tag:blogger.com,1999:blog-5154389358831836369.post8430270560323824485..comments2024-03-28T02:00:36.854-04:00Comments on The Slack Wire: Did We Have a Crisis Because Deficits Were Too Small?JW Masonhttp://www.blogger.com/profile/10664452827447313845noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-5154389358831836369.post-73242569092563342062020-03-14T05:02:08.951-04:002020-03-14T05:02:08.951-04:00This article was written by a real thinking writer...This article was written by a real thinking writer without a doubt. I agree many of the with the solid points made by the writer. I’ll be back day in and day for further new updates. PLease visit site <a href="https://www.insta-stalker.me/" title="insta stalker" rel="nofollow">insta stalker</a> to find top account on instagram. Sophie Gracehttps://www.blogger.com/profile/09769321133171248409noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-87708670756978757402013-01-25T11:13:29.773-05:002013-01-25T11:13:29.773-05:00JP-
That's a great question!
I think we shou...JP-<br /><br />That's a great question!<br /><br />I think we should be open to the possibility that the answer is Yes. The idea that some process just can't continue is too often used as a debate-ender, without providing any reason why it cannot.<br /><br />I think in the case you describe, the financial crisis as we experienced it would not have taken place. There would have been no flight to safe assets, and (probably) no major failures of financial institutions. But that doesn't mean steady growth would have continued indefinitely. Capitalism doesn't work like that. <br /><br />It seems to me that if we'd had a sufficient expansion of government debt to prevent the emergence of the MBS market, the most likely causes of the next downturn would have been (a) the rise in oil prices; or (b) a shortfall in domestic demand once the housing boom subsided (since even with easy financing housing demand is eventually satiated, and this is the one area of household expenditure with high intertemporal substitutibility, so a boom in one period leads to a bust in the next. But this would probably have resembled the 2000 recession in terms of severity.<br /><br />The US also faces a chronic problem that desired expenditure falls short of income at full employment, due, in my opinion, to a downward shift in investment demand since 1980. Issuing more government liabilities would solve the shortage-of-safe-assets problem, but not (directly) this one.<br /><br />JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-26227904953547058312013-01-25T10:58:53.974-05:002013-01-25T10:58:53.974-05:00not exactly how it worked out though, was it?
No,...<i>not exactly how it worked out though, was it?</i><br /><br />No, it wasn't. But the blame for that lies on this side of the Pacific.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-43364610254225070502013-01-24T19:37:23.760-05:002013-01-24T19:37:23.760-05:00"Once the technology of securitization was de..."Once the technology of securitization was developed, you also had a rise in mortgage lending and the supply of MBSs continued growing under its own momentum; but in this story, the original impetus came unequivocally from the demand for substitutes for scarce government debt. It's very hard to avoid the conclusion that if the US government had only issued more debt in the decade before the crisis, the housing bubble and subsequent crash would have been much milder."<br /><br />What happens if the US government went back in time and issued more debt so that no vacuum could emerge for MBS to fill, as you advocate. Let's say the government invests the funds received from its bonds issues in mortgage companies and has them lend the funds out to homeowners. What's changed? We've got no MBS, just a bunch of "safe" government assets. We've got huge flows into housing markets. It there no bubble or crash? Do we have a free ride?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-42484619685235512052013-01-24T13:01:22.627-05:002013-01-24T13:01:22.627-05:00[...] 3) Did We Have a Crisis Because Deficits Wer...[...] 3) Did We Have a Crisis Because Deficits Were Too Small? by JW Mason @ The Slack Wire [...]Bubbles and Busts:Bubbling Up...1/24/13http://bubblesandbusts.blogspot.com/2013/01/bubbling-up12413.htmlnoreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-76687229985324893552013-01-23T22:54:16.397-05:002013-01-23T22:54:16.397-05:00"The fact that China wants to hold US dollars..."The fact that China wants to hold US dollars is a good thing for the US -- it opens up space for policies to maintain full employment, without worrying about the balance of payments."<br /><br />Yeah, not exactly how it worked out though, was it? Funny that. It opened up space for financialization and globalization and the devastation of Michigan and Ohio. <br /><br />Going forward, I suspect China may soon have reason to wish it had been forced to develop better banking institutions a decade ago.Bruce Wilderhttps://www.blogger.com/profile/09631065564839959376noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-63763113153084903402013-01-22T18:49:24.770-05:002013-01-22T18:49:24.770-05:00Josh,
I haven't fully read this, but from th...Josh, <br /><br />I haven't fully read this, but from the abstract it sounds like it is relevant to this discussion.<br /><br />http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2201518<br /><br />"Drawing on recent contributions in the literature on financialization, we introduce the concept of the ‘collateral motive’ – investors’ demand for government bonds to meet their funding needs – and link it to the shift to transnational, market-based, collateral-intensive banking models. We show how this becomes a pivotal mechanism for fiscal consolidations as the singular response to the ongoing Eurozone crisis. The implication of our argument is that recent fiscal policy in the Eurozone cannot be adequately understood without analyzing the process through which the collateral motive ignited a run on peripheral sovereign bond markets which in turn compelled states to stabilize these markets through austerity."<br /><br />While it is about the Eurozone, I think there is relevance to the US situation, particularly in regard to the higher levels of collateral needed by a trade-oriented shadow banking sector.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-27090850606181174042013-01-21T11:26:39.256-05:002013-01-21T11:26:39.256-05:00Can't agree with that one, Bruce. The fact tha...Can't agree with that one, Bruce. The fact that China wants to hold US dollars is a good thing for the US -- it opens up space for policies to maintain full employment, without worrying about the balance of payments. The problem is on our side -- we used that space to expand mortgage lending, as opposed to lending for productive investment. If the Chinese demand for US government debt had been satisfied by higher emission of debt by the US government, say as part of a crash program of public investment in decarbonization, there would have been no problem. (And since decarbonization is a global public good, the rest of the world would be getting some compensation for being lending to the US at concessionary rates.)JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-31710450670412376142013-01-20T22:25:37.147-05:002013-01-20T22:25:37.147-05:00Also, China should get its own damn money.Also, China should get its own damn money.Bruce Wilderhttps://www.blogger.com/profile/09631065564839959376noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-17748299426321844102013-01-17T11:16:09.512-05:002013-01-17T11:16:09.512-05:00This is also interesting:
http://research.stlouis...This is also interesting:<br /><br />http://research.stlouisfed.org/fred2/graph/?g=eDPSteve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-38161364372865990182013-01-16T20:02:01.276-05:002013-01-16T20:02:01.276-05:00"falling federal debt-GDP ratios have consist..."falling federal debt-GDP ratios have consistently preceded financial crises historically" <br /><br />No to quite: that was about falling *nominal debt,* not debt/GDP. I don't think the pattern holds nearly as consistently with the latter measure. <br /><br />OTOH, look what I just found:<br /><br />http://www.kellogg.northwestern.edu/faculty/vissing/htm/shortdebt_071012.pdfSteve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-81021898961816673832013-01-16T03:49:32.351-05:002013-01-16T03:49:32.351-05:00This has been a great series of posts. On a relate...This has been a great series of posts. On a related note, have you done any research on the decline in bank lending for tangible capital/investment? Recent readings suggest that a large portion of new lending/debt today is for the purpose of investing in already produced assets (land, stocks, bonds). This would appear to be related to the secular decline in private investment that you discuss.Anonymoushttps://www.blogger.com/profile/00720722626969395929noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-5884113352094274702013-01-15T17:09:32.220-05:002013-01-15T17:09:32.220-05:00Haven't read Wagner, but the idea of secularly...Haven't read Wagner, but the idea of secularly declining private investment demand was a staple of the first generation of American Keynesians. I've been reading Alvin Hansen lately and he takes this for granted. For him though -- don't know about Wagner -- it was more about the satiation of consumer demand.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-71174728373929977502013-01-15T16:40:45.794-05:002013-01-15T16:40:45.794-05:00Worth mentioning Adolph Wagner who argued long ago...Worth mentioning Adolph Wagner who argued long ago that government spending as a proportion of an economy will and should rise as the economy grows.5371noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-66959327265270522822013-01-15T14:19:09.837-05:002013-01-15T14:19:09.837-05:00Fredrik,
You are absolutely right. The point here...Fredrik,<br /><br />You are absolutely right. The point here is that **all else equal**, larger government deficits during the 1990s and 2000s would have prevented the crisis. This is intended as a sort of immanent critique of liberal mainstream economists who argue for the long-run importance of reducing the debt. (Why I care about this will be the subject of the next, and hopefully last, post in this series.) But yes, as I said in <a href="http://slackwire.blogspot.com/2013/01/prolegomena-to-any-future-post-on.html?showComment=1358239806004#c9163933278727847396" rel="nofollow">comments to the previous post</a>, the more fundamental (and more authentically Keynesian) solution is to reduce the range of productive activity that is organized around the accumulation of money claims, and especially to reduce the extent to which fixed investment is guided by financial criteria.<br /><br />JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-33102065852911145862013-01-15T13:53:19.494-05:002013-01-15T13:53:19.494-05:00We have an incredibly bloated financial sector acr...We have an incredibly bloated financial sector across most of the developed world. As the Irish and Icelandic experience have shown, this can have a huge destabilising effect on the real economy. Given this situation, maybe giving the financial sector exactly what it wants is not the best idea? And maybe this insatiable demand for safe assets is itself a function of the size of this sector?<br /><br />I am sympathetic to the argument that given a healthy financial sector, an adequate supply of government bonds might improve the functioning of a highly capital intensive economy. But I don't think we are anywhere near that situation today.<br /><br />Also, let's not forget that the solution to the problem of real estate booms and busts was figured out a century ago by Henry George. It's just that his solution was highly politically unpopular. The transformation of illiquid land assets to liquid liabilities is a purely wasteful activity that can and should be eliminated.Fredriknoreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-52363250821998853292013-01-15T09:18:23.149-05:002013-01-15T09:18:23.149-05:00"Another way of looking at this is that the s..."Another way of looking at this is that the steady shift from small-scale to industrial production implies a growing weight of illiquid assets in the form of fixed capital. There is not, however, any corresponding long-term increase in the demand for illiquid liabilities. If anything, the sociological patterns of capitalism point the other way, as industrial dynasties whose social existence was linked to particular enterprises have been steadily replaced by rentiers. The whole line of financial innovations from the first joint-stock companies to the recent securitization boom have been attempts to bridge this gap. But this requires ever-deepening financialization, with all the social waste and instability that implies."<br /><br />you mention leijonhufvud and perelman, but is there any other bibliograohy on this subjetc that you would recommend? i find it a fascinating subject<br />JCEhttps://www.blogger.com/profile/09270393535746081359noreply@blogger.com