Monday, 9 September 2013

Economists main viewpoints all in tiny nutshells

Just to give you an idea of the guys: 

a) Richard Koo 
A balance sheet recession is caused by people who do not want to borrow (because they have been scared by a recent crisis) and would rather pay down their debts than take on new debt. By the Fallacy of Composition this causes a reduction in GDP because nobody is borrowing for growth, leaving a big hole that further depresses economy. The 'solution' is for the government to fill the GDP hole by deficit spending. Uses Japan as main example but applicable for 'once in 70 year crises' for most countries.

b) Joseph Stiglitz

The global export/import balance sheet is zero sum game, so surplus countries (Brazil, China etc) do so at cost of those in deficit (USA etc) The surplus countries keep their surpluses in the global reserve currency - dollars and end up with huge amounts of dollar reserves. The deficit countries try to compensate by creating bubbles that collapse causing crashes and bank failures.
Securitization was a contributory cause of the 2008 crisis caused by lack of data on bad loans implicit in the way securitisation bundles loans in a non-transparent way. 'Asymmetric data' is an error that needs correcting. Also banks benefiting too much from Fed QE because they have access to negative loan rates which are not available to others. The rich are now richer and there has been a loss of living standards for others.
His solution:
1) A global reserve currency bc dollar not able to fulfill that function well.
2) Capital transfer controls to stop financial contagion. He argues using a health analogy that viruses spread via open borders and to stop this health workers try to contain them locally. Should be same for financial 'viruses'.
3) Levy tax on countries in surplus bc they are in surplus at deficit countries cost - they should be taxed
4) Emerging market countries need to increase their home demand more rather than exporting goods abroad - sell them at home more.

c) Paul Krugman
Argues that no matter how much money is created people will not borrow even at the ZIRP and large monetary base because we are in a Keynesian/Fisher style liquidity trap.
He is critised for his supply-demand, Keynsian-like theory that does not account for creation of money in the bank's fractional reserve system.
His solution:
Government deficit spending to increase GDP and we should worry about the increase in debt later when the economy is better or there are new solutions to the debt problem available. Inflation will not happen whilst in a liquidity trap.

d) Cullen Roche
Founder of Pragmatic Capitalism he comments on economic theory and gives investment advice. He predicted the 2007 crisis and now speaks and writes about many economic and investment issues.

e) The Fed
Initially - Provide QE to a) Save banks b) Prevent catastrophic debt defaults b) Improve borrowing (hasn't happened much) c) Write-off non performing loans (MBS) d) Improve stocks and consequently aid growth. + more...
Later - QE resulted in employment figures reaching target of 7% : a) Try forward guidance of 'expected inflation' to improve growth b) Taper QE amounts to prevent excess debt build up
The Fed is continually evolving its policy in line with what it believes is best for employment.

f) IMF
Did a 180 degree turn: At first recommends austerity and paying down debts but later advocated stimulus because 'austerity causes more damage than deficit government spending'.
The IMF was happily promoting the status quo right up to the 2007 credit crisis and continues to blow with the wind of mainstream opinions.

g) BIS
Warned  & predicted 2008 crisis but could not take effective action to prevent it bc not many believed them.
Have written and published various high-level reports and coordinated central bank actions to maintain stabilities. Involved with organising big supra-national currency swaps and other CB actions behind the scenes.
The BIS takes a careful if not negative approach to global economics and produces insightful reports and draws attention to instabilities.

h) ZeroHedge
Points out contradictions, corruption and seeks out and publishes uncomfortable statistics and charts. Often take the view that governments are incompetent and businesses are corrupt and vice-versa.
Often correct and insightful and often plain wrong, but publishes off-the-wall reports and blogs so  'you decide'. (One of my faves - ed)
Have pointed to many reasons for 2008 crisis in their blogs and generally consider QE not effective having creating a false economic recovery based on 'printed money' and over-large government debt.

iLord Adair Turner
Reported on the underlying reasons for the credit crisis and uses a selection of relevant economic theory. The main reason is the growth of property related debt that formed a bubble. Says many economic theories are out-of-date because are based on industrial growth being fuelled by industrial  investment. Theories of supply and demand in industry and services is not where most investment is going. Today most investment is towards fixed assets such as property and finance and money creation is via fractional reserve banking and it is this aspect rather than industrial growth problems that  caused the crisis. 

j) Martin Wolf
Well respected journalist at the Financial Times who looks at underlying reasons and causes. The 2007 crisis was caused by a glut of savings coming mainly from China. 
His solution:
Property investment bubble could be solved by taking the money creation ability of the banks and putting it into government hands such as CBs or committees that could direct money creation into more suitable areas. But he realises that this is experimental and may not work in practice : 1) governments would tend to create money for themselves 2) a dangerous shadow banking sector could develop with concomitant systemic instability 
Issues. 3) Government committees may not be the best people to allocate money - central planning route to disaster.

k) Francis Coppola
Blogger and media commentator with expertise in banks and how they operate. Often takes a leftist viewpoint while claiming neutrality, thus subscribes to deficit spending and a more-or-less Keynsian model to provide a strong social services infrastructure.

lDavid Beckworth
University guy. Believes in modern monetarist theory as a possible solution & that government can create money, monetise debts - public deficits are good economic management when private sector is struggling. But he also commentates on more orthodox solutions as an economic adviser and commentator on TV.

jSteve Keen
University guy. Unorthodox economist who disagrees with Fishers Debt Deflation and other mainstream theories. Effects of private debt is a big deal for him.
His solution:
Run public deficits to help economy and "helicopter drop" or OMF consumers to increase demand and assist paying down private debt. USA ran deficit to GDP debt of 15% which, in fact, helped private sector but EZ Mastricht treaty prevented that happening in EZ because debt to GDP is limited to 3% - so EUROPE still in crisis.

k) Noah Smith
Economics blogger active on Twitter and quite famous who picks up fallacies and good points in economic ideas and articles. Says he is a sceptic.

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