Keynes, par Krugman

Dans une actualité où le terme "stimulus" semble revenir constamment, il est intéressant de retourner aux bases, et en particulier à celles posées par Keynes. Paul Krugman a écrit une excellente introduction à la Théorie Générale.

Obama vs. Clinton

Les primaires démocrates sont très excitantes. Outre l'opposition de style entre les deux candidats, on commence à voir des différences assez nettes de substance. Ces différences de substance ne sont toutefois pas forcément bien appréhendées par le public, et la récente polémique sur les propos tenus par Obama sur Reagan a permis de les clarifier. PK, comme toujours, trouve la bonne présentation (sur son blog).
Les propos de HRC sont d'une justesse de ton étonnante. Elle est vraiment plus que la simple femme de son mari.

January 21, 2008, 9:13 am
Hearing and believing
So, Candidate A says things like this:

"I think Ronald Reagan changed the trajectory of America in a way that Richard Nixon did not and in a way that Bill Clinton did not. He put us on a fundamentally different path because the country was ready for it. I think they felt like with all the excesses of the 1960s and 1970s and government had grown and grown but there wasn’t much sense of accountability in terms of how it was operating. I think people, he just tapped into what people were already feeling, which was we want clarity we want optimism, we want a return to that sense of dynamism and entrepreneurship that had been missing." (BO, ndlr)

And Candidate B says things like this:

"If you go back and look at our history, we were most successful when we had that balance between an effective, vigorous government and a dynamic, appropriately regulated market. And we have systematically diminished the role and the responsibility of our government, and we have watched our market become imbalanced. I want to get back to the appropriate balance of power between government and the market … Inequality is growing. The middle class is stalled. The American dream is premised on a growing economy where people are in a meritocracy and, if they’re willing to work hard, they will realize the fruits of their labor." (HRC, ndlr)

And somehow many people believe that Candidate A is the true progressive — he wasn’t really saying that Reagan was right — and that Candidate B, despite the progressive talk, is just Bush the third.
These people could be right; politicians have been known to say things they don’t believe. But where does their certainty come from?

la "grande modération", suite et (probablement) fin

Via YS, un article du NYT qui résume bien la particularité des temps que nous vivons.
Pendant ce temps là, ces crétins de la Fed continuent à pomper de l'essence sur l'incendie, et ont abandonné toute prétention à l'indépendance. 75bp de réduction de taux en urgence, sans raison et uniquement pour rassurer le marché boursier : si il fallait une illustration de ce qu'est devenu le capitalisme ploutocratique à l'américaine, je n'en connais pas de meilleure.

David Leonhardt: Was the "Great Moderation" An Illusion?
A very good article by David Leonhardt in today's New York Times raises a question that would have been regarded with considerable skepticism as recently as, say, even August, when the perturbations in the debt markets seemed to be the largely the result of the subprime meltdown. That question is whether the Great Moderation, the period regarded as an economic golden age which featured solid growth rates for advanced economies, tame inflation, and even relatively mild crises, was built on tidal sands.Leonhardt says what some who have formerly been portrayed as alarmists have said for a while: a boom, or even merely good growth, that relies heavily on excessive debt creation, particularly when the proceeds of borrowing are either consumed or simply invested poorly, is bound to come to a bad end as the overhang has to be worked off. Either you have a contraction as consumption is redirected to debt reduction, or inflation which will have the effect of reducing the debt, but also erodes the real value of other financial assets.Leonhardt describes stimuli and risks that we now recognize were not well understood at the time, and led them to take actions that with the fullness of time, now appear to have significant, unanticipated costs. With perhaps a morbid turn of mind, I am reminded of the case of a steel magnate of the 1920s, Eben Byers, who was overly fond of a stimulant of a very different sort, a popular tonic known as Radithor which contained radium. His daily dose, which initially gave the sportsman the illusion of health and plenty of energy, led to a miserable death at age 51, having lost his teeth, nearly half his body weight, and suffering holes in his jaw.Let's hope our recent elixir isn't remotely as toxic. However, Leonhardt argues that there are good reasons to believe that the slowdown we are entering won't be as mild as those of 1990-1991 and the beginning of this century.

From the New York Times:
Until a few months ago, it was accepted wisdom that the American economy functioned far more smoothly than in the past. Economic expansions lasted longer, and recessions were both shorter and milder. Inflation had been tamed. The spreading of financial risk, across institutions and around the world, had reduced the odds of a crisis.Back in 2004, Ben Bernanke, then a Federal Reserve governor, borrowed a phrase from an academic research paper to give these happy developments a name: “the great moderation.”These days, though, the great moderation isn’t looking quite so great — or so moderate.The recent financial turmoil has many causes, but they are tied to a basic fear that some of the economic successes of the last generation may yet turn out to be a mirage. That helps explain why problems in the American subprime mortgage market could have spread so quickly through the world’s financial system. On Tuesday, Mr. Bernanke, who is now the Fed chairman, presided over the steepest one-day interest rate cut in the central bank’s history.The great moderation now seems to have depended — in part — on a huge speculative bubble, first in stocks and then real estate, that hid the economy’s rough edges. Everyone from first-time home buyers to Wall Street chief executives made bets they did not fully understand, and then spent money as if those bets couldn’t go bad. For the past 16 years, American consumers have increased their overall spending every single quarter, which is almost twice as long as any previous streak.Now, some worry, comes the payback. Martin Feldstein, the éminence grise of Republican economists, says he is concerned that the economy “could slip into a recession and that the recession could be a long, deep, severe one.".....But a recession is now more likely than not. It may well have started already....The bigger question is how severe the recession will be if it does come to pass. The last two, in 1990-1 and 2001, have been rather mild, which is a crucial part of the great moderation mystique. There are three reasons, though, to think the next recession may not be.First, Wall Street hasn’t yet come clean. Even after last week, when JPMorgan Chase and Wells Fargo announced big losses in their consumer credit businesses, financial service firms have still probably gone public with less than half of their mortgage-related losses, according to Moody’s Economy.com. They’re not being dishonest; they just haven’t untangled all of their complex investments.“Part of the big uncertainty,” Raghuram G. Rajan, former chief economist at the International Monetary Fund, said, “is where the bodies are buried.”As Mr. Rajan pointed out, this situation is more severe than the crisis involving Long Term Capital Management in the late 1990s. That was a case in which a limited set of bad investments, largely at one firm, had the potential to drive down the value of other firms’ holdings in the short term. Those firms then might have stopped lending money because they no longer had the capital to do so. But their own balance sheets were largely healthy.This time, the firms are facing real losses, which will almost certainly curtail lending, and economic growth, this year.The second problem is that real estate and stocks remain fairly expensive. This shows just how big the bubbles were: despite the recent declines, stock prices and home values have still not returned to historical norms.David Rosenberg, a Merrill Lynch economist, says that the stock market is overvalued by 10 percent relative to corporate earnings and interest rates. And remember that stocks usually fall more than they should during a bear market, much as they rise more than they should during a bull market.The situation with house prices looks worse. Until 2000, the relationship between house prices and rents remained fairly steady. The same could be said about house prices relative to household incomes and mortgage rates. But the boom of the last decade changed this entirely.For prices to return to the old norm, they would still need to fall 30 percent across much of Florida, California and the Southwest and about 20 percent in the Northeast. This could happen quickly, or prices could remain stagnant for years while incomes and rents caught up.Cheaper stocks and houses will benefit many people — namely those who don’t yet own a home and still have most of their 401(k) investing in front of them. But the price declines will also lead directly to the third big economic problem.Consumer spending kept on rising for the last 16 years largely because families tapped into their newfound wealth, often taking out loans to supplement their income. This increase in debt — as a recent study co-written by the vice chairman of the Fed dryly put it — “is not likely to be repeated.” So just as rising asset values cushioned the last two downturns, falling values could aggravate the next one.“What people have done is make an assumption that these prices could continue rising at the rate they had been,” said Ed McKelvey, an economist at Goldman Sachs. “And that does seem to have been an unreasonable assumption.”Certainly, there are some forces to push in the other direction. Outside of Wall Street, corporate balance sheets remain remarkably strong, while the recent fall in the dollar will help American companies to sell more goods overseas.But it’s hard not to believe that the economy will pay a price for the speculative binge of the last two decades, either by going through a tough recession or an extended period of disappointing growth. As is already happening, banks will become less willing to lend money, households will become less willing to spend money they don’t have and investors will become more alert to risk.Welcome to the new moderation.

More on greenspan

The Greenspan method

Five Simple Steps to Becoming a Billionaire: The Greenspan Method by Johnny Debacle
1 Become Fed Chairman
2 Lower interest rates until you create an asset bubble. Hold them low until stagflation is in the air and a real estate bubble is floating
3 Stop being Fed Chairman and release a book on how you didn’t do anything wrong and have no regrets. If possible, time it perfectly with the worst real estate market in generations
4 Join the hedge fund which has profited more in % and dollar terms than anyone else has from your mess (which you didn’t create)
5 Build a platinum statue of your muse, Ayn Rand, and sleep with it every night
It also helps if you are mostly unethical.

Addendum: Look at this quote from Greenspan from the WSJ’s Real Time Economics:
“Q: All three of your clients — Pimco, Deutsche Bank and now Paulson — were bearish early on housing and mortgages. Is there a connection?A: I hadn’t [noticed] until you just raised the issue.”
Greenspanspeak is code for self-serving disingenuousness.

Alan Greenspan

Yves Smith tire à vue sur Alan Greenspan, et résume en peu de mots les volumes que justifieraient les actions de l'ex-idole du capitalisme de casino.