Financial Institutions’. fsb.org Finley, Moses I. (1975), Économie antique, Paris: Éditions de Minuit. Fisher, Irving (1933), ‘The Debt-Deflation Theory of Great Depressions’, Econometrica, vol. 1, no. 4, pp. 337–57. Foulis, Patrick (2015), ‘The sticky superpower’, Special report on the world economy, The Economist, 3 October. Frankel, Herbert (1977), Money. Two Philosophies: The Conflict of Trust and Authority, Oxford: Blackwell. Garcia, Gillian and Elizabeth Plantz (1988), The Federal Reserve: Lender of Last Resort, Cambridge, MA: Ballinger Press.


pages: 511 words: 151,359

The Asian Financial Crisis 1995–98: Birth of the Age of Debt by Russell Napier

Alan Greenspan, Asian financial crisis, asset allocation, bank run, banking crisis, banks create money, Berlin Wall, book value, Bretton Woods, business cycle, Buy land – they’re not making it any more, capital controls, central bank independence, colonial rule, corporate governance, COVID-19, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, Deng Xiaoping, desegregation, discounted cash flows, diversification, Donald Trump, equity risk premium, financial engineering, financial innovation, floating exchange rates, Fractional reserve banking, full employment, Glass-Steagall Act, hindsight bias, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, if you build it, they will come, impact investing, inflation targeting, interest rate swap, invisible hand, Japanese asset price bubble, Jeff Bezos, junk bonds, Kickstarter, laissez-faire capitalism, lateral thinking, Long Term Capital Management, low interest rates, market bubble, mass immigration, means of production, megaproject, Mexican peso crisis / tequila crisis, Michael Milken, Money creation, moral hazard, Myron Scholes, negative equity, offshore financial centre, open borders, open economy, Pearl River Delta, price mechanism, profit motive, quantitative easing, Ralph Waldo Emerson, regulatory arbitrage, rent-seeking, reserve currency, risk free rate, risk-adjusted returns, Ronald Reagan, Savings and loan crisis, savings glut, Scramble for Africa, short selling, social distancing, South China Sea, The Wealth of Nations by Adam Smith, too big to fail, yield curve

As banks are the key creators of both credit and money, they are, usually by law, barred from extending credit when they know they have no capital. Should banks shrink their balance sheets to fit with their new lower capital base, both credit and money are destroyed and a country has entered what Irving Fisher once described as a debt deflation. There was no sign of new capital for the remaining Thai banks and finance companies, and there was nothing in the IMF package that dealt with such recapitalisations. The problem with the package was that it demanded a very high level of interest rates that was acting to worsen credit quality problems and further reduce, probably eradicate, commercial bank capital.

All three were listed companies and conversations with the investment community strongly suggested that capital raisings were highly unlikely to be successful. The price of Thai bank equity may have collapsed, but all the evidence was that there was plenty of blind capital in Thailand still to be ‘devoured’ as they were forced to shrink their loan books due to their lack of capital. The debt deflation was far from complete. Bagehot and elephant identification II 29 September 1997, Regional For better or for worse, blind capital is once again now free to roam the globe. In Bagehot’s day, there was already a high degree of capital mobility and a ‘devouring’ of foreign capital was common.


pages: 586 words: 160,321

The Euro and the Battle of Ideas by Markus K. Brunnermeier, Harold James, Jean-Pierre Landau

"there is no alternative" (TINA), Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, banking crisis, battle of ideas, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bretton Woods, Brexit referendum, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, collective bargaining, credit crunch, Credit Default Swap, cross-border payments, currency peg, currency risk, debt deflation, Deng Xiaoping, different worldview, diversification, Donald Trump, Edward Snowden, en.wikipedia.org, Fall of the Berlin Wall, financial deregulation, financial repression, fixed income, Flash crash, floating exchange rates, full employment, Future Shock, German hyperinflation, global reserve currency, income inequality, inflation targeting, information asymmetry, Irish property bubble, Jean Tirole, Kenneth Rogoff, Les Trente Glorieuses, low interest rates, Martin Wolf, mittelstand, Money creation, money market fund, Mont Pelerin Society, moral hazard, negative equity, Neil Kinnock, new economy, Northern Rock, obamacare, offshore financial centre, open economy, paradox of thrift, pension reform, Phillips curve, Post-Keynesian economics, price stability, principal–agent problem, quantitative easing, race to the bottom, random walk, regulatory arbitrage, rent-seeking, reserve currency, risk free rate, road to serfdom, secular stagnation, short selling, Silicon Valley, South China Sea, special drawing rights, tail risk, the payments system, too big to fail, Tyler Cowen, union organizing, unorthodox policies, Washington Consensus, WikiLeaks, yield curve

The problem was one that the IMF staff gradually began to think was at the heart of the difficulties: to regain competitiveness, Greece needed some deflation to reduce costs, but deflation raised the real value of debt and made debt levels increasingly unsustainable—the “Devaluation Dilemma” we described in chapter 6. Several IMF officials began to draw parallels with the debt deflation that Irving Fisher, in 1933, had found to be at the root of the Great Depression.40 The implication was that the IMF should have been more straightforward about the need for debt restructuring in 2010 and that it had lost an opportunity to have a positive influence on European developments. For Europeans, the lesson of Greece was clear.

Such a policy would directly address the competitiveness gap between peripheral and core countries that builds up through wage restraints in the core countries. While nominal wage cuts in the peripheral countries would also close this gap, it is problematic as debtors would not be able to repay their debts—the “Devaluation Dilemma” discussed in chapter 6. A wage rise in the core countries avoids this debt deflation. In this sense, Germany’s introduction of a minimum wage in 2015 was helpful. The German Bundesbank made some initial steps toward such a communication strategy but was not sufficiently determined and shied away from presenting it as a serious alternative to QE. The Bundesbank has a long tradition of managing inflation expectations and through it wage bargaining.


pages: 566 words: 163,322

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World by Ruchir Sharma

"World Economic Forum" Davos, Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, colonial rule, commodity super cycle, corporate governance, creative destruction, crony capitalism, currency peg, dark matter, debt deflation, deglobalization, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, driverless car, Edward Glaeser, Elon Musk, eurozone crisis, failed state, Fall of the Berlin Wall, falling living standards, financial engineering, Francis Fukuyama: the end of history, Freestyle chess, Gini coefficient, global macro, Goodhart's law, guns versus butter model, hiring and firing, hype cycle, income inequality, indoor plumbing, industrial robot, inflation targeting, Internet of things, Japanese asset price bubble, Jeff Bezos, job automation, John Markoff, Joseph Schumpeter, junk bonds, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, Larry Ellison, lateral thinking, liberal capitalism, low interest rates, Malacca Straits, Mark Zuckerberg, market bubble, Mary Meeker, mass immigration, megacity, megaproject, Mexican peso crisis / tequila crisis, middle-income trap, military-industrial complex, mittelstand, moral hazard, New Economic Geography, North Sea oil, oil rush, oil shale / tar sands, oil shock, open immigration, pattern recognition, Paul Samuelson, Peter Thiel, pets.com, plutocrats, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Simon Kuznets, smart cities, Snapchat, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Steve Jobs, tacit knowledge, tech billionaire, The Future of Employment, The Wisdom of Crowds, Thomas Malthus, total factor productivity, trade liberalization, trade route, tulip mania, Tyler Cowen: Great Stagnation, unorthodox policies, Washington Consensus, WikiLeaks, women in the workforce, work culture , working-age population

Chapter 7: The Price of Onions 1 Helge Berger and Mark Spoerer, “Economic Crises and the European Revolutions of 1848,” Journal of Economic History 61, no. 2 (June 2001): 293–326. 2 Martin Paldam, “Inflation and Political Instability in Eight Latin American Countries,” Public Choice 52, no. 2 (1987): 143–68. 3 Marc Bellemare, “Rising Food Prices, Food Price Volatility, and Social Unrest,” American Journal of Agricultural Economics, June 26, 2014. 4 “World Bank Tackles Food Emergency,” BBC News, April 14, 2008. 5 Neil Irwin, “Of Kiwis and Currencies: How a 2% Inflation Target Became Global Economic Gospel,” New York Times, December 19, 2014. 6 Jim Reid, Nick Burns, and Seb Barker, “Long-Term Asset Return Study: Bonds: The Final Bubble Frontier?,” Deutsche Bank Markets Research Report, September 10, 2014. 7 Irving Fisher, “The Debt Deflation Theory of Great Depression,” St. Louis Federal Reserve, n.d. 8 David Hackett Fischer, The Great Wave: Price Revolutions and the Rhythm of History (New York: Oxford University Press, 1996). 9 Claudioo Bordio, Magdalena Erdem, and Andrew Filardo, “The Costs of Deflations: A Historical Perspective,” Bank of International Settlements, 2015. 10 “Toward Operationalizing Macroprudential Policies: When to Act?”

“The Asset-Rich, Income-Poor Economy.” Wall Street Journal, June 19, 2014. “Falling Prices Are Good for Workers.” Lombard Street Research, January 23, 2015. Fischer, David Hackett. The Great Wave: Price Revolutions and the Rhythm of History. New York: Oxford University Press, 1996. Fisher, Irving. “The Debt Deflation Theory of Great Depression.” St. Louis Federal Reserve, n.d. Gavae, Charles. “Back to MV=PQ.” GK Research, January 9, 2014. Hatiuz, Jan. “Revisiting the Risk of Another Bus.” Goldman Sachs Global Investment Research, November 3, 2014. Irwin, Neil. “Of Kiwis and Currencies: How a 2% Inflation Target Became Global Economic Gospel.”


pages: 305 words: 69,216

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression by Richard A. Posner

Alan Greenspan, Andrei Shleifer, banking crisis, Bear Stearns, Bernie Madoff, business cycle, collateralized debt obligation, collective bargaining, compensation consultant, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, diversified portfolio, equity premium, financial deregulation, financial intermediation, Glass-Steagall Act, Home mortgage interest deduction, illegal immigration, laissez-faire capitalism, Long Term Capital Management, low interest rates, market bubble, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, oil shock, Ponzi scheme, price stability, profit maximization, proprietary trading, race to the bottom, reserve currency, risk tolerance, risk/return, Robert Shiller, savings glut, shareholder value, short selling, statistical model, subprime mortgage crisis, too big to fail, transaction costs, very high income

., "A Crack in the System," Washington Post, Dec. 29-31, 2008. Chris Farrell, Deflation: What Happens When Prices Fall (2004). Niall Ferguson, The Ascent of Money: A Financial History of the World (2008). Stanlev Fischer and Rudiger Dornbusch, Introduc- tion to Macroeconomics (1983). Irving Fisher, "The Debt-Deflation Theory of Great Depressions," 1 Econometrica 337 (1933). W. Scott Frame and Lawrence J. White, "Fussing and Fuming over Fannie and Freddie: How Much Smoke, How Much Fire?" Journal of Economic Perspectives (Spring 2005): 159. Peter M. Garber, "Famous First Bubbles," Journal of Economic Perspectives (Spring 1990): 35- James D.


pages: 267 words: 74,296

Unhappy Union: How the Euro Crisis - and Europe - Can Be Fixed by John Peet, Anton La Guardia, The Economist

"World Economic Forum" Davos, bank run, banking crisis, Berlin Wall, Bretton Woods, business cycle, capital controls, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, debt deflation, Doha Development Round, electricity market, eurozone crisis, Fall of the Berlin Wall, financial engineering, fixed income, Flash crash, illegal immigration, labour market flexibility, labour mobility, light touch regulation, low interest rates, market fundamentalism, Money creation, moral hazard, Northern Rock, oil shock, open economy, pension reform, price stability, quantitative easing, special drawing rights, supply-chain management, The Great Moderation, too big to fail, transaction costs, éminence grise

In September 2013, Wolfgang Schäuble, the German finance minister, boasted that the slow return to growth in the euro zone, and the rebalancing of current accounts in deficit countries, was proof that the much-criticised medicine was working:1 Systems adapt, downturns bottom out, trends turn. In other words, what is broken can be repaired. Europe today is the proof. Yet this is to miss the point. The euro’s is a story of survival, not of success. Although it is limping back to growth, its weaker members have sunk deeper into debt. Mass unemployment and debt deflation in Greece are hardly evidence of successful adjustment. The question is not whether economies eventually bottom out, but whether politicians limit or worsen the damage. One answer is to compare the euro zone’s performance with that of the United States (see Figure 12.1). European leaders like to blame the United States for their crisis, and to boast that aggregate public debts and budget deficits are healthier than those of the United States.


pages: 333 words: 76,990

The Long Good Buy: Analysing Cycles in Markets by Peter Oppenheimer

Alan Greenspan, asset allocation, banking crisis, banks create money, barriers to entry, behavioural economics, benefit corporation, Berlin Wall, Big bang: deregulation of the City of London, Black Monday: stock market crash in 1987, book value, Bretton Woods, business cycle, buy and hold, Cass Sunstein, central bank independence, collective bargaining, computer age, credit crunch, data science, debt deflation, decarbonisation, diversification, dividend-yielding stocks, equity premium, equity risk premium, Fall of the Berlin Wall, financial engineering, financial innovation, fixed income, Flash crash, foreign exchange controls, forward guidance, Francis Fukuyama: the end of history, general purpose technology, gentrification, geopolitical risk, George Akerlof, Glass-Steagall Act, household responsibility system, housing crisis, index fund, invention of the printing press, inverted yield curve, Isaac Newton, James Watt: steam engine, Japanese asset price bubble, joint-stock company, Joseph Schumpeter, Kickstarter, Kondratiev cycle, liberal capitalism, light touch regulation, liquidity trap, Live Aid, low interest rates, market bubble, Mikhail Gorbachev, mortgage debt, negative equity, Network effects, new economy, Nikolai Kondratiev, Nixon shock, Nixon triggered the end of the Bretton Woods system, oil shock, open economy, Phillips curve, price stability, private sector deleveraging, Productivity paradox, quantitative easing, railway mania, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Shenzhen special economic zone , Simon Kuznets, South Sea Bubble, special economic zone, stocks for the long run, tail risk, Tax Reform Act of 1986, technology bubble, The Great Moderation, too big to fail, total factor productivity, trade route, tulip mania, yield curve

Stanford Institute for Economic Policy Research, Stanford, CA. Filardo, A., Lombardi, M., and Raczko, M. (2019). Measuring financial cycle time. Bank of England Staff Working Paper No. 776 [online]. Available at https://www.bankofengland.co.uk/working-paper/2019/measuring-financial-cycle-time Fisher, I. (1933). The debt-deflation theory of the great depressions. Econometrica, 1, 337–357. Five things you need to know about the Maastricht Treaty. (2017). ECB [online]. Available at https://www.ecb.europa.eu/explainers/tell-me-more/html/25_years_maastricht.en.html Frehen, R. G. P., Goetzmann, W. N., and Rouwenhorst, K. G. (2013).


pages: 318 words: 85,824

A Brief History of Neoliberalism by David Harvey

"World Economic Forum" Davos, affirmative action, air traffic controllers' union, Asian financial crisis, Berlin Wall, Bretton Woods, business climate, business cycle, California energy crisis, capital controls, centre right, collective bargaining, creative destruction, crony capitalism, debt deflation, declining real wages, deglobalization, deindustrialization, Deng Xiaoping, Fall of the Berlin Wall, financial deregulation, financial intermediation, financial repression, full employment, gentrification, George Gilder, Gini coefficient, global reserve currency, Great Leap Forward, illegal immigration, income inequality, informal economy, labour market flexibility, land tenure, late capitalism, Long Term Capital Management, low interest rates, low-wage service sector, manufacturing employment, market fundamentalism, mass immigration, means of production, megaproject, Mexican peso crisis / tequila crisis, military-industrial complex, Mont Pelerin Society, mortgage tax deduction, neoliberal agenda, new economy, Pearl River Delta, phenotype, Ponzi scheme, price mechanism, race to the bottom, rent-seeking, reserve currency, Ronald Reagan, Savings and loan crisis, Silicon Valley, special economic zone, structural adjustment programs, Suez crisis 1956, the built environment, The Chicago School, Tragedy of the Commons, transaction costs, union organizing, urban renewal, urban sprawl, Washington Consensus, We are all Keynesians now, Winter of Discontent

-B. 220 democracy demand for 110 excess of 184 as luxury 66 meaning of 206 Democrats (US) 49, 51 consent, construction of 51, 53–4, 62–3 uneven development 92, 93, 103, 110 see also Clinton; Roosevelt Deng Xiaoping 1–2, 120–5 passim, 135–6, 168 deregulation 3, 22, 26, 65, 67, 114, 161 derivative rights 182 Derthick, M. 219 devaluation 103, 105, 135 developing countries 71–4 see also Africa; Asia; debt; inequalities; Latin America; uneven development Dicken, P. 91, 102, 109, 131, 216, 219 dignity, human 5 see also freedom dirigisme 10 disposable commodity, labour as 70, 153, 157, 164, 167–71 dispossession see accumulation dissident movements 5 see also student movements Dongguan 132, 147, 149 Duhalde, E. 105–6 Duménil, G. 207, 213, 219–20 freedom concept 16–17, 18, 24, 26, 30, 33, 209 freedom’s prospect 191, 222 Eagleton, T. 198 earnings see income/wages East Asia 2 and China 122, 141 consent, construction of 59 freedom concept 10, 11, 23, 35 freedom’s prospect 190, 193–4, 197, 199, 206 neoliberal state 66, 72, 85 neoliberalism on trial 154, 156, 169 uneven development 87–94 passim, 96, 97, 106–12, 115, 116, 118 see also China; Hong Kong; Japan; South East Asia; South Korea; Taiwan East and Central Europe 5, 17, 71 neoliberalism on trial 154, 170 uneven development 94, 95, 117 ecosystems see commons Ecuador 95 Edsall, T. 48, 49, 51, 54–5, 211 Edwards, M. 220 egalitarianism 203–4 Eley, G. 208 elites and restoration of power China 123, 145 consent, construction of 39, 42–5, 51, 52 freedom concept 15–19, 23, 26, 29–30, 31–8 freedom’s prospect 197, 203–4 neoliberal state 66, 69, 84 neoliberalism on trial 152, 153, 156 uneven development 90–3, 96–9, 103–6, 108, 112, 114, 117, 119 see also financial system ‘embedded liberalism’ 11–12 employment see labour Enron 32, 77, 162 entrepreneurialism 23, 31 environment see commons equality 120 see also inequalities ERM 98 ethnicity 85 Europe 109, 157 European Union 79, 89, 91–2, 93, 114–15 freedom concept 11–15, 17, 19, 24, 27–8 freedom’s prospect 193–4, 200, 206 uneven development 89, 91–2, 93, 114 see also Britain; East and Central Europe; France; Germany; Italy; Sweden Evans, P. 212 excess capacity 194 exchange as ethic 3, 13 exchange rates 10, 12, 123–4, 141 exploitation of natural resources 8–9, 159, 164, 174–5 export-led growth 107 China 128, 130, 135–7 see also East Asia; FDI; market economy; South East Asia failure of neoliberalism 154–6 see also neoliberalism on trial Falklands/Malvinas war 79, 86 Falwell, J. 49 Farah, J. 219 FDI (foreign direct investment) 6, 7, 23, 28–30 China 21, 123, 125, 126, 129, 133–4, 141, 147 decline 190, 191 uneven development 90–4 passim, 98, 100, 101, 103, 105, 109, 117–18 see also debt; financial system Federal Reserve (US) see Volcker financial system and power 40, 62 China and state-owned banks 123, 125, 126, 129, 133–4, 141, 147 crises 12, 44–8, 68, 189, 193–4 uneven development 94–7, 104–5 see also debt; deflation; inflation decline 190 financialization 161–2 neoliberal state 71–5, 78, 80 neoliberalism on trial 157, 158, 161–2 uneven development 88–93, 94–9, 104–5, 108, 114, 119 see also corporations; currency; elites; FDI; IMF; income; Treasury; World Bank Fisher, W. 222 Fishman, T. 216 ‘flexible accumulation’ 75–6 flexible labour 100, 112 force see coercion/force Ford, G. 46 foreign direct investment see FDI Forero, J. 214, 217 Fortune 500 17, 44 four modernizations (China) 120 Fourcade-Gourinchas, M. 208, 211 Fox, V. 98 France 41, 157, 200 freedom concept 5, 11, 13, 15, 17, 19, 24, 27 neoliberal state 66, 84, 85 uneven development 91, 115, 117 Frank, T. 172, 210, 211, 213 free trade/market see market economy freedom, concept of 5–38, 207–9 as catchword 39, 41–2 class power 31–6 definitions 36–7 divergent concepts 183–4 four cardinal 183, 206 neoliberal theory, rise of 19–31 neoliberal turn, reasons for 9–19 freedom’s prospect 36–8, 186–206, 221–2 end to neoliberalism, possible 188–98 neoliberalism, alternatives to 198–206 Freeman, J. 46 French, H. 216 Friedman, M. 8, 20, 22, 44 future see freedom’s prospect G7/G8 countries 33, 66, 94 ‘Gang of Four’ see Hong Kong; Singapore; South Korea; Taiwan GATT 100 General Motors 130, 134, 135, 157 Geneva Conventions 6, 198 George, S. 207, 222 Germany 66, 87, 91, 157 West 24, 41, 88–9, 90 Gilder, G. 54 Gill, L. 220, 222 Gills, B. 221 Gindin, S. 28, 208, 219 Giuliani, R. 48, 100 global warming 172, 173, 174 globalization 70, 80, 159, 163 see also market economy; WTO Glynn, A. 208 Goldwater, B. 2 Gowan, P. 209, 213 Gramsci, A. 39, 78 Gray, J. 152–3 Guangdong 121, 128, 135, 136, 137 Haggard, S. 211 Hainan Island 131 Hale, D. and L. 215, 216 Hall, P. 211 Hall, S. 211 Harris, P. 220 Harrison, J. 208 Hart-Landsberg, M. 215, 217 Harvey, D. 211, 212, 213, 219, 221, 222 freedom concept 14, 207, 209 Hayek, F. von 20, 21, 22, 37, 40, 57 Hayter, T. 211 health, poor 154 Healy, D. 212 hedging 97–8 hegemony see power Held, D. 222 Henderson, J. 72, 213 Henwood, D. 209 Hofstadter, R. 82–3 Holloway, J. 219 Hong Kong 2, 89, 96, 157 and China 121, 123, 128, 130, 132, 136, 138, 141, 147 Hout, T. 216 Huang, Y. 124, 215 Huawei 134–5 Hulme, D. 220 human rights see rights hyper-inflation 193 Hyundai 107, 111 IBM 13, 146 ideologies see neoliberalism; values illiteracy 156 IMF (International Monetary Fund) 3 China 122, 141 consent, construction of 40, 54, 58 freedom concept 8, 10, 12, 24, 30 freedom’s prospect 185, 189, 201, 205 neoliberal state 69, 72, 73, 75 neoliberalism on trial 152, 154, 162–3, 175, 182 uneven development 92–9 passim, 103, 105–6, 111, 116–18 imperialism see neocolonialism imports 139–40 cheap 101 substitution 8, 98 income/wages China 126–7, 136, 138, 143–4, 148 falling 18 individual 176–7 inequalities 15–19, 88, 92, 100 neoliberalism on trial 154, 156 policies 12 and productivity 25 uneven development 88, 92, 100, 114 India 9, 134 freedom’s prospect 186, 194, 202, 206 neoliberal state 76, 85 neoliberalism on trial 154, 156, 174 individualism 23, 42, 57 neoliberal state 65–6, 79–8, 82, 85–6 see also freedom Indonesia 199 and China 138, 139 freedom concept 31–2, 34 neoliberal state 76, 85 neoliberalism on trial 153, 163, 167, 168, 175, 178 uneven development 89, 91, 96–7, 108–9, 117, 118 inequalities China 142–51 income 15–19, 88, 92, 100 increased 89–90, 118 see also class; developing countries; power; uneven development inflation 1, 135 consent, construction of 51, 59 control as only success 156 freedom concept 12, 14, 22, 23–5 freedom’s prospect 189, 193 stagflation 12, 22, 23, 24–5, 57 uneven development 88, 93, 100 informal economy 103 information technology 3–4, 34, 157, 159 innovation see technology, new Institute of Economic Affairs (UK) 22, 57 institutions 40, 64, 75 see also IMF; World Bank; WTO intellectual property rights 64, 68, 160 interest rates 23–4, 51, 59, 99, 162 international agreements 6, 92, 198 see also IMF; WTO intervention 20–1, 79 lack of 69 see also pre-emptive action investment see FDI Iran 28, 85, 139, 206 Iraq 179–80, 181, 204 reconstruction 184 War 6–7, 9, 35, 39, 153, 160, 184, 197 Isaacs, W. 193 Islam 83, 186 see also Middle East Israel 12 Italy 66, 96 freedom concept 11, 12, 13, 15 Japan 2, 59, 156 and China 123, 134, 136, 138–40, 142 freedom concept 10, 11, 23 freedom’s prospect 190, 193 neoliberal state 66, 85 uneven development 87–94 passim, 107 Jensen, D. 186 Jessop, B. 211 Jevons, W.


pages: 354 words: 92,470

Grave New World: The End of Globalization, the Return of History by Stephen D. King

"World Economic Forum" Davos, 9 dash line, Admiral Zheng, air freight, Alan Greenspan, Albert Einstein, Asian financial crisis, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Sanders, bilateral investment treaty, bitcoin, blockchain, Bonfire of the Vanities, borderless world, Bretton Woods, Brexit referendum, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collateralized debt obligation, colonial rule, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, currency risk, David Ricardo: comparative advantage, debt deflation, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Snowden, eurozone crisis, facts on the ground, failed state, Fall of the Berlin Wall, falling living standards, floating exchange rates, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, global value chain, Global Witness, Great Leap Forward, hydraulic fracturing, Hyman Minsky, imperial preference, income inequality, income per capita, incomplete markets, inflation targeting, information asymmetry, Internet of things, invisible hand, Jeremy Corbyn, joint-stock company, Kickstarter, Long Term Capital Management, low interest rates, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, middle-income trap, moral hazard, Nixon shock, offshore financial centre, oil shock, old age dependency ratio, paradox of thrift, Peace of Westphalia, plutocrats, post-truth, price stability, profit maximization, quantitative easing, race to the bottom, rent-seeking, reserve currency, reshoring, rising living standards, Ronald Reagan, Savings and loan crisis, Scramble for Africa, Second Machine Age, Skype, South China Sea, special drawing rights, technology bubble, The Great Moderation, The Market for Lemons, the market place, The Rise and Fall of American Growth, trade liberalization, trade route, Washington Consensus, WikiLeaks, Yom Kippur War, zero-sum game

If a central bank steps in to prevent bankruptcies – via aggressive interest rate cuts and generous ‘lender of last resort’ activities – the subsequent recovery will be even more financially fragile. Over a number of economic cycles, the degree of financial fragility rises to such an extent that monetary easing and lender of last resort facilities eventually begin to lose their potency. A debt-deflation downward spiral threatens to take hold. Falling prices raise the real value of outstanding debts, triggering even more liquidation and, eventually, a total collapse in economic activity. Seen through Minsky’s eyes, the ‘Great Moderation’ was always going to end in tears. Central bank actions designed to limit downswings – or, indeed, to prevent downswings from happening altogether – only served to increase financial fragility and thus the risk of an eventual economic and financial meltdown.


pages: 346 words: 90,371

Rethinking the Economics of Land and Housing by Josh Ryan-Collins, Toby Lloyd, Laurie Macfarlane

agricultural Revolution, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, basic income, book value, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, debt deflation, deindustrialization, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, foreign exchange controls, full employment, garden city movement, George Akerlof, ghettoisation, Gini coefficient, Hernando de Soto, housing crisis, Hyman Minsky, income inequality, information asymmetry, knowledge worker, labour market flexibility, labour mobility, land bank, land reform, land tenure, land value tax, Landlord’s Game, low interest rates, low skilled workers, market bubble, market clearing, Martin Wolf, means of production, Minsky moment, Money creation, money market fund, mortgage debt, negative equity, Network effects, new economy, New Urbanism, Northern Rock, offshore financial centre, Pareto efficiency, place-making, Post-Keynesian economics, price stability, profit maximization, quantitative easing, rent control, rent-seeking, Richard Florida, Right to Buy, rising living standards, risk tolerance, Robert Solow, Second Machine Age, secular stagnation, shareholder value, subprime mortgage crisis, the built environment, The Great Moderation, The Market for Lemons, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, universal basic income, urban planning, urban sprawl, working poor, working-age population

This would lead to a build-up of debt which eventually would exceed what borrowers could pay off from their incoming revenues, forcing them to borrow to fund interest payments – what Minsky called ‘Ponzi financing’. Under such a scenario, economies become highly fragile and even small economic shocks could lead to firm defaults. The process would then go into reverse, with business investment falling, banks defaulting and unwilling to lend and debt-deflation ensuing. Minsky’s writings were mainly focused on the role of firms and their interaction with the banking system rather than households and mortgage credit. However, his theories were highly applicable to the financial crisis of 2007–8, when a long period of apparent stability (the ‘Great Moderation’) and rising asset prices led to increasingly risky behaviour by households and banks in borrowing and lending against land and housing.


pages: 1,088 words: 228,743

Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen

Alan Greenspan, Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, behavioural economics, Bernie Madoff, Black Swan, Bob Litterman, bond market vigilante , book value, Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, carbon credits, Carmen Reinhart, central bank independence, classic study, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, deal flow, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, G4S, George Akerlof, global macro, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, inverted yield curve, invisible hand, John Bogle, junk bonds, Kenneth Rogoff, laissez-faire capitalism, law of one price, London Interbank Offered Rate, Long Term Capital Management, loss aversion, low interest rates, managed futures, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, pension time bomb, performance metric, Phillips curve, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, savings glut, search costs, selection bias, seminal paper, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, stock buybacks, stocks for the long run, survivorship bias, systematic trading, tail risk, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond, zero-sum game

Deflation tends to hurt most asset classes, so it is difficult to hedge against. Nominal government bonds are the most obvious hedges—but even they may be less than fully effective if a deflationary recession raises market concerns about sovereign creditworthiness. Unfortunately, the current environment resembles classic debt deflation (which is preceded by excessive debt accumulation and characterized by de-leveraging) more than it does the benign deflation experience of the late 19th century, when stock prices, real output, and incomes all rose tremendously. In the latter case, deflation was caused by technological improvement (increased productivity) during a period when money supply growth was severely constrained by use of the gold standard.

We simply do not know what it takes to unmoor those expectations, what it takes to get the genie back in the bottle if this happens, and if the Fed has the stomach for it. Bond vigilantes worry about the Fed’s priorities and its independence. Even if the unmooring of inflation expectations to the upside is scary, the impact of global deflation, if it occurs, is even worse. Debt deflation and hyperinflation are the worst destroyers of wealth. Most policymakers now fear the former more than the latter, which makes inflation (though not hyperinflation) the more likely medium-term outcome. Sovereign creditworthiness may be reassessed Consistent with both themes discussed above, re-rating of perceived creditworthiness may take place.


pages: 361 words: 97,787

The Curse of Cash by Kenneth S Rogoff

Alan Greenspan, Andrei Shleifer, Asian financial crisis, bank run, Ben Bernanke: helicopter money, Berlin Wall, bitcoin, blockchain, Boris Johnson, Bretton Woods, business cycle, capital controls, Carmen Reinhart, cashless society, central bank independence, cryptocurrency, debt deflation, disruptive innovation, distributed ledger, Dr. Strangelove, Edward Snowden, Ethereum, ethereum blockchain, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial exclusion, financial intermediation, financial repression, forward guidance, frictionless, full employment, George Akerlof, German hyperinflation, government statistician, illegal immigration, inflation targeting, informal economy, interest rate swap, Isaac Newton, Johann Wolfgang von Goethe, Johannes Kepler, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, low interest rates, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, moveable type in China, New Economic Geography, offshore financial centre, oil shock, open economy, payday loans, price stability, purchasing power parity, quantitative easing, RAND corporation, RFID, savings glut, secular stagnation, seigniorage, The Great Moderation, the payments system, The Rise and Fall of American Growth, transaction costs, unbanked and underbanked, unconventional monetary instruments, underbanked, unorthodox policies, Y2K, yield curve

Had it been done forcefully and early on, and especially coincident with the large initial fiscal impulse, a higher inflation target might have helped sustain enough momentum to avoid the liquidity trap that ultimately ensnared so many countries. Higher inflation would have helped both to stimulate demand through lower real interest rates and to mitigate adverse debt deflation dynamics. And it was not necessary to do this on a permanent basis: the key was responding quickly to the crisis.11 True, a large branch of the zero bound literature is predicated on the view that the inability to promise higher inflation, even when essential, is inherently an intractable credibility problem.


pages: 484 words: 104,873

Rise of the Robots: Technology and the Threat of a Jobless Future by Martin Ford

3D printing, additive manufacturing, Affordable Care Act / Obamacare, AI winter, algorithmic management, algorithmic trading, Amazon Mechanical Turk, artificial general intelligence, assortative mating, autonomous vehicles, banking crisis, basic income, Baxter: Rethink Robotics, Bernie Madoff, Bill Joy: nanobots, bond market vigilante , business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Charles Babbage, Chris Urmson, Clayton Christensen, clean water, cloud computing, collateralized debt obligation, commoditize, computer age, creative destruction, data science, debt deflation, deep learning, deskilling, digital divide, disruptive innovation, diversified portfolio, driverless car, Erik Brynjolfsson, factory automation, financial innovation, Flash crash, Ford Model T, Fractional reserve banking, Freestyle chess, full employment, general purpose technology, Geoffrey Hinton, Goldman Sachs: Vampire Squid, Gunnar Myrdal, High speed trading, income inequality, indoor plumbing, industrial robot, informal economy, iterative process, Jaron Lanier, job automation, John Markoff, John Maynard Keynes: technological unemployment, John von Neumann, Kenneth Arrow, Khan Academy, Kiva Systems, knowledge worker, labor-force participation, large language model, liquidity trap, low interest rates, low skilled workers, low-wage service sector, Lyft, machine readable, machine translation, manufacturing employment, Marc Andreessen, McJob, moral hazard, Narrative Science, Network effects, new economy, Nicholas Carr, Norbert Wiener, obamacare, optical character recognition, passive income, Paul Samuelson, performance metric, Peter Thiel, plutocrats, post scarcity, precision agriculture, price mechanism, public intellectual, Ray Kurzweil, rent control, rent-seeking, reshoring, RFID, Richard Feynman, Robert Solow, Rodney Brooks, Salesforce, Sam Peltzman, secular stagnation, self-driving car, Silicon Valley, Silicon Valley billionaire, Silicon Valley startup, single-payer health, software is eating the world, sovereign wealth fund, speech recognition, Spread Networks laid a new fibre optics cable between New York and Chicago, stealth mode startup, stem cell, Stephen Hawking, Steve Jobs, Steven Levy, Steven Pinker, strong AI, Stuxnet, technological singularity, telepresence, telepresence robot, The Bell Curve by Richard Herrnstein and Charles Murray, The Coming Technological Singularity, The Future of Employment, the long tail, Thomas L Friedman, too big to fail, Tragedy of the Commons, Tyler Cowen, Tyler Cowen: Great Stagnation, uber lyft, union organizing, Vernor Vinge, very high income, warehouse automation, warehouse robotics, Watson beat the top human players on Jeopardy!, women in the workforce

See Consumer Price Index (CPI) Craigslist, 95 Creative Machines Lab (Cornell University), 108 creativity, machines demonstrating, 108–113 credential inflation, 252 credentials, higher education, 142 Crichton, Michael, 244 crowd sourcing, 95 “The Cult of Kurzweil” (Geraci), 235 curiosity, machines demonstrating, 108–113 cyber attack, cloud robotics and, 22–23 Cyberdyne, 157 cybernation, 30 “cyborg,” 106 Cycle Computing, 104–105 Cynamon, Barry, 199, 200, 214 Dana-Farber Cancer Institute, 149 “Darci” software, 112–113 DARPA. See Defense Advanced Research Projects Agency (DARPA) debt deflation and, 217 financial crisis and, 218–219 income inequality and consumer spending, 214 ratio to income, 199–200 Deep Blue computer, xiv, 97–98, 122 deep learning, 92–93, 121, 231 Defense Advanced Research Projects Agency (DARPA), 80, 181–183 deflation, 216–217 Delta Electronics, Inc., 10 Delta Cost Project, 140 demand, 196–197 in China, 223–227 productivity and, 207–208 Democrats, income distribution preferred by, 47n design philosophy, 254–255 developing countries, 10–12, 25, 78–79 diagnostic tool, repurposing Watson as, 102–103 digital computer, effect of, 33–34 digital divide, 78 digital economy, long-tail opportunities in, 76–78 DiNardo, Courtney, 148 disruptive technology, xviii, 66 division of labour, 73 Dow News Service, 113–114 Drexler, K.


pages: 350 words: 109,220

In FED We Trust: Ben Bernanke's War on the Great Panic by David Wessel

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Berlin Wall, Black Swan, break the buck, business cycle, central bank independence, credit crunch, Credit Default Swap, crony capitalism, debt deflation, Fall of the Berlin Wall, financial engineering, financial innovation, financial intermediation, fixed income, full employment, George Akerlof, Glass-Steagall Act, Greenspan put, housing crisis, inflation targeting, information asymmetry, junk bonds, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, Michael Milken, money market fund, moral hazard, mortgage debt, new economy, Northern Rock, price stability, quantitative easing, Robert Shiller, Ronald Reagan, Saturday Night Live, Savings and loan crisis, savings glut, Socratic dialogue, too big to fail

Among Bernanke’s most visible roles was promoting, explaining, and defending Greenspan’s strategy of keeping interest rates very low. This was, in part, a deliberate campaign to reduce the risk of deflation — a generalized decline in prices, which can lead to a debilitating disease that makes it ever harder for borrowers to pay back debts. Deflation was a major feature of the Great Depression, and most economists thought it had been eradicated until it reappeared in Japan in the 1990s. As U.S. inflation rates fell in early 2002, the Fed saw deflation as a possibility for which it had to prepare. So in November 2002, to a group of economists in Washington, Bernanke delivered a talk titled “Deflation: Making Sure ‘It’ Doesn’t Happen Here.”


pages: 457 words: 125,329

Value of Everything: An Antidote to Chaos The by Mariana Mazzucato

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, bank run, banks create money, Basel III, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, business cycle, butterfly effect, buy and hold, Buy land – they’re not making it any more, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, carried interest, clean tech, Corn Laws, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, European colonialism, Evgeny Morozov, fear of failure, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, full employment, G4S, George Akerlof, Glass-Steagall Act, Google Hangouts, Growth in a Time of Debt, high net worth, Hyman Minsky, income inequality, independent contractor, index fund, informal economy, interest rate derivative, Internet of things, invisible hand, John Bogle, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, laissez-faire capitalism, light touch regulation, liquidity trap, London Interbank Offered Rate, low interest rates, margin call, Mark Zuckerberg, market bubble, means of production, military-industrial complex, Minsky moment, Money creation, money market fund, negative equity, Network effects, new economy, Northern Rock, obamacare, offshore financial centre, Pareto efficiency, patent troll, Paul Samuelson, peer-to-peer lending, Peter Thiel, Post-Keynesian economics, profit maximization, proprietary trading, quantitative easing, quantitative trading / quantitative finance, QWERTY keyboard, rent control, rent-seeking, Robert Solow, Sand Hill Road, shareholder value, sharing economy, short selling, Silicon Valley, Simon Kuznets, smart meter, Social Responsibility of Business Is to Increase Its Profits, software patent, Solyndra, stem cell, Steve Jobs, The Great Moderation, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, transaction costs, two and twenty, two-sided market, very high income, Vilfredo Pareto, wealth creators, Works Progress Administration, you are the product, zero-sum game

After acquiring Thames Water in 2006, it used securitization to raise the company's debt from £3.2 billion to £7.8 billion by 2012, while avoiding major infrastructure investment,12 The strategy raised alarm among environmentalists when, in 2017, Macquarie acquired the Green Investment Bank, a major financer of renewable energy and conservation projects set up by the UK government five years earlier. Moreover, once financiers realize that very little value stands behind their liabilities, they try to issue even more debt to refinance themselves. When they cannot continue to do so, a debt deflation occurs, such as the one that began in the US and Europe in 2007-8 and was still depressing global growth rates ten years later. Society at large then bears the costs of the speculative mania: unemployment rises and wages are held down, especially for those left behind during the previous economic expansion.


pages: 401 words: 112,784

Hard Times: The Divisive Toll of the Economic Slump by Tom Clark, Anthony Heath

Affordable Care Act / Obamacare, Alan Greenspan, British Empire, business cycle, Carmen Reinhart, classic study, credit crunch, Daniel Kahneman / Amos Tversky, debt deflation, deindustrialization, Etonian, eurozone crisis, falling living standards, full employment, Gini coefficient, Greenspan put, growth hacking, hedonic treadmill, hiring and firing, income inequality, interest rate swap, invisible hand, It's morning again in America, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, low interest rates, low skilled workers, MITM: man-in-the-middle, mortgage debt, new economy, Northern Rock, obamacare, oil shock, plutocrats, price stability, quantitative easing, Right to Buy, Ronald Reagan, science of happiness, statistical model, The Wealth of Nations by Adam Smith, unconventional monetary instruments, War on Poverty, We are the 99%, women in the workforce, working poor

Because deep recessions do such damage, it is important to be grateful for one great mercy: the prevailing policy of easy money in both Britain and America. Record low interest rates and liberal use of the printing presses represent one crucial break with the early 1930s, and have allowed both countries to avoid the trap of debt deflation and the wholesale destruction of jobs that has historically come with it. We have not dwelt on this point because the reflationists have mostly carried the day; it is, however, important to register, since undue panic about inflation, or pressure from savers fed up with low returns, could yet force a premature policy shift.


pages: 425 words: 122,223

Capital Ideas: The Improbable Origins of Modern Wall Street by Peter L. Bernstein

Albert Einstein, asset allocation, backtesting, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bonfire of the Vanities, Brownian motion, business cycle, buy and hold, buy low sell high, capital asset pricing model, corporate raider, debt deflation, diversified portfolio, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, fixed income, full employment, Glass-Steagall Act, Great Leap Forward, guns versus butter model, implied volatility, index arbitrage, index fund, interest rate swap, invisible hand, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, law of one price, linear programming, Louis Bachelier, mandelbrot fractal, martingale, means of production, Michael Milken, money market fund, Myron Scholes, new economy, New Journalism, Paul Samuelson, Performance of Mutual Funds in the Period, profit maximization, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk free rate, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, stochastic process, Thales and the olive presses, the market place, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, transfer pricing, zero-coupon bond, zero-sum game

That journal is now nearly sixty years old and commands wide respect among economists, statisticians, and mathematicians. The first issue of Econometrica, which appeared in January 1933, contained an introductory article by the famous Harvard economist and the first president of the Econometric Society, Joseph Schumpeter, as well as a timely paper by Irving Fisher titled “The Debt-Deflation Theory of Great Depressions.” The first fruit of Cowles’s own research into market forecasting, an article titled “Can Stock Market Forecasters Forecast?,” appeared in the July 1933 issue. A three-word abstract of the article concluded: “It is doubtful.” Cowles analyzed the track records of four sets of forecasters: sixteen leading financial services that furnished their subscribers with selected lists of common stocks; the purchases and sales of stocks made by twenty leading fire insurance companies; a test of the Dow Theory gleaned from Hamilton’s editorials in The Wall Street Journal; and the twenty-four publications that had set Cowles off on his quest, including sixteen professional financial services, four financial weeklies, one bank letter, and one investment-house letter.


pages: 545 words: 137,789

How Markets Fail: The Logic of Economic Calamities by John Cassidy

Abraham Wald, Alan Greenspan, Albert Einstein, An Inconvenient Truth, Andrei Shleifer, anti-communist, AOL-Time Warner, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black-Scholes formula, Blythe Masters, book value, Bretton Woods, British Empire, business cycle, capital asset pricing model, carbon tax, Carl Icahn, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Garrett Hardin, George Akerlof, Glass-Steagall Act, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Nixon triggered the end of the Bretton Woods system, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, Ponzi scheme, precautionary principle, price discrimination, price stability, principal–agent problem, profit maximization, proprietary trading, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, subprime mortgage crisis, tail risk, Tax Reform Act of 1986, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, Two Sigma, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

“This,” Minsky noted drily, “is likely to lead to a collapse of asset values,” which, in turn, can lead to “a spiral of declining investment, declining profits, and declining asset prices.” Unless the financial authorities intervene, lending public money freely to whoever needs it, the ultimate result could well be “a traumatic debt deflation and deep depression.” In what was perhaps a poke at the efficient market hypothesis, Minsky described his thesis that capitalist economies inevitably progress from conservative finance to reckless speculation as the “financial instability hypothesis.” Minsky described it as an interpretation of Keynes’s General Theory, and he also credited the Austrian economist Joseph Schumpeter for influencing his views.


pages: 611 words: 130,419

Narrative Economics: How Stories Go Viral and Drive Major Economic Events by Robert J. Shiller

agricultural Revolution, Alan Greenspan, Albert Einstein, algorithmic trading, Andrei Shleifer, autism spectrum disorder, autonomous vehicles, bank run, banking crisis, basic income, behavioural economics, bitcoin, blockchain, business cycle, butterfly effect, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, central bank independence, collective bargaining, computerized trading, corporate raider, correlation does not imply causation, cryptocurrency, Daniel Kahneman / Amos Tversky, debt deflation, digital divide, disintermediation, Donald Trump, driverless car, Edmond Halley, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, fake news, financial engineering, Ford Model T, full employment, George Akerlof, germ theory of disease, German hyperinflation, Great Leap Forward, Gunnar Myrdal, Gödel, Escher, Bach, Hacker Ethic, implied volatility, income inequality, inflation targeting, initial coin offering, invention of radio, invention of the telegraph, Jean Tirole, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, litecoin, low interest rates, machine translation, market bubble, Modern Monetary Theory, money market fund, moral hazard, Northern Rock, nudge unit, Own Your Own Home, Paul Samuelson, Philip Mirowski, plutocrats, Ponzi scheme, public intellectual, publish or perish, random walk, Richard Thaler, Robert Shiller, Ronald Reagan, Rubik’s Cube, Satoshi Nakamoto, secular stagnation, shareholder value, Silicon Valley, speech recognition, Steve Jobs, Steven Pinker, stochastic process, stocks for the long run, superstar cities, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, theory of mind, Thorstein Veblen, traveling salesman, trickle-down economics, tulip mania, universal basic income, Watson beat the top human players on Jeopardy!, We are the 99%, yellow journalism, yield curve, Yom Kippur War

“Unemployment and Left-Wing Radicalism in Weimar Germany.” In Peter Stachura, ed., Unemployment and the Great Depression in Weimar Germany, 209–25. London: Palgrave Macmillan. Fisher, Irving. 1928. The Money Illusion. New York: Adelphi. ________. 1930. The Stock Market Crash—and After. New York: Macmillan. ________. 1933. “The Debt-Deflation Theory of Great Depressions.” Econometrica 1(4):337–57. Fisher, R. A. 1930. The Genetical Theory of Natural Selection. Oxford: The Clarendon Press. Fisher, Walter R. 1984. “Narration as a Human Communication Paradigm: The Case of Public Moral Argument.” Communication Monographs 51(1):1–22. Flandreau, Marc. 1996.


pages: 582 words: 160,693

The Sovereign Individual: How to Survive and Thrive During the Collapse of the Welfare State by James Dale Davidson, William Rees-Mogg

affirmative action, agricultural Revolution, Alan Greenspan, Alvin Toffler, bank run, barriers to entry, Berlin Wall, borderless world, British Empire, California gold rush, classic study, clean water, colonial rule, Columbine, compound rate of return, creative destruction, Danny Hillis, debt deflation, ending welfare as we know it, epigenetics, Fall of the Berlin Wall, falling living standards, feminist movement, financial independence, Francis Fukuyama: the end of history, full employment, George Gilder, Hernando de Soto, illegal immigration, income inequality, independent contractor, informal economy, information retrieval, Isaac Newton, John Perry Barlow, Kevin Kelly, market clearing, Martin Wolf, Menlo Park, money: store of value / unit of account / medium of exchange, new economy, New Urbanism, Norman Macrae, offshore financial centre, Parkinson's law, pattern recognition, phenotype, price mechanism, profit maximization, rent-seeking, reserve currency, road to serfdom, Ronald Coase, Sam Peltzman, school vouchers, seigniorage, Silicon Valley, spice trade, statistical model, telepresence, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade route, transaction costs, Turing machine, union organizing, very high income, Vilfredo Pareto

As the nationstate system breaks down, risk-averse persons who formerly would have sought employment with government may find an alternative in affiliating as retainers to the very rich. 21. You should expect a slowdown or decline in per capita consumption in countries such as the United States, which have been the leading consumers of the world's products in the late stages of industrialism. 22. Debt deflation may accompany the transition to the new millennium. 23. The death of politics will mean the end of central bank regulation and manipulation of money. Cybermoney will become the new money of the Information Age, replacing the paper money of Industrialism. This means not only a change in the fortunes of banknote printers, it implies the death of inflation as an effective means by which nationstates can commandeer resources.


pages: 488 words: 144,145

Inflated: How Money and Debt Built the American Dream by R. Christopher Whalen

Alan Greenspan, Albert Einstein, bank run, banking crisis, Bear Stearns, Black Swan, book value, Bretton Woods, British Empire, business cycle, buy and hold, California gold rush, Carl Icahn, Carmen Reinhart, central bank independence, classic study, commoditize, conceptual framework, Cornelius Vanderbilt, corporate governance, corporate raider, creative destruction, cuban missile crisis, currency peg, debt deflation, falling living standards, fiat currency, financial deregulation, financial innovation, financial intermediation, floating exchange rates, Ford Model T, Fractional reserve banking, full employment, Glass-Steagall Act, global reserve currency, housing crisis, interchangeable parts, invention of radio, Kenneth Rogoff, laissez-faire capitalism, land bank, liquidity trap, low interest rates, means of production, military-industrial complex, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, mutually assured destruction, Nixon triggered the end of the Bretton Woods system, non-tariff barriers, oil shock, Paul Samuelson, payday loans, plutocrats, price stability, pushing on a string, quantitative easing, rent-seeking, reserve currency, Ronald Reagan, Savings and loan crisis, special drawing rights, Suez canal 1869, Suez crisis 1956, The Chicago School, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, Upton Sinclair, women in the workforce

But Chris correctly points out that large and monetized fiscal deficits eventually may cause, in the medium term, a rise in expected and actual inflation as they did after the Civil War and World War II. Indeed, the temptation to use a moderate and unexpected inflation tax to wipe out the real value of public debt and avoid the debt deflation of the private sector is powerful, and history may repeat itself—even if the short-term maturity of U.S. liabilities, the risk of a crash of the U.S. dollar and associated runaway rising inflation, and the related risk that the United States’ foreign creditors may pull the plug on the financing of the U.S. deficit may constrain these inflationary biases.


pages: 543 words: 147,357

Them And Us: Politics, Greed And Inequality - Why We Need A Fair Society by Will Hutton

Abraham Maslow, Alan Greenspan, Andrei Shleifer, asset-backed security, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, bread and circuses, Bretton Woods, business cycle, capital controls, carbon footprint, Carmen Reinhart, Cass Sunstein, centre right, choice architecture, cloud computing, collective bargaining, conceptual framework, Corn Laws, Cornelius Vanderbilt, corporate governance, creative destruction, credit crunch, Credit Default Swap, debt deflation, decarbonisation, Deng Xiaoping, discovery of DNA, discovery of the americas, discrete time, disinformation, diversification, double helix, Edward Glaeser, financial deregulation, financial engineering, financial innovation, financial intermediation, first-past-the-post, floating exchange rates, Francis Fukuyama: the end of history, Frank Levy and Richard Murnane: The New Division of Labor, full employment, general purpose technology, George Akerlof, Gini coefficient, Glass-Steagall Act, global supply chain, Growth in a Time of Debt, Hyman Minsky, I think there is a world market for maybe five computers, income inequality, inflation targeting, interest rate swap, invisible hand, Isaac Newton, James Dyson, James Watt: steam engine, Japanese asset price bubble, joint-stock company, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, knowledge worker, labour market flexibility, language acquisition, Large Hadron Collider, liberal capitalism, light touch regulation, Long Term Capital Management, long term incentive plan, Louis Pasteur, low cost airline, low interest rates, low-wage service sector, mandelbrot fractal, margin call, market fundamentalism, Martin Wolf, mass immigration, means of production, meritocracy, Mikhail Gorbachev, millennium bug, Money creation, money market fund, moral hazard, moral panic, mortgage debt, Myron Scholes, Neil Kinnock, new economy, Northern Rock, offshore financial centre, open economy, plutocrats, power law, price discrimination, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, race to the bottom, railway mania, random walk, rent-seeking, reserve currency, Richard Thaler, Right to Buy, rising living standards, Robert Shiller, Ronald Reagan, Rory Sutherland, Satyajit Das, Savings and loan crisis, shareholder value, short selling, Silicon Valley, Skype, South Sea Bubble, Steve Jobs, systems thinking, tail risk, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, the scientific method, The Wealth of Nations by Adam Smith, three-masted sailing ship, too big to fail, unpaid internship, value at risk, Vilfredo Pareto, Washington Consensus, wealth creators, work culture , working poor, world market for maybe five computers, zero-sum game, éminence grise

The answer will depend on the asset prices against which debt is collateralised, the rate of interest, and the spread, growth and sustainability of economic activity in each individual country. What can be said is that when Japan’s aggregate private debt to GDP ratio rose above 300 per cent it triggered a prolonged period of deleveraging and debt deflation that lasted more than fifteen years. So 300 per cent probably represents a ceiling. In Britain the same is likely to be true, and particularly indebted sectors – both commercial real estate and residential property – will have to see a fall in borrowing. Equally problematic is determining a sustainable level of public debt, which is certain to rise to maintain economic activity in almost every country as private debt starts to fall.


pages: 497 words: 150,205

European Spring: Why Our Economies and Politics Are in a Mess - and How to Put Them Right by Philippe Legrain

3D printing, Airbnb, Alan Greenspan, Asian financial crisis, bank run, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, book value, Boris Johnson, Bretton Woods, BRICs, British Empire, business cycle, business process, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, clean tech, collaborative consumption, collapse of Lehman Brothers, collective bargaining, corporate governance, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Crossrail, currency manipulation / currency intervention, currency peg, debt deflation, Diane Coyle, disruptive innovation, Downton Abbey, Edward Glaeser, Elon Musk, en.wikipedia.org, energy transition, eurozone crisis, fear of failure, financial deregulation, financial engineering, first-past-the-post, Ford Model T, forward guidance, full employment, Gini coefficient, global supply chain, Great Leap Forward, Growth in a Time of Debt, high-speed rail, hiring and firing, hydraulic fracturing, Hyman Minsky, Hyperloop, immigration reform, income inequality, interest rate derivative, Intergovernmental Panel on Climate Change (IPCC), Irish property bubble, James Dyson, Jane Jacobs, job satisfaction, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, labour mobility, land bank, liquidity trap, low interest rates, margin call, Martin Wolf, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, North Sea oil, Northern Rock, offshore financial centre, oil shale / tar sands, oil shock, open economy, peer-to-peer rental, price stability, private sector deleveraging, pushing on a string, quantitative easing, Richard Florida, rising living standards, risk-adjusted returns, Robert Gordon, savings glut, school vouchers, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Skype, smart grid, smart meter, software patent, sovereign wealth fund, Steve Jobs, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, Tyler Cowen, Tyler Cowen: Great Stagnation, working-age population, Zipcar

The problem with this crisis is that there is no money.”315 Looming deflation – a sustained period of falling prices – could exacerbate all these problems. Falling prices would cause people to postpone spending because they expect things to be cheaper in future, entrenching stagnation. Worse, whereas inflation erodes the value of debt, deflation would increase the eurozone’s already huge debt burden. Falling prices would also increase real interest rates: since nominal interest rates are already near zero and can scarcely fall below, deflation raises the real cost of borrowing, crimping investment. Even very low inflation – the eurozone’s was a mere 0.8 per cent in the year to February 2014 – is a drag.


pages: 524 words: 155,947

More: The 10,000-Year Rise of the World Economy by Philip Coggan

accounting loophole / creative accounting, Ada Lovelace, agricultural Revolution, Airbnb, airline deregulation, Alan Greenspan, Andrei Shleifer, anti-communist, Apollo 11, assortative mating, autonomous vehicles, bank run, banking crisis, banks create money, basic income, Bear Stearns, Berlin Wall, Black Monday: stock market crash in 1987, Bletchley Park, Bob Noyce, Boeing 747, bond market vigilante , Branko Milanovic, Bretton Woods, Brexit referendum, British Empire, business cycle, call centre, capital controls, carbon footprint, carbon tax, Carl Icahn, Carmen Reinhart, Celtic Tiger, central bank independence, Charles Babbage, Charles Lindbergh, clean water, collective bargaining, Columbian Exchange, Columbine, Corn Laws, cotton gin, credit crunch, Credit Default Swap, crony capitalism, cross-border payments, currency peg, currency risk, debt deflation, DeepMind, Deng Xiaoping, discovery of the americas, Donald Trump, driverless car, Easter island, Erik Brynjolfsson, European colonialism, eurozone crisis, Fairchild Semiconductor, falling living standards, financial engineering, financial innovation, financial intermediation, floating exchange rates, flying shuttle, Ford Model T, Fractional reserve banking, Frederick Winslow Taylor, full employment, general purpose technology, germ theory of disease, German hyperinflation, gig economy, Gini coefficient, Glass-Steagall Act, global supply chain, global value chain, Gordon Gekko, Great Leap Forward, greed is good, Greenspan put, guns versus butter model, Haber-Bosch Process, Hans Rosling, Hernando de Soto, hydraulic fracturing, hydroponic farming, Ignaz Semmelweis: hand washing, income inequality, income per capita, independent contractor, indoor plumbing, industrial robot, inflation targeting, Isaac Newton, James Watt: steam engine, job automation, John Snow's cholera map, joint-stock company, joint-stock limited liability company, Jon Ronson, Kenneth Arrow, Kula ring, labour market flexibility, land reform, land tenure, Lao Tzu, large denomination, Les Trente Glorieuses, liquidity trap, Long Term Capital Management, Louis Blériot, low cost airline, low interest rates, low skilled workers, lump of labour, M-Pesa, Malcom McLean invented shipping containers, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Mikhail Gorbachev, mittelstand, Modern Monetary Theory, moral hazard, Murano, Venice glass, Myron Scholes, Nelson Mandela, Network effects, Northern Rock, oil shale / tar sands, oil shock, Paul Samuelson, Paul Volcker talking about ATMs, Phillips curve, popular capitalism, popular electronics, price stability, principal–agent problem, profit maximization, purchasing power parity, quantitative easing, railway mania, Ralph Nader, regulatory arbitrage, road to serfdom, Robert Gordon, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, savings glut, scientific management, Scramble for Africa, Second Machine Age, secular stagnation, Silicon Valley, Simon Kuznets, South China Sea, South Sea Bubble, special drawing rights, spice trade, spinning jenny, Steven Pinker, Suez canal 1869, TaskRabbit, techlash, Thales and the olive presses, Thales of Miletus, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, Tragedy of the Commons, transaction costs, transatlantic slave trade, transcontinental railway, Triangle Shirtwaist Factory, universal basic income, Unsafe at Any Speed, Upton Sinclair, V2 rocket, Veblen good, War on Poverty, Washington Consensus, Watson beat the top human players on Jeopardy!, women in the workforce, world market for maybe five computers, Yom Kippur War, you are the product, zero-sum game

More than 1,000 US banks closed in every year from 1930 to 1933,70 and as deposits vanished into thin air, the money supply fell by a third.71 Commodity prices were particularly hard hit, with wheat prices falling by two-thirds in two years.72 The Great Depression United States, GDP per person, 2011 prices, $’000 Source: Maddison Project Database This created a problem, defined by the economist Irving Fisher as “debt deflation”. The income of farmers depended on the level of crop prices and thus dropped by around 65%.73 But the value of their debts was fixed in nominal terms. The same problem was true of property owners; their rental income fell but their debt payments were unchanged. The natural inclination was to sell assets to try to pay off the debts.


pages: 662 words: 180,546

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

"there is no alternative" (TINA), Adam Curtis, Alan Greenspan, Alvin Roth, An Inconvenient Truth, Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, bond market vigilante , bread and circuses, Bretton Woods, Brownian motion, business cycle, capital controls, carbon credits, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, democratizing finance, disinformation, do-ocracy, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, Flash crash, full employment, George Akerlof, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Greenspan put, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, information asymmetry, invisible hand, Jean Tirole, joint-stock company, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kickstarter, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, Phillips curve, Ponzi scheme, Post-Keynesian economics, precariat, prediction markets, price mechanism, profit motive, public intellectual, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, savings glut, school choice, sealed-bid auction, search costs, Silicon Valley, South Sea Bubble, Steven Levy, subprime mortgage crisis, tail risk, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, tontine, too big to fail, transaction costs, Tyler Cowen, vertical integration, Vilfredo Pareto, War on Poverty, Washington Consensus, We are the 99%, working poor

In the rush to judgment, anyone who said or wrote anything about some kind of bubble or imbalance or financial instability sometime in the 2000s suddenly sought to be credited as rivaling the Oracle at Delphi, engaging in the most exquisite augury. Some Nobel winners in particular pushed this ploy well beyond the breaking point, eliding prediction proper, and instead suggesting that anyone who had ever produced a mathematical model mentioning bank runs or financial fraud or irrational expectations or debt deflation or (fill in the blank) was proof positive that the economics profession had not been caught unawares.23 It helped if the interlocutor stopped paying attention to what had been taught in the macroeconomics classes across the most highly ranked economics departments. It got so bad after a while that any mention of market failure or departure from equilibrium was supposed to function as a “get out of jail free” card in 2009.


pages: 741 words: 179,454

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", "there is no alternative" (TINA), "World Economic Forum" Davos, affirmative action, Alan Greenspan, Albert Einstein, algorithmic trading, Andy Kessler, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, book value, Bretton Woods, BRICs, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, carbon credits, Carl Icahn, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, Daniel Kahneman / Amos Tversky, deal flow, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Dr. Strangelove, Dutch auction, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial engineering, financial independence, financial innovation, financial thriller, fixed income, foreign exchange controls, full employment, Glass-Steagall Act, global reserve currency, Goldman Sachs: Vampire Squid, Goodhart's law, Gordon Gekko, greed is good, Greenspan put, happiness index / gross national happiness, haute cuisine, Herman Kahn, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", job automation, Johann Wolfgang von Goethe, John Bogle, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Market Wizards by Jack D. Schwager, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Michael Milken, Mikhail Gorbachev, Milgram experiment, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, Phillips curve, planned obsolescence, plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, Reminiscences of a Stock Operator, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk free rate, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, short squeeze, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, stock buybacks, survivorship bias, tail risk, Teledyne, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, two and twenty, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

Ben Bernanke “The economic outlook” (5 May 2005), Testimony to the Joint Economic Committee, US Congress. 6. “Savings versus liquidity” (11 August 2005) The Economist. 7. Robin Harding “Bernanke says foreign investors fuelled crisis” (18 February 2011) Financial Times. 8. Fisher, Irving “The debt-deflation theory of great depressions” (1933) Econometrica: 337–57. 9. William White “Is price stability enough?” (April 2006) Bank of International Settlements. 10. Gillian Tett of the Financial Times coined the phrase; see Gillian Tett “Should Atlas still shrug?” (15 January 2007) Financial Times. 11.


Money and Government: The Past and Future of Economics by Robert Skidelsky

"Friedman doctrine" OR "shareholder theory", Alan Greenspan, anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, book value, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, fake news, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Glass-Steagall Act, Goodhart's law, Growth in a Time of Debt, guns versus butter model, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, Kondratiev cycle, labour market flexibility, labour mobility, land bank, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, long and variable lags, low interest rates, market clearing, market friction, Martin Wolf, means of production, Meghnad Desai, Mexican peso crisis / tequila crisis, mobile money, Modern Monetary Theory, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, nudge theory, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, placebo effect, post-war consensus, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, technological determinism, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, tontine, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

., 59 Callaghan, James, 169–70, 197 Cameron, David, 221, 225, 227 Cannan, Edwin, 100 capital movements and banking crises, 331, 333, 333–43, 334, 335, 337 controls on in post-war era, 308, 332 hot money as main story, 318–19, 337, 382 Keynes on, 382 liberalization from 1970s, 17, 318–19, 332–3 post-war liberalization, 16 recycling of OPEC surpluses (1970s), 308, 332 regulated in Great Depression era, 16 see also global imbalances 464 i n de x Carney, Mark, 261–2, 273 central banks actions during 2008 crisis, 3, 217, 219, 234–5, 253–4, 254, 256–8, 359 forecasting models, 5, 197, 233, 310–11 ‘dual mandate’ proposal, 358 during Great Moderation, 215, 252–3, 310, 359, 360 independent, 1, 32, 43, 129, 140, 188, 198, 215, 249, 272–3 inflation targeting, 2, 101, 188–9, 189, 196, 215, 249–53, 347, 358 in Keynesian economics, 101, 102–4, 105, 115–16 need for revived regulatory tools, 361 in new macroeconomic constitution, 352, 355, 359–61 open-market operations, 71, 102–4, 105, 185–6, 257–8 in post-W W1 period, 100, 102–6 pre-crash models of 2000s, 197, 212–13, 233, 310–11 purchase of government debt, 234–5, 256–8, 260–61, 274 and quantity theory, 61, 69, 70, 71 ‘resolution regimes’, 364–5 ‘stress testing’ by, 364 Taylor Rule, 213, 251 and twentieth-century monetary reformers, 60, 61, 69, 70, 71, 99, 100, 101, 125, 129, 178, 200 see also Bank of England; Bank Rate; European Central Bank; Federal Reserve, US Chamberlain, Neville, 113 Chang, Ha-Joon, 378 Chartist movement, 48 Chi Lo, 381–2 Chicago School, 174, 194, 349, 350–51 see also Friedman, Milton China and 2008 crash, 217, 218 ancient, 33, 73 bank liquidity ratios, 364 current account surplus, 331, 333, 334, 336, 338–41, 342, 380, 381 Churchill, Winston, 99, 109, 110 City of London, xviii, 58, 113, 226, 328, 367 Clark, John Bates, 288 class business class as not monolithic, 7 creditors and debtors, 29–32, 37 growth of merchant class, 79 and ideas, 13–14 and Keynesian theory, 128–9, 130–31, 169–70, 386–7 and Marx, 6, 7, 14, 130, 131, 288, 296, 386 and neo-liberal model, 305, 374 rentier bourgeoisie, 31, 43, 288, 297 shift of power from labour to capital, 7, 32, 169–70, 187, 190, 192–3, 299–301, 304, 305–6 and theory of money, 27–8 under-consumption theory, 293–6, 297–8, 303–6, 370 see also distribution; inequality classical economics tradition, xviii abstraction from uncertainty, 385–6 ‘anti-state’ view as deception, 93 contrast with Keynesian-theory modelled, 132–3 ‘crowding out’ argument, 83–4, 109–11, 226, 233–5 government as problem not solution, 1, 3, 6, 9, 10, 29, 74–5, 76, 82–3, 85–7, 93, 347 and Keynes, 122–3, 128, 130, 175–6 and labour flexibility, 56, 245 money supply in, 1, 38–9, 47 no theory of output and employment, 96 465 i n de x classical economics tradition – (cont.) post-W W1 ‘back to normalcy’, 96–7, 102 and price of labour, 107, 108, 115, 121–2, 123, 128, 130, 132, 138, 172 ‘real’ analysis of money (‘money as veil’), 22, 24, 37, 45, 84–5, 121 repudiation of mercantilism, 74–5, 78, 79, 81–5, 93 and role of state, 73, 74–5, 76, 81–5, 109, 110 Smith’s ‘invisible hand’ metaphor, 10, 312, 385 and unemployment, 10, 37, 56, 96, 118, 121–2, 123, 128, 129, 130, 138, 172 wage-adjustment story, 107, 108, 115, 121–2, 123, 128, 130, 132, 172 Walras’ general equilibrium theory (1874), 10, 173, 181, 385 see also balanced budget theory; equilibrium, theory of; neoclassical economics tradition Clay, Henry, 115 climate change, 383 Clinton, Bill, 309, 319 Coalition government (2010–15), 227–8, 243–4, 265–6 Cochrane, John, 233–4 Coddington, Alan, 173 Colbert, Jean-Baptiste, 75, 140 Cold War, 140, 158, 159, 162–3, 186, 374 collateralized debt obligations (CDOs), 323–4, 327, 330 collateralized loan obligations (CLOs), 327 communism, xviii, 13, 16, 175 collapse of (1989–90), xviii, 16 see also Marx, Karl; Marxism Congdon, Tim, 40, 105, 185, 197, 258, 268–9, 276, 279–81 on free trade, 377 and monetarism, 279–85 Money in the Great Recession (2017), 281–2, 287 ‘real balance effect’ argument, 283–5 total rejection of fiscal policy, 280, 285–7 Conservative Party ‘Barber boom’, 167, 168 governments (1951–64), 142–3, 147, 150, 152 Howe’s 1981 budget, 186–7, 192 and Keynesian ascendancy, 138–9, 142–3, 147, 150, 152 Lawson’s counterrevolution, 185, 192–3, 222, 358 Maudling’s ‘dash for growth’, 150, 152 narrative of 2008 crash, 226–8, 229–31, 233, 234–5, 237–9 and orthodox Treasury view in 1920s/30s, 109–10, 112, 113 Osborne’s economic policy, 227–8, 229–30, 231, 233, 234–5, 237–9, 243–4, 244, 245 supply-side policies, 197 Constantini, Orsola, 171 Corn Laws, repeal of (1846), 15, 85 counter-orthodoxy to Keynesianism ‘Colloque Walter Lippmann’ conference (1938), 174–5 emergence of, 163, 170, 171–2, 174–8 Friedman’s onslaught, 177–83 Hayek’s Road to Serfdom , 16, 175–6 inflation as greatest evil for, 162 Mont Pelerin Society, 176–7 rooted in political ideology, 6, 93, 176–8, 183–4, 202–3, 245–6, 258, 287, 292, 354, 386 see also Friedman, Milton; monetarism; neo-liberal ideology 466 i n de x Crafts, Nicholas, 85, 111 credit and debt and anti-Semitism, 30–31 ‘bank lending channel’, 64 credit theory of money, 23, 24–7, 33, 34, 39, 100–101, 102–3 ‘debt forgiveness’, 30 derivation of word ‘credit’, 30 doctrine of ‘creditor adjustment’, 127–8, 139, 159 excess credit problem and 2007–8 crisis, 4, 104, 303, 366–7 and gold-standard, 53 ‘hoarding’ during Great Depression, 104, 127 and inflation/deflation, 37, 42, 47 Keynes and control of credit, 100–101, 102–3, 105, 115–16 Keynes’ Clearing Union plan (1941), 127–8, 139, 159, 380–81 loan sharks and ‘pay day loans’, 32 Locke’s social contract theory, 41–2 moral resistance to credit, 30–31 private debt and 2008 collapse, 3–4 prohibition of usury, 31 USA as post-W W1 creditor, 95, 103 and value of money, 27–8, 29–31 see also national debt credit default swaps (CDSs), 324–5 credit rating agencies (CR As), 320, 326–7, 329–30 Crimean War, 91 criminality, 3, 4, 5, 7, 328, 350, 366, 367 Cunliffe Report (1918), 54–5, 102, 145 Currency School, 49–50 current account imbalances see balance of payments; global imbalances Dale, Spencer, 275 Dante, Divine Comedy, 31 Darling, Alistair, 224, 225, 254 Dasgupta, Amir Kumar, 12–13 Davies, Howard, 253 de Grauwe, Paul, 341, 376, 377 debt see credit and debt; national debt deflation ‘Austrian’ explanation of recessions, 33, 104, 303 classical view of, 44 contemporary, 358, 360 and debtor class, 37 depressions in later nineteenthcentury, 9, 15, 51–2, 89 at end of Napoleonic wars, 48 and hoarding, 64, 104 in inter-war Britain, 107–8 and quantity theory, 32–3, 60, 65, 66 US ‘dollar gap’, 159 DeLong, Brad, 225 democratic politics Bretton Woods system, 16, 139, 374 corrupted capitalism as threat to, 351, 361 election finance, 7 EU ‘democratic deficit’, 376 extensions of franchise, 87, 96, 100 neo-liberal capture of, 6, 292 political left in 1960s, 148–9, 150 and ‘public choice’ theory, 198–9 Rodrik’s ‘impossible trinity’, 375 social democratic state, 16, 149, 176, 198, 292, 293, 303–4, 348, 373–4 structural power of finance, 6–7, 309 taboos against racism, 383 twentieth-century triumph of, 32, 96 unravelling of social democracy (1970s), 16, 304 467 i n de x Democrats, American, 151, 152 Descartes, Rene, 22 developing countries and 2008 crash, 217 Keynesian era growth, 162 in monetarist era, 186 ‘neo-liberal’ agenda of IMF, 139, 181, 318–19 ‘peripheries’ in gold standard era, 56–7 and promise of globalization, 17 and protectionism, xviii, 90, 378 World Bank loans to, 332 Devine, James, 298 Dicey, A.


pages: 695 words: 194,693

Money Changes Everything: How Finance Made Civilization Possible by William N. Goetzmann

Albert Einstein, Andrei Shleifer, asset allocation, asset-backed security, banking crisis, Benoit Mandelbrot, Black Swan, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, Cass Sunstein, classic study, collective bargaining, colonial exploitation, compound rate of return, conceptual framework, Cornelius Vanderbilt, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, debt deflation, delayed gratification, Detroit bankruptcy, disintermediation, diversified portfolio, double entry bookkeeping, Edmond Halley, en.wikipedia.org, equity premium, equity risk premium, financial engineering, financial independence, financial innovation, financial intermediation, fixed income, frictionless, frictionless market, full employment, high net worth, income inequality, index fund, invention of the steam engine, invention of writing, invisible hand, James Watt: steam engine, joint-stock company, joint-stock limited liability company, laissez-faire capitalism, land bank, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, means of production, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, new economy, passive investing, Paul Lévy, Ponzi scheme, price stability, principal–agent problem, profit maximization, profit motive, public intellectual, quantitative trading / quantitative finance, random walk, Richard Thaler, Robert Shiller, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, spice trade, stochastic process, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, time value of money, tontine, too big to fail, trade liberalization, trade route, transatlantic slave trade, tulip mania, wage slave

Shares in American corporations promised not only a dividend cash flow but also a stake in tangible corporate assets whose monetary value would automatically rise when the government printed money. Like Keynes, Fisher was a progressive who believed that economists could help solve the world’s problems. He introduced mathematical methods of economics to America and is famous for his macroeconomic theories about the quantity theory of money and debt-deflation market cycles. Fisher’s contribution to financial economics was particularly important. He took the mathematics of present value (first formalized by Fibonacci!) and applied it to investment decisions. In Fisher’s analysis, corporate managers acting in the best interests of shareholders should choose projects with the highest positive net present value that takes into account not only the time value of money but also the risk of the project.


pages: 767 words: 208,933

Liberalism at Large: The World According to the Economist by Alex Zevin

"there is no alternative" (TINA), activist fund / activist shareholder / activist investor, affirmative action, Alan Greenspan, anti-communist, Asian financial crisis, bank run, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, business cycle, capital controls, carbon tax, centre right, Chelsea Manning, collective bargaining, Columbine, Corn Laws, corporate governance, corporate social responsibility, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, desegregation, disinformation, disruptive innovation, do well by doing good, Donald Trump, driverless car, Edward Snowden, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Francis Fukuyama: the end of history, full employment, Gini coefficient, Glass-Steagall Act, global supply chain, guns versus butter model, hiring and firing, imperial preference, income inequality, interest rate derivative, invisible hand, It's morning again in America, Jeremy Corbyn, John von Neumann, Joseph Schumpeter, Julian Assange, junk bonds, Khartoum Gordon, land reform, liberal capitalism, liberal world order, light touch regulation, Long Term Capital Management, low interest rates, market bubble, Martin Wolf, means of production, Michael Milken, Mikhail Gorbachev, Monroe Doctrine, Mont Pelerin Society, moral hazard, Naomi Klein, new economy, New Journalism, Nixon triggered the end of the Bretton Woods system, no-fly zone, Norman Macrae, Northern Rock, Occupy movement, Philip Mirowski, plutocrats, post-war consensus, price stability, quantitative easing, race to the bottom, railway mania, rent control, rent-seeking, road to serfdom, Ronald Reagan, Rosa Parks, Seymour Hersh, Snapchat, Socratic dialogue, Steve Bannon, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade liberalization, trade route, unbanked and underbanked, underbanked, unorthodox policies, upwardly mobile, War on Poverty, WikiLeaks, Winter of Discontent, Yom Kippur War, young professional

This setback overcome, worse was to follow. The Great Depression was the most acute disappointment yet for liberals, who struggled to diagnose its causes or prescribe its cures. Keynes at Cambridge, Fischer at Yale and Hayek at the LSE differed in their attempts at each – underconsumption, to be countered by pump-priming; debt-deflation, corrected by central bank action to raise prices; over-investment, leaving markets to clear – but at a deeper level they were united in seeking liberal solutions to the crisis of the epoch.20 So too, in testing these ideas by trial and error, Hoover and Roosevelt were both liberals, if Roosevelt with much greater success as the better politician.