Reports that the USA government’s total financial commitments from the financial crisis now top US$5 trillion raise the obvious question “Can they afford it?”.
The answer isn’t obvious. Some economists, from a range of schools of economic thought, argue that the government sector (lumping the Treasury and the Federal Reserve together) has a limitless capacity to pay debt as a consequence of its status (especially since the US dollar is still the world’s reserve currency).
And now for something completely different…
A correspondent has just passed this beautiful piece of wit along to me: a song about the financial crisis to the tune of the old “Monster Mash” song from the 50s (you know, back when they had banks).
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The Parliamentary Library arranged a debate between myself and Rory Robertson of the Macquarie Group on the financial crisis today. We had a good audience of about 70 Parliament House denizens. You can download the Powerpoint Slides slides for my presentation, and the Vissim model of Minsky’s Financial Instability Hypothesis which was part of the presentation ( Right click and choose “Save As” since this is a text file; then install the viewer, which can load the file and let you run it (I’ve also loaded the EXE file of the viewer onto my site as another way of getting the program). You can make changes too, but they can’t be saved).
Today’s CPI data from the US Bureau of Labor Statistics reveals that consumer prices fell by 1 percent in the month of September. This is the steepest monthly fall in the index since January 1938, and comes after two previous monthly falls (of 0.4 and 0.14 percent). It is therefore possible that a debt-deflationary process is underway.
If things are really grim, it helps to have an indefatigable nature, and there’s no doubt that RBA Deputy Governor Ric Battellino has that in spades—at least in the speeches he makes at public conferences. Were I being crucified, I’d like to have Ric up there with me, singing “Cheer up Brian!…”, to take my mind off the nails.
Yesterday the RBA (Australia’s Central Bank) cut its reserve rate by three quarters of a percent, to 5.25 percent. This is the third cut in 3 months, bringing the cumulative reduction since September to 2 percent
This is a far cry from the RBA’s expectations in 2007, that in 2008 it would be raising rates to constrain a booming economy and bring inflation back down to its target range.
2nd Anniversary Issue…
Why Did I See it Coming and “They” Didn’t?
The financial crisis is widely accepted as having started in August 9 2007, with the BNP’s announcement that it was suspending redemptions from three of its funds that were heavily exposed to the US securitisation market (click here for the BNP August 9 2007 press release).
The suggestion that the Federal Government might extend its guarantee to managed funds in return for the funds becoming banks is, as Glenn Dyer has observed for Crikey, sheer bunkum.
On the lender side, this sector of the finance industry largely arose to make money out of lending practices or financial products that were too adventurous for banks themselves.
There’s an excellent article in The Age today on the mad methods of neoclassical economists. The author is Martin Feil, who was once a director of the Industries Assistance Commission–a previous incarnation of what is now called the Productivity Commission:
The article is entitled We can’t live on moonbeams and air.
The import of Gerard Henderson’s diatribe in today’s SMH is that the media has done a “soft” job on my views, which have only gained notoriety because of the extreme prediction I have made—about the forthcoming economic downturn qualifying as not merely a recession, but a Depression. It seems I’ve only got attention because of my extreme views, while the media has let the side down by doing a “tabloid” job only and not subjecting my views to scrutiny.