Recession Imminent

[cypherdoc]

I believe the QE(s) had a profound effect. Bad money (M2,3,MZM) contracted massively. The stock and housing markets should have collapsed worse than 1929. But the Fed "learned from that mistake" and instead printed money 360%. So instead of collapse, deflation, and ten year recovery, we'll have a long painful collapse, inflation, and no recovery.

QE was just an extension of Keynesian failed economic policies that got us into this mess.  it was meant to bailout the speculating elite at the taxpayer expense.  now its just gonna be harder during the next crash.

[hugolp]

debt/GDP is now 100%.

read Reinhart and Rogoff as to what this means.

I have not read the Reinhart and Rogoff book. I have been told that apart from presenting the data in an excellent way they do not really present any new or original economic idea, and are very tame as to why the crisis happens. Can you make a short explanation of why the crisis happened according to their thesis? Im specially interesting in knowing why they think the financial system behaved like they did.

PS: Ludites, that is the ideas that technology is going to "eat us" or/and cocentrate power have been always wrong. The record is out there for anyone to check. Bitcoin is the best example on how technology increases people's choices.

[cypherdoc]

debt/GDP is now 100%.

read Reinhart and Rogoff as to what this means.

I have not read the Reinhart and Rogoff book. I have been told that apart from presenting the data in an excellent way they do not really present any new or original economic idea, and are very tame as to why the crisis happens. Can you make a short explanation of why the crisis happened according to their thesis? Im specially interesting in knowing why they think the financial system behaved like they did.

PS: Ludites, that is the ideas that technology is going to "eat us" or/and cocentrate power have been always wrong. The record is out there for anyone to check. Bitcoin is the best example on how technology increases people's choices.

hugolp:  i must admit i did not read the entire book; its a tome.  i did skim it and read parts i thought were relevant. i've listened to several interview podcasts of both Rogoff (Harvard) and Reinhart(U of Maryland) as well as read several write ups and summaries.

in short, their emphasis is on the debt accumulation of sovereign nations as being an inhibitory factor to growth.  they analyzed  statistically several nations going back hundreds of years.  the book is filled with pretty graphs and loads of numbers.  in essence they "averaged" debt/GDP ratios of the nations that got themselves into trouble and came up with 90% as the tipping point for when a nation begins to pay too much in interest as a % of their output.  these nations then entire a significant decline.

i think the work is unique and significant.  in being primarily an empirical study going back 800 years and looking at 60 countries they in essence went into the forest and examined the trees unlike most economists who never look at the trees but stand back and try to wrap a theoretical model around the forest.   of course the skeptics of their work are the same old Keynesian clowns that we know so well who only know how to stimulate or QE.  these same clowns take pride in not knowing the details or inner workings of how an economy work but instead have "physics envy".  that is they want to believe economics can be precisely described in terms of mathematics and predictable models.  anyone who invests and studies markets like i do know this is just ridiculous.  markets are inherently unpredictable and unstable given our dependence on the immoral manipulative Fed.

Carmen Reinhart was asked to testify before Congress as to their results and findings back in 2009 i believe.  their work has been discussed worldwide and is generally regarded as credible work.  their emphasis on sovereign debt as being the root of the problems is right on as far as i'm concerned.  they recommend decreasing spending and more fiscally responsible gov't.  they have been as pessimistic on where the nation is heading as we are.  when they wrote the book i remember the debt/GDP being only around 60% and thinking to myself that it would take many, many years to get to 90%.  now we're at 100% or so.  so sad.

[hugolp]

debt/GDP is now 100%.

read Reinhart and Rogoff as to what this means.

I have not read the Reinhart and Rogoff book. I have been told that apart from presenting the data in an excellent way they do not really present any new or original economic idea, and are very tame as to why the crisis happens. Can you make a short explanation of why the crisis happened according to their thesis? Im specially interesting in knowing why they think the financial system behaved like they did.

PS: Ludites, that is the ideas that technology is going to "eat us" or/and cocentrate power have been always wrong. The record is out there for anyone to check. Bitcoin is the best example on how technology increases people's choices.

hugolp:  i must admit i did not read the entire book; its a tome.  i did skim it and read parts i thought were relevant. i've listened to several interview podcasts of both Rogoff (Harvard) and Reinhart(U of Maryland) as well as read several write ups and summaries.

in short, their emphasis is on the debt accumulation of sovereign nations as being an inhibitory factor to growth.  they analyzed  statistically several nations going back hundreds of years.  the book is filled with pretty graphs and loads of numbers.  in essence they "averaged" debt/GDP ratios of the nations that got themselves into trouble and came up with 90% as the tipping point for when a nation begins to pay too much in interest as a % of their output.  these nations then entire a significant decline.

i think the work is unique and significant.  in being primarily an empirical study going back 800 years and looking at 60 countries they in essence went into the forest and examined the trees unlike most economists who never look at the trees but stand back and try to wrap a theoretical model around the forest.   of course the skeptics of their work are the same old Keynesian clowns that we know so well who only know how to stimulate or QE.  these same clowns take pride in not knowing the details or inner workings of how an economy work but instead have "physics envy".  that is they want to believe economics can be precisely described in terms of mathematics and predictable models.  anyone who invests and studies markets like i do know this is just ridiculous.  markets are inherently unpredictable and unstable given our dependence on the immoral manipulative Fed.

Carmen Reinhart was asked to testify before Congress as to their results and findings back in 2009 i believe.  their work has been discussed worldwide and is generally regarded as credible work.  their emphasis on sovereign debt as being the root of the problems is right on as far as i'm concerned.  they recommend decreasing spending and more fiscally responsible gov't.  they have been as pessimistic on where the nation is heading as we are.  when they wrote the book i remember the debt/GDP being only around 60% and thinking to myself that it would take many, many years to get to 90%.  now we're at 100% or so.  so sad.

When you say debt to GDP you mean government debt or all the debt (private + government)?

Im a bit surprised that they saw that 90% is the tipping point because I had seen empirical studies previously where they found that there was not a clear tipping point and the amount of debt (total debt to GDP) was not related to the crisis directly. Ill see if I can get a copy.

[cypherdoc]

gross public debt

[johnyj]

Good topic and I'm also discussing same thing in another column: https://bitcointalk.org/index.php?topic=33267.0

I think the QEs have done quite good, but not enough, the big problem is that printed money should lend to those companies who are willing to create new jobs, instead of lending to those big companies who just hoard cash and cutting employee (they do this because their market analysis showing the market is going down), but the current credit system prefer lend to these cash hoarders

We already had the technology that can serve almost everyone, but still lots of people suffering, it is definitely a system problem, not technology

[cypherdoc]

Good topic and I'm also discussing same thing in another column: https://bitcointalk.org/index.php?topic=33267.0

I think the QEs have done quite good, but not enough, the big problem is that printed money should lend to those companies who are willing to create new jobs, instead of lending to those big companies who just hoard cash and cutting employee (they do this because their market analysis showing the market is going down), but the current credit system prefer lend to these cash hoarders

We already had the technology that can serve almost everyone, but still lots of people suffering, it is definitely a system problem, not technology

last month i sat down with an investment manager for BofA who was interested in what i thought about the market. 

he told me flat out that the banks refuse to lend the bailout money to consumers b/c they consider them a bad credit risk and also b/c they get free interest from the Fed on their excess reserves OR they can invest those same monies into commodities or stocks.  Voila!  Stock market ramp from hell based on speculation of higher prices, not real economic output.

[johnyj]

I'm sure it will eventually be better for us all.

How are you so sure about that?

I also really, really hope that the spoils of technology and automation will eventually mean that everyone can work less, with the machines taking care of the rest. That it will somehow be fairly distributed. But I'm certainly not sure of that. It could also get really messy.

Good point, as long as people are aware and worried about an unfair distribution, there is hope a system can be invented to prevent that from happening

[johnyj]

It's not all due to banksters. Machines pushed workers from agriculture and production to service industries. Now self-service terminals and (increasingly artificial intelligent) robots will push workers out of the service industries at an exponential rate. Many workers have nowhere to go. We just adapt like we have done in the past. I'm sure it will eventually be better for us all.

how do the unemployed adapt?  larger unemployment checks?  oh wait...

Actually I think that is one of the good solution. And of course those paychecks comes from tax (or debt)

Raising tax might stress business, so it should not be taxed on income or revenue, but rather on cash: The more cash holded, the more tax, this also encourage companies not hoarding cash and activly spend and invest

[cypherdoc]

It's not all due to banksters. Machines pushed workers from agriculture and production to service industries. Now self-service terminals and (increasingly artificial intelligent) robots will push workers out of the service industries at an exponential rate. Many workers have nowhere to go. We just adapt like we have done in the past. I'm sure it will eventually be better for us all.

how do the unemployed adapt?  larger unemployment checks?  oh wait...

Actually I think that is one of the good solution. And of course those paychecks comes from tax (or debt)

Raising tax might stress business, so it should not be taxed on income or revenue, but rather on cash: The more cash holded, the more tax, this also encourage companies not hoarding cash and activly spend and invest

how do higher unemployment checks encourage going back to work?  just the opposite.

saving is not necessarily bad either by individuals or companies.

[johnyj]

It's not all due to banksters. Machines pushed workers from agriculture and production to service industries. Now self-service terminals and (increasingly artificial intelligent) robots will push workers out of the service industries at an exponential rate. Many workers have nowhere to go. We just adapt like we have done in the past. I'm sure it will eventually be better for us all.

how do the unemployed adapt?  larger unemployment checks?  oh wait...

Actually I think that is one of the good solution. And of course those paychecks comes from tax (or debt)

Raising tax might stress business, so it should not be taxed on income or revenue, but rather on cash: The more cash holded, the more tax, this also encourage companies not hoarding cash and activly spend and invest

how do higher unemployment checks encourage going back to work?  just the opposite.

saving is not necessarily bad either by individuals or companies.

They do not, and that is the purpose, less and less people need to work in future. Work is no longer a means to make a living, the society already can provide each person good living condition with the help of robots and machines.

Saving action is bad for today's economy model, since it will cancel out many of the monetary policy efferts generated by government and FED. This can be explained by a very simple example

[cypherdoc]

It's not all due to banksters. Machines pushed workers from agriculture and production to service industries. Now self-service terminals and (increasingly artificial intelligent) robots will push workers out of the service industries at an exponential rate. Many workers have nowhere to go. We just adapt like we have done in the past. I'm sure it will eventually be better for us all.

how do the unemployed adapt?  larger unemployment checks?  oh wait...

Actually I think that is one of the good solution. And of course those paychecks comes from tax (or debt)

Raising tax might stress business, so it should not be taxed on income or revenue, but rather on cash: The more cash holded, the more tax, this also encourage companies not hoarding cash and activly spend and invest

how do higher unemployment checks encourage going back to work?  just the opposite.

saving is not necessarily bad either by individuals or companies.

They do not, and that is the purpose, less and less people need to work in future. Work is no longer a means to make a living, the society already can provide each person good living condition with the help of robots and machines.

Saving action is bad for today's economy model, since it will cancel out many of the monetary policy efferts generated by government and FED. This can be explained by a very simple example

wow, you certainly have a different viewpoint from most ppl on this forum.

the problem here in the US is we have an unemployment level of 9.2%; not enough jobs for ppl who want to work.  the debt levels have become so high it is squelching growth not just here but worldwide.

technology is having the paradoxical effect of contributing to this by displacing human workers.  you think of this as good but what are these ppl to do?  there's not enough money to continue the handouts we've promised to everyone.  this is precisely why the Congress had difficulty raising the debt ceiling.  everyone realizes we can't just keep taking on more debt to fund everyones easy lifestyle here in the US.  this is because we have saved too little and borrowed from the future to fund our current desires.

[netrin]

Computers and robots are the looms and cotton spinning mills of the day. Programmers are code weavers and multi-core/thread spinners. Nothing's changed since 1769.

[hugolp]

I think Johnyj is saying there is enough money for everyone but its not distributed fairly.

This I agree.

I am certainly very concerned about the progress of machines, programming, etc displacing human workers everyday.

Very true. Having to work less hours to produce the same goods and access the same standard of living is horrible. Horrible! We should all be working more hours.

Those machines create higher efficiency and larger profits for the company's owner and not so much for the lower - middle class where the majority of us live.

This is false. Example: Bitcoin. In fact, usually new technologies are disruptive for big stablished companies and helps entrepreneurs.

Ive heard some people argue that this automation frees people up from the time consuming repetitive work, thats great -- but every year these machines and programs are starting to replace people's entire job and that worries me.  Not today, not tomorrow... but 10 years or so...

Luditism should be declared a psicological illness so we can stop hearing the same arguments over and over again. Do you realize that people in the XVIII century were saying exactly what you are saying? Some were very afraid that the new automatition was going to leave the people without a job. In the fucking XVIII century! Hasnt happened yet. What has happened is that thanks to the machines we work less hours, in better working conditions (the machies do the harsh work) and we enjoy a better standard of living. So please lets stop the crazyness, we need more automatition so we have to work less hours and have an even better standard of living.

[netrin]

Luditism...What has happened is that thanks to the machines we work less hours, in better working conditions (the machies do the harsh work) and we enjoy a better standard of living.

If it were not for the bloody wheel, boat or beast, we'd have unlimited employment opportunities hauling goods around on our backs!

[Rassah]

I miss the good ol' days of 5am to 11pm back breaking farm work. EVERYONE was employed back then, from the day they turned 10, till they died at 35{.}

[bitebitebite]

I miss the good ol' days of 5am to 11pm back breaking farm work. EVERYONE was employed back then, from the day they turned 10, till they died at 35{.}

 Made me chuckle

[johnyj]

What has happened is that thanks to the machines we work less hours, in better working conditions (the machies do the harsh work) and we enjoy a better standard of living. So please lets stop the crazyness, we need more automatition so we have to work less hours and have an even better standard of living.

Yes, reduce working hour is actually a very good way to solve this problem, and it is very scaleable!

Let's say from tomorrow, all the people who have the job should only work 4.5 days a week, at the same time their salary reduced by 10%. What happens then? All the companies will have to use those saved 10% salary payment to hire 10% more workers to keep the productivity up, then the jobless problem solved right away!

The biggest resistance might come from those who have the job, and since they are the majority, this solution might not get passed!

[johnyj]

the problem here in the US is we have an unemployment level of 9.2%; not enough jobs for ppl who want to work.  the debt levels have become so high it is squelching growth not just here but worldwide.

technology is having the paradoxical effect of contributing to this by displacing human workers.  you think of this as good but what are these ppl to do?  there's not enough money to continue the handouts we've promised to everyone.  this is precisely why the Congress had difficulty raising the debt ceiling.  everyone realizes we can't just keep taking on more debt to fund everyones easy lifestyle here in the US.  this is because we have saved too little and borrowed from the future to fund our current desires.

As you said, there's not enough money to pay everyone. But the strange thing is, the productivity has increased a lot. It is not convincining to say people get less because they now can produce more. It just indicated that they now work less and produce the same amount as before, but due to they work less, their income dropped (this is the current system: if you work 4 hours, you get 50% the payment than when you work 8 hours).

Borrowing from future is based on the assumption that future productivity will be higher and future income will also be higher. But current situation is that future income will drop due to "productivity increase-> jobless rate rise-> total demand drop". If the future income is constant, then the current debt will become a huge burden

In the past decades, people continously moved into new industry area (IT, financial derivatives, housing), this kept the jobless rate low, but now it seems difficult to find another new industry that can digest that amount of jobless people

Basically, there are 3 ways to deal with the fast rising productivity (or say over supply):

Reduce working hours (this is the best solution in my opinion)
Charge high tax on high productivity companies and increase the lower social wellfare
Move people into new industry

The first 2 reduce the supply, the last one increase the demand through the attractive new products from those new industry

Most of today's economy model is studying the scarcity, it uses lot's of assumptions in a scarcity dominated society, but we already passed that stage long time ago. Keynes discovered that over supply is dangerous, he tried to increase the demand to match the increased productivity. But why not reduce the supply? Because in a credit based economy, you have to increase future income (thus increase supply) to payback the loan and interest, everyone is driven by profit/earnings/loan interests, this makes everyone works like a slave

[Rassah]

It's not that there are no jobs, it's that there are more advanced jobs and fewer blue collar jobs. Unemployment rate for those with college education is actually pretty low, at 4.5% (personally, I don't know anyone of my friends in MD who lost a job, and know of two who quit theirs to find better ones)

http://www4.icmarc.org/for-individuals/market-view/chart-of-the-week/cotw-20110617usunemploymentbyeducationallevel.html

Even during the Great Depression, despite a HUGE unemployment rate, businesses were scrambling to find good employees and having trouble finding any. Machines replacing jobs just leaves more people with a lot more time to do more advanced and more creative things that require more brains and less muscle. So, machines replaced your cashier/assembly/low-skill job? Get some special job training or a degree.