Wednesday, January 23, 2008

Market fundamentalism

By Capt. Fogg

If you're a Republican, you probably hate George Soros and aren't inclined to listen to his advice about economics as you are to that of some talking head on Fox. I don't know how he was received at the World Economic Conference in Davos this morning when he said

"The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency. Now the rest of the world is increasingly unwilling to accumulate dollars.''
but it makes sense to me. The figures bear that out as foreign-exchange reserves around the world have fallen to a record low recently as the share of the Euro increased. Of course increasingly unwilling is not a measure of the limits of the unwillingness, but reducing interest rates may not be the way to reduce that trend. It was an ill conceived expansion of credit that began in the Ronald Reagan 1980's
"That created an asymmetric incentive system, a moral hazard, that allowed the expansion of credit.''
Soros has been predicting the decline of the dollar for several years and despite the usual meaningless accusations of being a liberal, he's been right.
"We are there to clean up after bubbles first rather than to prevent the danger,''
said Stephen Roach, Morgan Stanley's Asia chairman, of the latest rate cut.
"It's a dangerous, reckless and irresponsible way to run the world's largest economy.''
Of course dangerous, reckless and irresponsible are words frequently used in describing the attitude and the actions of the Bush administration and the many messes we're in don't help the effort to deny it. If you hear any thing about this conference from the usual tabloid TV sources, it won't be much; this conference isn't the sort of thing that gets in the way of lachrymose laments about overdosing celebrities or steroids in sports or lurid crime stories, and the public isn't accustomed to giving a damn about any larger picture than the one on that flat screen HDTV they just bought on credit. They will just go on listening to candidates bitching about who believed Bush's story in 2003 or who loves Jesus more or who represents change without specific and realistic explanation. Knowledge of economics, and expertise with financial and monetary policies are nowhere near as appealing as the customary pandering to prejudice, greed and the glory of war.

Cross posted from Human Voices

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7 Comments:

Anonymous lester said...

this problem had very little to do with reagan. it began with the creation of the federal reserve and continued throught every aadministration in the 20th century. soros, a billionaire himself, is preaching to the choir here and it a libertarian sentiment more than a liberal one.

11:28:00 AM  
Anonymous lester said...

in fact, I would argue the essence of what libertarianism is abuot is a reaction to keynes, whose ideas are fully accepted and practiced by both parties.

11:34:00 AM  
Anonymous Jim Martin said...

Here's the problem, the American family has used easy credit to spend itself into a huge hole.
Five years ago the average family saved a miserable 2% of income, this past year it fell to below zero. That's right folks, we spent more than we made.
For the average American, the bill has come due and if we get a little welfare from the government, yes that's what it is, most people will just use it to pay off credit cards.
Besides, the only way to spur our economy would to be to buy goods made in this country and just what the hell can you find that's made in this country?
Is this Bush's fault? Sure, but look yourselves in the mirror, that's where most of the blame should go.

1:32:00 PM  
Blogger Capt. Fogg said...

I agree with you Jim. We buy a lot of imports because they are cheap, but we will spend more for big ticket items like cars just because they are foreign and ignore the effects on our economy.

I had the tube on for a while today and diet ads and ads about loans and mortgages seem to account for more than half of what's out there. People don't think it's strange to finance everything they own and they seem oblivious to the danger.

Debt does matter. Short term solutions often make the long term problems worse and that seems to be standard procedure.

3:44:00 PM  
Anonymous lester said...

"``I think the Fed is well behind the curve and has been reacting instead of being proactive,'' he said, adding that the primary blame lies with former Chairman Alan Greenspan.

``Alan Greenspan mishandled it by keeping interest rates too low too long and also ignoring dangers in the housing market,'' Soros said.




if only the fed were always behind the curve. he rightly attributes the problem to allan greenspans inflation of the currency, but then calls for more inflation on the part of the fed.

liberals seem to understand that our interventionism was the motivating factor for the terrorists behind 9/11. yet they, anmd truth be told repubilcans as well, don't seem to see how the economy works the same way.

more inflation is not the answer it is the problem, same with all interventionism

10:34:00 AM  
Blogger Capt. Fogg said...

That's a bit of a stretch to tie military invasion to any attempt to temper market movements and bash "liberals" at the same time. Yes, I agree that the proposed measures are inadequate, of temporary benefit at best and may be a long term disaster,but that does not mean that wise regulation is a bad thing. Military interventionism has saved the world in the past, but that does not argue for isolationism nor does it mean that D-Day should never have been allowed to happen. Unregulated, laissez faire markets have demonstrated their ability to do great harm to individuals and to economies. I think history demonstrates that more than adequately.

It's got to the point that when I read anything characterizing "liberals" I immediately suspect that there is no point or no argument, just a blind prejudice inventing scapegoats to distract from an unsupportable argument.

I do have libertarian sympathies and liberal sympathies, but it's impossible to discuss these things with all the mendaciously pejorative definitions of these terms being used by purveyors of dogma, what I do not sympathize with is libertarianism taken too far - or any other ism taken too far. There are limits to everything and I think Ron Paul, although his campaign statements are intriguing and sometimes refreshing, is a closet extremist.

As to people's advice about the market and what it's doing and why, I'll say the same thing as I do to the people who call me with investment advice - if you're so damn smart, why are you working for a living?

1:01:00 PM  
Anonymous lester said...

"Unregulated, laissez faire markets have demonstrated their ability to do great harm to individuals and to economies. I think history demonstrates that more than adequately"

like.. when?

"It's got to the point that when I read anything characterizing "liberals"

but in this case it is you who is having a knee jerk reaction to my saying "liberals". I think we both can agree that liberals are often anti interventionist, but support intervention in the economy.

"if you're so damn smart, why are you working for a living?"

I could say the same to you.

and the federal reserve has nothing to do with regulating the markets. they regulate the money supply. if you want to make anti predatory laws fine. that's not why we are in the mess we are in. as Soros points out, greesnspans post 9/11 firing up of the printing presses is. there is all sots of pressure on lenders to lend to minorities and they are also in competition with each other. I wouldn't blame them

3:22:00 PM  

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