| China’s mercantilist trade policy is another contributor to its asset bubble. By artificially depressing the value of its currency and making it difficult for locals to invest abroad, China has forced an artificially large amount of capital to chase after domestic investments, inflating property and stock prices. |
Bubbles, it bears noting, tend to surprise many observers with their longevity. (A FORBES cover story warned six years too early that the U.S. housing bubble threatened to tank the economy.) But when bubbles do eventually blow, it’s usually with a bang. |
| Friends have been telling me about the deranged property prices in Beijing, and once again, as with the malls, it just strikes me as common sense that this is not sustainable. |
| What Epstein is describing mirrors to the letter what we saw in the US in five years ago |
I am, in general, a liberal free-marketeer. Light and efficient government regulation is needed and in some sectors more of it than in others, but taken in a gross overall picture, I tend to agree with the maxim “the less government the better”.
It seems the Japanese have just decided to take a different route. I for one still think the “American model” with some adjustments for context is more honest, at a genetic level, to the human experience and thus is more likely to promote innovative solutions to problems. But I also know that, in nature, diversity is resilience so perhaps it is good that the Japanese have decided on a different course. One that, perhaps, fits their context better than the “American model” (or what they took to be the “American model”) did. We will see how this plays out now that history has restarted its engines. TOKYO — Japan’s opposition party won an overwhelming victory at the polls on Sunday pledging to increase social welfare, better protect workers and do away with American-style, pro-market reforms to lead the country out of its long slump. Read more at www.nytimes.com |
An interesting radio program(me) on the likely impact of inequality in developed countries.
These researchers provide background information and discussion on their evidence that inequality is more destructive to society in those economies already well developed. This means that the social advantage of economic inequality, from the utopian ‘motivator of innovation and growth’ to the cynical ‘there but by my listening to my boss go I’ is outweighed by the social disadvantage of crime, ill health and the like.
Though I would not consider this the last word on the subject, it is a worthy listen to, despite the odd and off putting affect that such discussion seems to instill in our brothers and sisters on that little island over there called Britain. Research has shown that health and social problems become more acute in an unequal society, where the gap between the richest and poorest is greatest. For most of us, respect is measured in money, and lack of it or low pay tells us that we are worth very little. But given the chance, would we as a society be prepared to rebalance? |
Laurie Taylor discusses these issues with Professor Richard Wilkinson and Kate Pickett, authors of The Spirit Level: Why Equal Societies Almost Always So Better, and Sunder Katwala from The Fabian Society, on a new paper on underlying motivation. |
An interesting column by Richard Posner on the background of and some lessons from the financial crisis. In short: 1) Capitalism is risky and is prone to bubbles and depressions (take home message is not that capitalism is ‘bad’ but that one must diversify and hedge); 2) The crisis is a consequence of deregulation (not that deregulation is ‘bad’ but that deregulated capitalism carries with it more of the bubble/depression risks). But in the end, as with so many, Posner concludes that the whole mess should be laid at the feet of government. This is not the right conclusion, not that government is not the responsible party, they are. But the key issue that underlies the government’s failure is not that government is inherently ‘bad’ as many are often led to conclude but that it was made that way. A systematic attack and undermining of governance has occurred in the U.S. since the early 1980s. Not all was bad, likely much of it early on was needed, but like so many other human experiences when something is good, more of it must be better. Thus we subsequently voted for those that promised more of the same until we had a government that failed to govern. I hope Obama’s election is a sign that this trend has ended. The key to understanding is that a capitalist economy, while immensely dynamic and productive, is not inherently stable. At its heart is a banking system that enables large-scale borrowing and lending, without which most businesses cannot bridge the gap between incurring costs and receiving revenues and most consumers cannot achieve their desired level of consumption. When the banking system breaks down and credit consequently seizes up, economic activity plummets. |
| Lending borrowed capital — the essence of banking — is risky. That risk is amplified when interest rates are very low, as they were in the early 2000s because of a mistaken decision made by the Federal Reserve under Alan Greenspan to force interest rates down and keep them down. |
| The banking crash might not have occurred had banking not been progressively deregulated beginning in the 1970s. |
Below is a message to shareholders from Warren Buffet. I’ve added emphasis (bold) to some of his points and have not included all comments. For the complete article the PDF is available for download here: http://www.berkshirehathaway.com/2008ar/2008ar.pdf
As the year progressed, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.” Read More »
These are interesting times to be living in… That the government has taken such a large role in the internal affairs of our nation’s largest corporations is a little disturbing. But it would be far more disturbing if it were doing so ab nusquam. Turns out that these companies have taken on billions and billions in federal aid and are looking for billions more.
Is it the role of the government to run these large companies, no. But it is the role of the government to safeguard its investment in them, just as any large stakeholder would. If GM did not wish to be subjected to the scrutiny and consequences of federal government influence then it should not have taken federal government money.
We are all cringing in fear - now is the time to open our arms. There is building, latent demand. Real, needed demand for goods and services. But everyone is waiting, fearful of making a move. The worst is behinds us, there is more bad news for sure, and it will seem downright frightening at some points, but the worst is behind us. Let us hope that our period of muddeling through will be short.
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