qikvtec wrote on Oct 8^th, 2011 at 8:30pm:


Do you mean besides the Belgium & French governments?

Please feel free, to update away!

Keynes and Hayek, the Great Debate

(Part 2) - Cont

Persistent Unemployment
In the real world, Hayek suggested, the result was persistent unemployment. He offered a simple, if unpalatable, truth to those, like Keynes, who advocated increasing the demand for consumer goods to increase employment: “The machinery of capitalistic production will function smoothly only so long as we are satisfied to consume no more than that part of our total wealth which under the existing organization of production is destined for current consumption. Every increase of consumption, if it is not to disturb production, requires previous new saving.”

Hayek also confronted another Keynesian remedy, that if an idle plant was brought into use, it would spur a depressed economy back to life and increase employment. “What [economists like Keynes] overlook is that … in order that the existing durable plants could be used to their full capacity it would be necessary to invest a great amount of other means of production in lengthy processes which would bear fruit only in a comparatively distant future.”

Artificial Demand
He went on, “It should be fairly clear that the granting of credit to consumers, which has recently been so strongly advocated as a cure for depression, would in fact have quite the contrary effect.” Such “artificial demand,” he suggested, would merely postpone the day of reckoning. “The only way permanently to ‘mobilize’ all available resources is, therefore, not to use artificial stimulants -- whether during a crisis or thereafter - - but to leave it to time to effect a permanent cure.” In brief, there was no easy way out of a slump. In the long run, the free market would restore an economy to an equilibrium that allowed everyone to be employed.

Hayek scored a bull’s-eye with his audience. Here at last was a cogent, convincing repudiation of Keynesian interventionist notions. Hayek showed that the remedies coming from Cambridge, which appeared so plausible, were riddled with logical flaws. Having the best of intentions wasn’t enough. Addressing the symptoms of a depressed economy by investing with borrowed money only made matters worse. Instead, Hayek offered a sober remedy of his own: Forget about quick fixes, the uncomfortable truth is that only time will cure an imbalanced economy. Beware smooth-talking doctors, such as Keynes, who offered a quick cure, for they are charlatans, snake-oil salesmen, and quacks. The market has its own logic and contains its own natural remedy.

Link -
http://www.businessweek.com/news/2011-10-06/keynes-and-hayek-the-great-debate-pa...
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The Truth is that Keynes and Hayek, were both correct & incorrect, depending on the situation!

Anyone care to hazard a guess or two, on the rights & wrongs of these two, in normal situations, versus the current & future circumstances?

The Truth is, that both major Political Party's & their advisors, have no idea of what any of this is about, let alone having any understanding of why neither Economic theory will actually work under the current major Economic factors!  

muso wrote on Oct 9^th, 2011 at 9:28am:

Yes, true.

This will be a generational thing requiring probably up to 50 years of gradual change in public opinion.

It will probably require the public to have a general opinion of those whose industries pollute as dangerous criminals who deserve severe punishment (10 years plus in prison).

Until then, few are going to give a rat's arse about the environment over jobs and profit. Remember James Hardie and asbestos?

Hopefully it won't be too late by then.

perceptions_now wrote on Oct 8^th, 2011 at 10:02pm:


With respect to Ireland you'll need to remove them from your acronym and research their position; it has changed substantially recently.

An yes I did mean the Belgium & French governments, both of which own more than 60% of Dexia, you can be sure the restructuring of Dexia will be done in an orderly fashion.

perceptions_now wrote on Oct 9^th, 2011 at 8:31pm:


They'll hive off the profitable divisions and wind up the rest, and have drinks at 6pm to celebrate.  

BTW Shareholders lower in the pecking order will get shafted.

muso wrote on Oct 10^th, 2011 at 9:11am:


Well seeing Western Governments are now loath to send in 100's of thousands of troops & carpet bombing is now passe, we need something to cull our numbers.
Oh sorry I forgot we're special animals that the laws of nature don't apply to, so we cant control our numbers through sensible public policy cause Gud would be angry
That only leaves mass starvation & disease, some choice but hey isn't the more you suffer the greater the reward in Gud's house?

Trichet Sees ‘Systemic’ Danger as Greek Writedowns Divide EU

European Central Bank President Jean-Claude Trichet warned of threats to the financial system as the conflict among political leaders intensified over how to extricate Europe from the debt crisis.

“The crisis has reached a systemic dimension,” Trichet told European lawmakers in Brussels today. “Sovereign stress has moved from smaller economies to some of the larger countries. The crisis is systemic and must be tackled decisively.”

European officials are toiling to meet an end-of-month deadline set by French President Nicolas Sarkozy to get to grips with the crisis, which has propelled Greece to the brink of default, shaken world markets and fueled speculation that the 17-nation currency might not survive in its current form.

Greek bondholders may face writedowns of more than 60 percent, Luxembourg Prime Minister Jean-Claude Juncker said, setting the stage for high-stakes bargaining at an Oct. 23 crisis summit. Asked by Austrian television last night whether Europe is considering writedowns of 50 percent to 60 percent, Juncker, who chairs euro-area finance meetings, said: “We’re talking about more.”

Germany, Europe’s largest economy, is pushing for bondholder losses that go beyond the 21 percent envisioned in a July accord, running into resistance from the ECB and commercial banks.

“There’s no obvious solution,” Luxembourg Finance Minister Luc Frieden told reporters in Luxembourg today. “There are several options that must be examined from the technical and political points of view.”

For Greece, the endgame drew nearer with an announcement that EU, ECB and IMF experts are likely to complete their economic-review mission today.

The report will put Greece’s 2011 budget deficit at 9.1 percent of gross domestic product, missing the original target of 7.5 percent and a revised target of 8.5 percent, Kathimerini newspaper reported, without citing anyone.

Link -
http://www.bloomberg.com/news/2011-10-11/trichet-sees-systemic-danger-as-greek-w...
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So, what does all that mean?

Well, the Truth is that -
1) Greece is on the brink of default.
2) Greek bondholders will face massive writedowns, of more than 60 percent.
3) Stress has moved from smaller economies to some of the larger countries.
4) The crisis is now systemic.
5) There is no obvious solution.
6) The 17-nation currency is not likely to survive in its current form!
7) The Europe problem, will become Global.

And, all of that is only one of the side effects of the major factors driving this Global Economic event!

By way of comparison, Australian currently has a -
GDP of around $1.2 Trillion
Deficit of around $48 Billion (4% of GDP)
Debt of about $200 Billion (17% of GDP)

Whereas Greece has a -
GDP of around $312 Billion
Deficit of around $28 Billion (9% of GDP)
Debt of about $470 Billion (150% of GDP)

And, if Australia were in Greece's position, then the oZ financials would be -
GDP of around $1.2 Trillion
Deficit of around $108 Billion (9% of GDP)
Debt of about $1.8 Trillion (150% of GDP)


Regrettably, we in OZ, can be certain that we will be sorely tested by the GFC MK2 and NO Politician from Labor or Liberal, NO matter how much they promise, will be able to keep us out of the coming mess!

Economic theory and the Real Great Contraction (Cont)

Not only are we finding it painfully expensive and difficult to produce new resources, the so-called free market no longer provides socially beneficial results. It now produces crashing global fish populations, depleted and vanishing topsoil, water in the Gulf of Mexico contaminated by blown-out oil wells and the runoff of agricultural fertilizers, hundreds of square miles of landscapes rendered lifeless in the pursuit of coal and tar sands, totally unsupportable and dysfunctional topographies of cars and roads and suburbs, and air so filthy that last week Milan banned all vehicles from its streets and Beijing’s air is rated as “hazardous” or worse nearly every day.

Modern economic theory has no plan to address these very real problems. Indeed, it is utterly blind to them. It has no ambition to achieve a sustainable result. It does not capture the time value of use; it only serves to bring supply to market as quickly as demand warrants, which is particularly unfortunate when our most rational strategy now would be to make the last half of our oil endowment last as long as possible, not to use it as quickly as possible.

The reason we like laissez-faire capitalism is not because it’s intrinsically correct and comprehensive, but because it only asks us to do what we want to do, and confers a mantle of legitimacy upon self-interest. But if you look closely at the data on fossil fuels, agricultural inputs, arable land, water, and all the rest of the resources necessary for human life and economic growth, it’s clear that the situation has changed. We have reached the end of growth, no matter how much faith we have to the contrary.

The Great Contraction
The question we now must ask is: What comes after the end of growth? The answer should be obvious.

While crude remains on its current production plateau, OECD economies may expect growthless stagnation. Oil has become a zero-sum market, where the OECD’s loss in demand owing to high prices, staggering debt, and anemic growth will be the gain of emerging economies as they work their way up the economic ladder.

When crude begins its inevitable, terminal decline somewhere around 2014 or 2015, depriving the world of about two percent of its primary energy supply every year, it will slowly strangle economic output, under a scenario I call the Real Great Contraction.

After oil begins its decline, gas and coal will too. By roughly 2030, 78 percent of our current global primary energy supply will be in decline. There is no way that renewables can make up that loss in time to prevent economic decline.

The world would need to build the equivalent of all existing renewable energy capacity every year just to make up for the decline of oil, let alone coal and gas. Since that is unlikely, the only remaining option is to reduce demand through efficiency gains. Given that the world is nowhere near on a trajectory to make enough efficiency gains to maintain even a flat economy, it must contract.

The modern interpretation of Smith’s invisible hand — that the market can always call forth adequate resources at an acceptable price — is self-evidently not true. It is merely a misreading of Smith’s theory, an artifact of developing economic theory in an age of energy surplus. Take that surplus away, and it doesn’t work anymore. High prices can still ration demand, but they cannot call forth adequate supply.

The connection between abundant, cheap energy and economic growth, and the phase transition from an age of surplus to an age of less, continues to confound and elude mainstream economists.

Rather than admitting that the fiction of wealth (money) is overextended far past its basis in real wealth (hard assets), we demand that our economic oracles perform rituals to appease the gods, dropping paper money from helicopters like some sort of cargo cult.

The Physiocrats of the late 18th century believed mankind would eventually overshoot its resources, since land is finite. (The emerging contemporary field of biophysical economics follows in that tradition.) That they could not have imagined the wealth of fossil fuels yet to be exploited does not disprove their thesis; it merely delayed it, and ensured that when human demands finally do overwhelm the capacity of a finite planet to satisfy them, the overshoot and crash will be spectacular.

Lacking energy alternatives that can be scaled and substituted for fossil fuels within two or three decades, true believers in free market theory must now hang their hopes on science fiction saviors like fusion reactors. In my view, none of these things are likely.

If we do not muster the political will and the mechanisms needed to execute a rapid deployment of efficiency gains and a massive transition to renewables while we still have fossil fuels with which to do it, this century will see humanity slide back down the ladder of energy consumption and credit expansion in a long and volatile reversion to the mean of human history, to a much lower equilibrium of complexity and consumption.

The Real Great Contraction is here.

That's my opinion!