No-one saw this com­ing?” Balder­dash!

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The widely believed propo­si­tion that this finan­cial cri­sis was “a tsunami that no-one saw com­ing”, and that could not have been pre­dicted, has been given the lie to by an excel­lent sur­vey of eco­nomic mod­els by Dirk Beze­mer, a Pro­fes­sor of Eco­nom­ics at the Uni­ver­sity of Gronin­gen in the Nether­lands.

Beze­mer did an exten­sive sur­vey of research by econ­o­mists or finan­cial mar­ket com­men­ta­tors, look­ing for papers that met four cri­te­ria:

Only ana­lysts were included who:

  1. pro­vide some account on how they arrived at their con­clu­sions.
  2. went beyond pre­dict­ing a real estate cri­sis, also mak­ing the link to real-sec­tor reces­sion­ary impli­ca­tions, includ­ing an ana­lyt­i­cal account of those links.
  3. the actual pre­dic­tion must have been made by the ana­lyst and avail­able in the pub­lic domain, rather than being asserted by oth­ers.
  4. the pre­dic­tion had to have some tim­ing attached to it.”

On that basis, Beze­mer found eleven researchers who qual­i­fied:

Researcher Role Fore­cast Date
Dean Baker, US Co-direc­tor, Cen­ter for Eco­nomic and Pol­icy Research 2006
Wynne God­ley, US Dis­tin­guished Scholar, Levy Eco­nom­ics Insti­tute of Bard Col­lege 2007
Fred Har­ri­son, UK Eco­nomic Com­men­ta­tor 2005
Michael Hud­son, US Pro­fes­sor, Uni­ver­sity of Mis­souri 2006
Eric Jan­szen, US Investor & iTulip com­men­ta­tor 2007
Stephen Keen, Aus­tralia Asso­ciate Pro­fes­sor, Uni­ver­sity of West­ern Syd­ney 2006
Jakob Brøch­ner Mad­sen & Jens Kjaer Sørensen, Den­mark Pro­fes­sor and Grad­u­ate Stu­dent, Copen­hagen Uni­ver­sity 2006
Kurt Richebächer, US Pri­vate con­sul­tant and invest­ment newslet­ter writer 2006
Nouriel Roubini, US Pro­fes­sor, New York Uni­ver­sity 2006
Peter Schiff, US Stock Bro­ker, invest­ment adviser and com­men­ta­tor 2007
Robert Shiller, US Pro­fes­sor, Yale Uni­ver­sity 2006

Hav­ing iden­ti­fied eleven researchers who did “see it com­ing”, Beze­mer then looked for the com­mon ele­ments in the way that these researchers analysed the econ­omy. He argued that if there were com­mon elements—and if these dif­fered from the approach taken by the over­whelm­ing major­ity of econ­o­mists, who didn’t have a clue that a cri­sis was approaching—then the only use­ful eco­nomic mod­els would be ones that included these com­mon ele­ments.

He iden­ti­fied four com­mon ele­ments:

  1. a con­cern with finan­cial assets as dis­tinct from real-sec­tor assets,
  2. with the credit flows that finance both forms of wealth,
  3. with the debt growth accom­pa­ny­ing growth in finan­cial wealth, and
  4. with the account­ing rela­tion between the finan­cial and real econ­omy.”

A non-econ­o­mist might look at these ele­ments in puz­zle­ment: surely all eco­nomic mod­els include these fac­tors?

Actu­ally, no. Most macro­eco­nomic mod­els lack these fea­tures. Beze­mer gives the top­i­cal exam­ple of the OECD’s “small global fore­cast­ing” model, which makes fore­casts for the global econ­omy that are then dis­ag­gre­gated to gen­er­ate pre­dic­tions for indi­vid­ual countries—like the ones touted recently as indi­cat­ing that Aus­tralia will avoid a seri­ous reces­sion.

He notes that this OECD model includes mon­e­tary and finan­cial vari­ables, how­ever these are not taken from data, but are instead derived from the­o­ret­i­cal assump­tions about the rela­tion­ship between “real” variables—such as “the gap between actual out­put and poten­tial output”—and finan­cial vari­ables. As Beze­mer notes, in the OECD’s model:

There are no credit flows, asset prices or increas­ing net worth dri­ving a bor­row­ing boom, nor inter­est pay­ment indi­cat­ing grow­ing debt bur­dens, and no bal­ance sheet stock and flow vari­ables that would reflect all this.”

How come? Because stan­dard “neo­clas­si­cal” eco­nomic mod­els assume that the finan­cial sys­tem is like lubri­cat­ing oil in an engine—it enables the “real econ­omy” to work smoothly, but has no dri­ving effect—and that the real econ­omy is a mir­a­cle machine that always returns to a state of steady growth, and never gen­er­ates any pollution—like a car engine that, once you take your foot off the accel­er­a­tor or brake, always returns to a steady 3,000 revs per minute, and sim­ply pumps pure water into the atmos­phere.

The com­mon ele­ments in the mod­els devel­oped by the Gang of Eleven that Beze­mer iden­ti­fied are that they see finance as more akin to petrol than oil—without it, your “real econ­omy” engine revs not at 3,000 rpm, but zero—which can con­tain large doses of impu­ri­ties as well as hydro­car­bons. The engine itself is seen as a rather more typ­i­cal gas-guz­zler that pumps not merely water and car­bon diox­ide, but some­times unhealthy amounts of car­bon monox­ide as well.

That’s encap­su­lated in the flow­chart that Beze­mer copied from a paper by Michael Hud­son, shown below. With­out credit from the Finance sec­tor, producer/employers don’t get the finance needed to run their fac­to­ries and hire work­ers; but with credit they accu­mu­late debt that has to be ser­viced from the cash flows those busi­nesses gen­er­ate.

The com­po­nent left out of the above flowchart—but incor­po­rated in all the mod­els praised by Beze­mer for see­ing the cri­sis coming—is that the finance sys­tem can fund not merely “good” real econ­omy action but “bad” spec­u­la­tion on finan­cial assets and real estate as well. This also leads to debt, but unlike the lend­ing to finance pro­duc­tion, it doesn’t add to the economy’s capac­ity to ser­vice that debt.

The growth in thus unpro­duc­tive debt was the com­mon ele­ment iden­ti­fied by Bezemer’s “Gang of Eleven”, which was why we most def­i­nitely did see “It” com­ing.

I’ll fin­ish this anal­ogy-laden arti­cle with a side­swipe at an inap­pro­pri­ate one—that this cri­sis is “like a tsunami”. Though that image cap­tures the sud­den­ness and dev­as­tat­ing nature of the cri­sis, it is wrong not merely once but twice in char­ac­ter­iz­ing how it came about.

Firstly, unlike a tsunami, this cri­sis was pre­dictable by econ­o­mists who take what Beze­mer char­ac­ter­ized as a “Flow-of-fund or account­ing” approach. Sec­ondly, a tsunami is actu­ally caused by a huge shift in the planet’s tec­tonic plates, and the shift itself relieves the ten­sion that caused the tsunami in the first place: in a sense, the tsunami resets the sys­tem to a tran­quil state.

This finan­cial tsunami was caused by the burst­ing of asset price bub­bles dri­ven by exces­sive lev­els of debt, but the burst­ing of those asset bub­bles hasn’t elim­i­nated the debt—far from it. Instead, eco­nomic per­for­mance for the next decade or more will be dri­ven by the pri­vate sector’s attempts to reduce its debt lev­els, and this will depress eco­nomic activ­ity for years. Unlike a tsunami, a debt cri­sis is a wave of destruc­tion that keeps on rolling unless the debt is delib­er­ately elim­i­nated.

Every­thing that is being done by pol­icy mak­ers around the world is instead try­ing to restart pri­vate bor­row­ing. A bet­ter anal­ogy is there­fore not a tsunami but a drug overdose—and our “neo­clas­si­cal” eco­nomic doc­tors are attempt­ing to bring the patient back to health by admin­is­ter­ing more of the same drug.

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  • spadi­jer89

    Your an arro­gant ponce. That is no way to win polit­i­cal sup­port”

    Each com­ment oblit­er­ates your point – you have stum­bled from ignor­ing the facts alto­gether and hav­ing an no argu­ment what­so­ever, to ad hominems. Lovely. I sup­pose that is the way to win polit­i­cal sup­port (well, I sup­pose it worked for Paul Keat­ing).

    I think it (an appeal to the FACTS and first hand PRACTICAL evi­dence) is cer­tainly a way to win polit­i­cal sup­port – who the hell wants to pay income taxes (which third to almost half of earn­ings go to) as well as taxes on petrol, GST and other taxes which hurt the poor? For the 100th fuck­ing time, my point was redis­tri­b­u­tion does NOT work because it over­looks the affect Ricardo artic­u­lated, and George expand on over a hun­dred years ago: deriv­ing rev­enue from cap­i­tal or labour exac­er­bates inequal­ity because it gives wind­falls to those who own land or other assets. As for the polit­i­cal point (assum­ing you take typ­i­cal left­ist view that peo­ple are stu­pid, and there­fore peo­ple do not under­stand how they are being screwed over), cor­rect me if I am wrong, was this not the argu­ment (i.e. fuck equal­ity and redis­tri­b­u­tion, through effi­ciency you have both) that brought Thatcher and Rea­gan to power and con­vinced a gen­er­a­tion of mid­dle class peo­ple to over Con­ser­v­a­tive?

    And if I may casu­ally ejac­u­late, I do not think the state, frankly, is there to help peo­ple, merely make things worse in order to legit­i­ma­tise its own expan­sion, but hey that’s just my view. This is why I said a place like Switzer­land, where the pop­u­lace already has LVT and is well read, may be a bet­ter hope.
    “he just ignored or belit­tled my points.”
    Belit­tled your points indeed – via the facts (either they were mean­ing­less, or could eas­ily be dealt with). Ignored? Give me evi­dence of what my ignored (I dis­sect your premises inch by inch, one by one) – I know, how­ever, you cer­tainly ignored my third request that you pro­vide evi­dence to your claim high mar­ginal income taxes reduce inequal­ity? Or why own­ing / inher­it­ing cap­i­tal is a bad thing?

    he doesn’t EVEN know what my views on .…redis­tri­b­u­tion are.”

    Well, you spent a great deal bang­ing on about the inequal­i­ties and hor­ror of busi­ness peo­ple allow­ing their chil­dren, their flesh and blood, from car­ry­ing on the fam­ily com­pany which they prob­a­bly had some involve­ment in since their youth (unless spe­cific oth­er­wise in one’s will). So, no they were not explicit, but you did make it clear you think inher­i­tance taxes *may* be required to reduce “inequal­ity” (ignor­ing the fact most inher­ited assets are land related and cap­i­tal or cash often has to be put into use – spent or used by labour­ers, pro­vid­ing employ­ment).

    Ps gaday, yawn.

  • Look Steve,
    to try and defuse this — an answer I might accept would go like:

    I under­stand that you are con­cerned about con­cen­tra­tions of wealth, and con­cerned about diver­sion of tax dis­tort­ing my lit­tle exper­i­ment. I per­son­ally don’t have a prob­lem with those things hap­pen­ing, and con­sider that they would not be major prob­lems any­way. If they did hap­pen and the demo­c­ra­tic process decides that for instance inher­i­tance taxes should be in place as well as the LVT, I would still con­sider that a net plus.

    At one stage you claim that reduc­tion in equal­ity is a plus for your sin­gle tax — but then you respond to qualms about poten­tial con­cen­tra­tions of wealth by claim­ing it is unim­por­tant, or doing some­thing about it is immoral. You can’t have it both ways.

  • spadi­jer89

    That’s what I said, albeit using sta­tis­tics cited above (who gets what — mostly land­lords).

    Thus, I said the unearned income is immoral (i.e. land val­ues are cre­ated by the com­mu­nity) — you were bang­ing on about the inequal­ity gen­er­ated from the inher­i­tance of cap­i­tal and the like,which pro­vides employ­ment and goods and ser­vices (a quid pro quo) — it involves sweat, blood and tears. So, I can have it both ways (which to use your words: “I per­son­ally don’t have a prob­lem with those things hap­pen­ing, and con­sider that they would not be major prob­lems any­way. If they did hap­pen and the demo­c­ra­tic process decides that for instance inher­i­tance taxes should be in place as well as the LVT, I would still con­sider that a net plus”).

    Indeed, tough tit­ties.

  • Earn­ings based on the cap­i­tal earned by for bene­fac­tors are “blood, sweat and tears”. Really? Can I change places?

  • spadi­jer89

    So, to clar­ify, redis­tri­b­u­tion (i.e. theft by the use of force) does not reduce inequal­ity because it over­looks the fact that when gov­ern­ment expen­di­ture is deployed toward goods and ser­vices, it ben­e­fits land­lords — that is the major source of inequal­ity. Once you start wor­ry­ing about other peo­ple we’ll (prob­a­bly) return to a soci­ety with 1054343 taxes — so, mind your own busi­ness — what fam­i­lies do in their pri­vacy of their home is not your busi­ness — its only your busi­ness when they get 1) wind­falls due from the taxes YOU pay, 2) pop­u­la­tion around YOU and 3) with­draw valu­able land from sup­ply for spec­u­la­tive pur­poses, increas­ing mort­gages which YOU have to pay.

    Moroever, the things you listed as part of “inher­i­tance” such as cash, cap­i­tal or busi­nesses GIVE peo­ple oppor­tu­nity, employ­ment, involved care­ful deci­sion mak­ing, fam­ily his­tory, expe­ri­ence etc, a quid pro quo(not to men­tion your view ignores the fact most inher­i­tance, for the 100th time is backed on the value of land and other related assets).

  • spadi­jer89

    ps Yes, James Packer is cry­ing at how much he has left poor Kerry down. 

    The sweat blood and tears mean this: the point is not using cap­i­tal (which depre­ci­ates) is not a lux­ury — you have to put in toward a cal­cu­lated use. Peo­ple have to plan, think and employ what they inherit *IF* it is some­thing like cap­i­tal, a busi­ness or any form of viable enter­prise.

  • Frank

    So, to clar­ify, redis­tri­b­u­tion (i.e. theft by the use of force).…”

    The prob­lem with this kind of Libertarian/Austrian out­look is that it assumes that with­out a gov­ern­ment, humans would co-exist with­out form­ing a new one through vio­lent com­pe­ti­tion and the emer­gence of a new mil­i­tary or intel­lec­tual elite.

    The truth is that noth­ing is “yours” with­out an agreed con­cept of prop­erty rights. This of course can only exist if an admin­is­tra­tive body exists to define those rights, update them, main­tain them and enforce them. The oper­a­tion of this body requires fund­ing, ie taxes.

  • we_have_kan­ga­roos

    MMitchell, some very insight­ful post­ing.

  • I was at a talk in Par­ra­matta last night and didn’t get a chance to check blog posts until this morn­ing. I hope that the degree of anger on dis­play in some of these posts has dis­si­pated overnight. I expect civil­ity in how blog mem­bers debate here. If that is not main­tained, then regard­less of whether I agree with the views expressed or not, I will block future con­tri­bu­tions.

    Remem­ber that your posts are read not solely by an indi­vid­ual you may be hav­ing a strong dis­agree­ment with, but by roughly 2,000 mem­bers of the blog. An angry riposte to one mem­ber may feel good at the time, but it will almost cer­tainly detract from your abil­ity to influ­ence the other 1999 mem­bers.



    In the past 9 months

    The RBA 4% inter­est rate cuts = $60B stim­u­lus

    The Gov­ern­ment = $20 — 30B cash stim­u­lus

    The econ­omy went slightly back­ward accord­ing to the RBA

    The for­ward export income esti­mates for the com­ming year are $50B less national income now most of the April con­tract prices have been rene­go­ti­ated.

    Does that mean Aus­tralia now needs $130B of aggre­gate stim­u­lus in the com­ming year just to have the econ­omy stand still again?


  • That’s not a bad sum­mary Peter_W. As I have noted repeat­edly, aggre­gate demand is the sum of GDP plus the change in debt. The lat­ter has gone from +250bn a year in 2007-08 to near zero now, so to sim­ply stand still an addi­tional $250 bil­lion in demand is needed. With even the best out­come imply­ing GDP growth of less than $100 bil­lion (if out­put were inde­pen­dent of debt changes, which it’s not), some­thing of the order of $150 bil­lion has to be injected into the econ­omy to keep it from going back­wards.

    Or another debt-financed bub­ble has to be gen­er­ated to keep the debt-fuelled pros­per­ity rolling–hence the First Home Ven­dors Grant… How­ever I think this is unlikely to work–deleveraging seems inevitable and is occur­ring now, with falls in busi­ness and per­sonal debt out­weigh­ing the increase in mort­gage debt.


    $130 — $150B stim­u­lus

    The RBA can take the cash rate to zero but the banks can’t pass on the full 3% because they are only 60% deposit funded but 40% com­mer­cial funded. Also they need a mar­gin. As a ball­park fig­ure I guess the best the banks can pass on is 1 — 1.5%. At best = 25B stim­u­lus

    So were now rely­ing on $95 — 125B of stim­u­lus from the Gov­ern­ment just to stand still!


    The AUD could fall ALOT which would boost export income



    Is the best solu­tion to the $150B stimulus/demand gap to run a 15% GDP ~ $150B trade sur­plus.

    Would a mas­sive fall in the AUD work?

    That would seem a bet­ter solu­tion than ratch­et­ing up aggre­gate debt.


  • spadi­jer89

    The prob­lem with this kind of Libertarian/Austrian out­look is that it assumes that with­out a gov­ern­ment, humans would co-exist with­out form­ing a new one through vio­lent com­pe­ti­tion and the emer­gence of a new mil­i­tary or intel­lec­tual elite…”

    Firstly, in West­ern­ised, Euro­pean soci­eties (like Switzer­land), I think this could indeed be pos­si­ble. So, dom­i­na­tion does not go from being covert (i.e. the nation state), to overt (Soma­lia). But this can be dis­cussed in the future.

    Sec­ondly, Frank, in case you missed it, we all agreed here there is a need for “taxes” – a sin­gle tax of 100%, in par­tic­u­lar – except I noted that other taxes (e.g. income taxes) are often coun­ter­pro­duc­tive, plant seeds which legit­i­ma­tise the need for a even big­ger state (to address the “mis­takes” the state itself gen­er­ated in the first place), or really sim­ply a result of jeal­ously.

    A sin­gle tax on land, I think in and of itself, is enough to fund a) the mil­i­tary, b) a police force, c) a legal sys­tem and d) infra­struc­ture (roads, sci­en­tific research funds to uni­ver­sity etc), endow­ments all of which are deposited through higher land val­ues.

    I don’t think there is any “anger” or “angry riposte” but merely a pas­sion­ate plea (with a few caps locks here and there) request­ing a clear, lucid (rather than merely asser­tions), which ought to have been sus­tained / main­tained through­out the blog com­ment, or response and sup­ple­ment by empir­i­cal evi­dence. After this failed, exac­er­ba­tion / frus­tra­tion set in. 

    Now indeed, return­ing back to notions of an argu­ment, here is an inter­est­ing paper which shows beyond rea­son­able doubt how neo­clas­si­cal the­ory was a direct attempt to divert atten­tion away from Henry George’s ideas:

  • ueber­baer

    a mas­sive fall in AUD = a mas­sive increase in imported infla­tion. It’s not only flatscreen tel­lies we’re import­ing, but food, cloth­ing, fuel, fer­tiliser etc. etc. Basic essen­tials.

    Which means peo­ple will have less dis­pos­able income which means more unem­ployed = crash­ing home prices = less tax receipts = more stim­uli?

    Not look­ing rosy. Glad we’re hav­ing 4 par­ties today look­ing at buy­ing our home.


    An AUD cur­rency cor­rec­tion does not have to be fast. It could be done over 5 years to allow inven­tory, pur­chase pat­terns, jobs, wages to adjust.

    It occured dur­ing the 1890’s 1930’s 1950’s 1970’s 1980’s

    Yes it’s infla­tion­ary BUT that’s the rem­edy for a debt defla­tion.

    It’s not a new con­cept.


  • bfg

    PETER_W, but won’t every­body do the same thing? Cur­rency value is only rel­a­tive.

  • mahaish

    hi peter w,

    your assump­tions about falling domes­tic demand will depend on wether we get any fur­ther credit growth or not. so the financ­ing requirment for the gov­ern­ment may be con­sid­er­ably less than you antic­i­pate. or am i wrong about this. please feel free to cor­rect me.

    and accord­ing to chris richard­son, the women of this nation havnt stopped being shop aholics just yet.

    since we are com­ing off a lower debt to gdp base than the US, per­haps we can lever­age things up a bit more before we suf­fer the con­se­quences.


    I don’t know the answer.

    The AUD is presently 80+ and if it stays around that level or goes higher then our net trade income is likely to be worse not bet­ter.

    The present macro plan seems is the gov­ern­ment will bor­row to to stim­u­late the econ­omy and fill the demand gap while GDP stands still.

    This may work for a while but in all pre­vi­ous exam­ples in Aus­tralias his­tory we ulti­mately solved the same basic prob­lem by depre­ci­at­ing the AUD, earn­ing more than we spent and pay­ing down debt.

    Maybe it’s dif­fer­ent this time!


  • spadi­jer89

    unem­ployed = crash­ing home prices = less tax receipts = more stim­uli?”

    (Not a crit­i­cism), but I’m curi­ous about why you put unem­ploy­ment before “crash­ing house prices” because I would like to see a graph which con­trasts, in a reli­able time series, monthly changes in res­i­den­tial or com­mer­cial prop­erty, changes in the growth debt, changes in unem­ploy­ment, changes in growth in credit – my bet is that prop­erty prices leads the cycle. 

    A sim­i­lar result was found here:

    For me the next few years will be inter­est­ing because recall that the Great Depres­sion started in the US and Europe fol­low­ing a huge build­ing boom (25% of US GDP was con­struc­tion based, 8% ALONE was res­i­den­tial con­struc­tion)- the con­struc­tion indus­try was ruined dur­ing the Depres­sion (due to over­build­ing)- Aus­tralia bore the brunt of this through the falling terms of trade and demand for goods.
    Accord­ingly, I believe most of our prob­lems will be the result of endoge­nous struc­tural weak­ness (i.e. huge mort­gage debts which will threat­ened the sol­vency of our bank­ing sys­tem)- although a drop in trade might be the fuel to the fire of a spi­ralling debt defla­tion (which has spill over effects in a credit mar­kets, which deter­mines out­put).

    Today, con­struc­tion con­tributed less to US GDP (so we have to see whether the down­turn will be as deep and how big, if any, should ini­tial shock be to trickle over to other parts of the econ­omy). So, we may after all require a cap­i­tal the­ory to under­stand the dynam­ics and what trig­gers a debt defla­tion…

    What do other peo­ple think?


    If Steve’s right and we need $150B p.a. of stimulus/demand just to have GDP stand still then Aus­tralias aggre­gate pub­lic & pri­vate debt/GDP ratio will be ~ 220% GDP in three years.

    At an AUD 80+ Aus­tralia will be run­ning a Bal­ance of Pay­ments deficit near 9% of GDP

    If this tran­spires my best guess is our exter­nal cred­i­tors would be look­ing to down­grade our credit rat­ing which would ulti­mately raise domes­tic inter­est rates despite a zero RBA cash rate.

    The ultra sim­ple con­clu­sion is that as an indi­vid­ual, a fam­ily, a com­pany, a nation, you can’t for­ever spend more than you earn.


  • ned

    Hi PeterW,

    I have heard the idea of the planned cur­rency de-val­u­a­tion before, and as far as I can see it is one of Bernake’s main strat­e­gys. I just fail to see how it is accom­plished in an orderly fas­sion as you described. If peo­ple get wind that this is the plan then it ends up caus­ing a crash, we have seen this with the Fed inter­ven­tion to con­trol long term trea­sury rates in the US.

  • clive

    What I find amaz­ing is the lit­tle effect some of these fig­ures com­ing out have on the mar­kets at present.
    The lat­est from the UK is ter­ri­ble…
    “Fig­ures from the Office for National Sta­tis­tics showed that GDP shrank at a rate of 0.8% between April and June, far faster than the 0.3% econ­o­mists had been expect­ing.

    This fifth suc­ces­sive quar­ter of con­trac­tion means that the econ­omy has shrunk 5.7% since the reces­sion began in the sec­ond quar­ter of 2008.”

    The Mar­ket pun­ters just shrugged this off, some even didn’t believe the fig­ures were cor­rect. Look­ing at the UK fig­ures where are the green shoots.

    In the US, ana­lysts seem to have the approach that if a com­pany shows a profit of minus 50% and even it got that result from a tax­payer injec­tion of cash then “core earn­ings beat ana­lysts’ expec­ta­tions” and up goes the mar­ket. These clowns would be intel­lec­tu­ally chal­lenged with the aver­age house­hold bud­get let alone the world econ­omy. No won­der the worlds in such a mess.

  • bfg

    Yes, some­thing is cer­tainly not right…


    Assum­ing S&P earn­ings nor­malise in the $40 — 60 range over 3 — 5 years (they are depressed by write downs) and US GDP growth is ~ zero (like Japan) for a long time the S&P p/e @ 20 seems over­priced whereas a p/e 8–9 would make more sence.