Work­ing too hard

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OK, apolo­gies to Paul Krug­man, now that I real­ize the Inter­stel­lar Trade paper was a joke and first drafted in 1978. I should have checked more before writing–but as noted, in the thick of writ­ing the sec­ond edi­tion of Debunk­ing Eco­nom­ics, I latched on to a diver­sion.

How­ever at some stage I’ll be pub­lish­ing a cri­tique of Paul’s paper on Min­sky, which I wish was a joke… More anon once the book is fin­ished.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • Abysmal­Spec­ta­tor

    Appar­ently that poo­dle can walk upright for 1km, which just goes to show that Keynes was right when he said (iirc) mar­ket poo­dles can remain irra­tional longer than a bet­ting man can remain sol­vent, but even­tu­ally the sup­port has to give way.

    You are spot on about debt. Any­one who lived in the UK for past cou­ple of decades could see that. 

    Actu­ally, on sec­ond thought, that last state­ment is just plain false. The week before Lehman Bro.s went down, i.e. over a year after the cri­sis had kicked off , we had pen­sion fund man­agers in our offices want­ing to invest a lot in com­mer­cial (retail) prop­erty and a pen­sion sales­man who called me a Lud­dite for want­ing to “remain in cash for the time being thank you.” I even remem­ber sit­ting next to an econ­o­mist in Oxford at din­ner who couldn’t see it com­ing. A lot of the “lit­tle peo­ple”, and many who should have known bet­ter, seemed to be mes­merised by the eco­nomic “good times”.

    How­ever, some peo­ple did under­stand. Eddie George, for one made it clear to the UK Trea­sury Select Com­mit­tee on March 20 2007 that the BoE delib­er­ately fuelled the con­sumer boom via inter­est rate pol­icy and left it as a prob­lem for his suc­ce­sors to “sort that out.”

    http://www.publications.parliament.uk/pa/cm200607/cmselect/cmtreasy/uc299-ii/uc29902.htm

    (There used to be a video of this evi­dence on parliament.tv, but I can no longer find it. The tran­script above loses a lot of reg­is­ter.)

    and this isn’t post facto under­stand­ing. In 2002 he said to the Trea­sury Select Com­mit­tee:

    The boom in UK house prices is unsus­tain­ably strong.”

    We do not believe the cur­rent rate of house price growth is sus­tain­able but it is a fac­tor dri­ving con­sumer spend­ing.”

    and what pray tell was dri­ving the boom in house prices? Let me think…

    The FSA also warned in March 2002 (pos­si­bly 2001) that mortage mul­ti­ples were get­ting out of hand, and yet when they gained reg­u­la­tory con­trol over that mar­ket in 2004 noth­ing was done. Why?

    Yet in 2007/8 I can remem­ber read­ing an arti­cle in one of the UK broad­sheets where shifty Eddie denied that he had been cog­nizant of a house price boom (or some­thing sim­i­lar — I’d have to dig to find my copy of the arti­cle). Inter­est­ing what is said to the masses and what is said to par­lia­men­tary select com­mit­tees.

    What hap­pened was under­stood by many of those at the helm. They under­stood inti­mately the role of increas­ing debt in fake growth. The evi­dence is doc­u­mented and easy to find. They just did not care as long as it suited their venal aims. Let some­one else deal with the mess when they were long gone. Tony Blair, in par­tic­u­lar, showed mas­ter­ful tim­ing in his exit from the polit­i­cal scene. 

    Why replace house prices with imputed rents in the infla­tion mea­sure used by the MPC as the bub­ble kicked off and now sug­gest that house prices be rein­tro­duced as the bub­ble unwinds? If this cri­sis was such a sur­prise, why did the BoE shift its pen­sion fund almost entirely out of shares in into RPI bonds the year before the cri­sis?

    The fund sold out of equi­ties entirely at the end of 2006 cut­ting a 21.6% hold­ing down to 0.1%, thus avoid­ing a 35% drop in UK equi­ties. Awe­some mar­ket tim­ing, the fund was con­se­quently up 12% last year when all around mar­kets crashed.

    The fund’s hold­ing of Index Linked Gilts has shot up from 25.6% of assets to a 70.7% pro­por­tion of assets dur­ing the same period. That is a big bet of the pen­sion pot owned by every­one who works at the cen­tral bank.”

    Of course those index linked gilts are no longer avail­able to mere mor­tals through NS&I.

    I’d call that insider trad­ing, wouldn’t you?

    (The above fig­ures and para­phras­ing is from : http://order-order.com/2009/03/31/bank-of-england-pension-fund-surges-betting-on-inflation/)

    Now we know why the 1997 Labour Gov­ern­ment abol­ished cap­i­tal pun­ish­ment for High Trea­son; there just aren’t enough spikes on Tower Bridge…though might I sug­gest there are still plenty of lamp-posts.

    (Mervyn King is one who I can­not fathom — he voted to raise inter­est rates 3 times in a row in 2002 as an MPC mem­ber to quash this credit fuelled boom, and warned again when he was out­voted as head of the MPC in the August 2005 deci­sion when the major­ity voted to drop rates. This was inter­pret­ted as a sig­nal by all and sundry that the flag­ging hous­ing mar­ket would be sup­ported at all costs and gave a house prices a push for another 2 or 3 years. It was at that point that I knew for cer­tain that this boom would end in the mother of all crises, rather than a nor­mal reces­sion. Yet, at other times his pro­nounce­ments and vot­ing seem to con­tra­dict these obser­va­tions.)

  • Potent obser­va­tions Abysmal. You appear to have some pretty solid research on the sit­u­a­tion in the UK, which I’m pretty light on. If it’s acces­si­ble in any sys­tem­atic way, it would be good to incor­po­rate that in the data sys­tem that will prob­a­bly make an appear­ance on this blog later in the year.

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