Thinking outside the coffin
Sep24
on September 24, 2012
at 3:21 pm
Irving Fisher (1867-1947) was a neoclassical economist. I say “was” not merely because he is dead, but also because he emphatically rejected the neoclassical approach after his “Near Death Experience” during the Great Depression.
Fisher was worth over $US100 million in today’s money when The Great Crash began. Unlike most economists, he was also an inventor, and he invented a predecessor of the Rolodex – the iPad of its day. He sold his invention to the predecessor of Unisys in return for shares and a seat on the board – and like so many others back then, levered his wealth by buying shares on margin.
http://t.co/TyeZAk99
Here is the beginning, not the end, the beginning, of Wisdom.
Title: The Root Cause – A Speculation
Perhaps it is because the scientific method is seldom being taught within our education system. Back in my school days, the scientific method wasn’t even taught prior to science classes. It is only when I was aware of Nassim Taleb’s work that I knew of such thing called the scientific method.
Having rejected the Quantity Theory of Money, and, with it the concept of velocity, I find it odd that you should need to invent something called “credit acceleration” to keep your model going. QTOM worked quite nicely in the 19th century on up until the Fed was created.
Disequilibrium occurs when the nominal interest rate i diverges from the real interest rate r. Market forces cause convergence, central banking blocks this from occurring. Holding i below r causes inflation and destroys velocity while accumulating debt.
After his fall, Fisher became enamored of Gisell’s stamp money concept. The US Treasury could pay off its entire debt by simply printing up stamp money and letting the stamp revenues roll in. At the same time, the real economy would be
activated with this high velocity cash.
Deutsche Bank recently released a graph that mentions the Credit Impulse: http://www.zerohedge.com/news/2012-09-25/quantifying-6-downside-and-2-upside-risks-global-markets
I’ve been hearing bearish views from them for a while and this made it suddenly very easy to understand why they had been sounding so sane!
yhoo.it/SuodMW
Says everything. All you have to do is do the straightforward job of crafting policy that reflects the Wisdom expressed.
http://t.co/UShN3Hom
Wisdom being suggested by a major economics think tank, C. H. Douglas and Social Credit being mentioned by a major figure in the financial and monetary reform movement….what could be next…the recognition that a monetary policy of Grace and actual and adult control of the money system are essentials for a truly free and operable market system?
A modern Jubilee is the commonsensical and nascent recognition that Grace as a policy is essential. The only thing we need to do now is recognize that the will to freedom for the individual needs to be more important than the will to power of the economic, financial, corporate and political entities of the system….so that BOTH the individual AND the systems can actually be free. That of course and a mass movement that will herd the elites of the above systems kicking and screaming to that legislated reality. So break out your peace signs and tie dyed shirts….its time to march for freedom…and the end of adolescence for human systems.
Hi Steve,
From our previous correspondence, I understand that you are of the view that Australia will be in deflation for at least a decade, especially in regards to real estate prices.
Do you think we will have a period of high inflation 20% plus or even hyperinflation beyond that time frame? From 2020, can the world dept be really paid down without hyperinflation?
No I don’t expect hyperinflation Kalman–never have. A stuttering dance between mild inflation and mild deflation is far more likely–as has occurred in Japan for two decades.
Kalman –
So far in the US it has been exactly what Steve says above… BUT… at the street level, the cost of living continues to rise at the same time. The things that are needed (energy, food, water, fuel, etc.) all rising. Taxes, fees, etc. all rising as well. Incomes flat. Housing down. The net effect is a declining standard of living… which is rightfully due I suppose considering that most of world was living on unsustainable credit money growth.
The standard definitions of inflation and deflation fit in a generic sense (macroscopically) – but do a complete injustice to what the real person feels.
In my opinion, it appears on the surface that the overall net effect is actually deflation, which is something modern economics and the governments following their advice (for their own reasons as well) will fight tooth and nail to prevent. Short of some sort of reset, the outcome will not be pretty.
Some believe that this battle can go on for a long time like Japan. I am not one of them – for many reasons too long to post here in a simple comment. Suffice it to say that I feel a tipping point will be reached sooner rather than later and we will face the inevitable fate of a “hyper” something – a controlled reset maybe – or war. Most likely a combination of the above, the experience for the average person depending on where you are located.
Dear Steve & centerline
I have worked hard and prudently saved for the last 15 years, I plan to make a single purchase of a home in Australia in about 4 years, I think at that time the prices should revert back to a more reasonable fair price. I am not looking to profit, only to pay fair value.
My hypothetical question is, will my savings turn into a greater asset/value in that time frame, in terms of deflating house prices or will something like massive inflation unfold and steal my savings.
How would a large scale war possibly combined with oil prices massively increasing work in the above equation of my plan? Kind regards, Kalman.
I’m in the same boat with Kalman after missing the last boat in regards to the property boom, have the cash but still reluctant to buy.
Regarding http://t.co/0wzKLcJV
“The wise man sees trouble and hides himself. The fool goes on and suffers for it.”
Wisdom, the higher order thinking you can trust….to be the appropriate basis for BOTH individual development AND systemic policy
Kalman –
I understand how you feel. Wish my crystal ball worked (or that I had one). I am not in the same position – but in the same boat per se. Not sure which this goes. I have always been very responsible and the world seems to have managed to run over people like us. I do happen to believe that hard work and responsibility will mean something at some point.
Anyhow, after combing the net daily for years, I have found that few really have any ability to forecast really well… let alone get the timing right. In fact, it is this same inability to plan that has so many businesses paralyzed here in the US.
Of all the sites that really get down and dirty into “economics” I think Steve is by far light years ahead of anyone else. And he certainly knows the Aussie housing market better than anyone.
Whatever you wind up doing, I wish you the best. And it seems, by the fact you in a place like this asking questions, you are already ahead of the curve.
Regarding http://t.co/vGZd8Un5
Why not try Distributism. It does everything capitalism does and much better most importantly being human. Wisdom based policy, the higher order thinking you can trust.
Steve,
What do you make of this chart:
http://4.bp.blogspot.com/_pCDyiFUv9XU/S6UGAnsGArI/AAAAAAAAI8s/1wHV7ehjQdo/s1600-h/Diminishing+Productivity+of+DEBT+%282%29.jpg
found on this post:
http://economicedge.blogspot.com/2010/03/most-important-chart-of-century.html
-Tom
Hi Tom, What an interesting chart. So Ben Bernanke is pushing on a string. Or maybe he has a secret plan to devalue the US dollar and eliminate the US debt by increaing the money supply without any productivity growth. Better invest in hard assets.
Fisher’s later view can be explained by him accepted that the supply and demand for money were not always in equilibrium, and post keynsians would say the difference between aggregate demand and aggregate supply in disequilibrium is excessive supply of goods and labour (unemployment).
Hicks of course had a similar mea culpa in his book “A Market Theory of Money”, “… the supply-demand equation can only be used in a recursive manner, to determine a sequence; it cannot be used to determine price, as Walras and Marshall had used it”.