The Credit Crisis Financial Stocks Short Journal

Quote from Ghost of Cutten:

Your assumptions are obviously wrong - no country is going to see GDP fall 50% just because it doesn't implement quantitative easing. Where did you get this figure from? In any case, living standards are based much more on real GDP than nominal.
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I was referring to US QE1, I do believe that it prevented the start of a 1930's scenario since M2 would have collapsed by 7-8% without it(in the 30's the decline was around 10% a year but the debt levels were smaller)

Quote from Ghost of Cutten:
To support QE, you have to give both a convincing theoretical case why increasing the money supply is going to make the economy more productive and living standards increase more than would happen otherwise - I have yet to see you, Bernanke, or anyone else present such a case.
And it would help if you could point to occasions from the past where deliberate monetary debasement has been tried and worked successfully in raising living standards - so far, I am not aware of any such case, in fact the opposite seems to have been the norm.
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I made that case before, its about preventing debt deflation and downward spirals. The evidence is presented on Bernanke's book Essays on the Great Depression where he has a large sample of countries in the 30's showing that getting out of the gold standard induced real growth to improve. All of those improvements happened before WW2, which is used by Keynesians to support the idea that fiscal packages got the world out of the depression

Quote from Ghost of Cutten:
The fact that it is being proposed by a group of people who flat-out failed to spot the biggest and most obvious real estate bubble in western history makes it all the more worrying - the chance of these incompetents being right, and then implementing it successfully, cannot be very high. Even if you have a cast-iron theoretical and historical case for QE, as opposed to zero theoretical or empirical support, the present Fed members are highly likely to fuck it up spectacularly due to their basic inability to make accurate economic forecasts.
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I agree with the forecast thing. The Fed was boasting for having a better track record of forecasting compared to private firms for many years but it seems that it was an illusion created by being consistently optimistic during good times. 2008-2009 showed that, so I'm in favor of having the Fed targeting either market inflation expectations or market NGDP expectations

Quote from Ghost of Cutten:
Another immense risk that is being ignored is the dangerous precedent that this sets. Once you accept flat-out debasement of a moderate amount e.g. 10, 20% increase in the money base, there is no qualitative distinction between that and a 100%, 200%, 1000% increase, it is simply a matter of degree. The principle of deliberately debasing the currency has been accepted. Today, we hope, Bernanke and co will not be irresponsible enough to totally destroy the dollar. But what about tomorrow? What if a more lax administration comes in? We've seen such inflationary spirals driven by cynical politicians happen many times before. It is reminiscent of the introduction of an income tax. First it was about 2% on very high incomes (IIRC something like $500k+, and this was 100 years ago when that was a lot of money. At the time, people warned that once introduced, the income tax would creep inexorably higher. Within a mere 3 decades the top rate was around 70%, and nowadays even the working class pay a decent chunk in income tax, in Europe it's even worse. [/B]
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Government mistakes can happen but I can't see no good alternative. To accept the gold standard is to accept a 1930's style period when price instability takes place(and debts are high), which will require government intervention to stop anyway, so might as well keep the government there and try to make the best of it

That said the ECB has a better system to prevent some of the mistakes because the chairman stays for a 1 8y term and then leaves, there is no re appointments involved and incentive for trying to boost employment. The Fed needs to do the same(The Fed president terms are also too long)
 
Buy the rumor, sell the news ... the US 30 year price is now down more than 4 big figures since QE part deux was announced, and now threatens to go lower than early Sept when Ben started this QE nonsense. Is it just me, or was one of the big reasons for QE was to lower long term rates?
 
"Is this the Irish trigger?
November 11, 2010 7:01pmby Emma Saunders | Share
Rumour has it that certain European investors are no longer willing to provide Irish banks with overnight funding. If true, this could trigger the much-discussed bail-out (for it’s unlikely to end in default). A bail-out might still impose losses on bondholders, though, after recent discussions at the EU.

Until now, Ireland didn’t need any extra funding till mid-2011. Shenanigans in the secondary (resale) bond market were troubling, then, but did not need to affect the country’s cost of debt. Just as long as debt auctions took place once things had calmed down.

That reasoning assumed, however, that the Irish state would not need more cash than it had planned. Overnight funding itself might not be the problem - it is only overnight, after all - but it could trigger a liquidity crunch that sees banks come cap in hand to the government. And the government, at the moment, can ill afford to help them."
http://blogs.ft.com/money-supply/2010/11/11/is-this-the-irish-trigger/
 
EU stepping in, naturally. 2& rally in European stock markets in the last couple of hours.

FWIW, Chinese stocks were off 5.2% last night. Its not a lot of fun when the gubmint looks like it might turn off the monetary spigot.
 
Quote from Daal:

Perhaps I shouldn't have used the word rights. Yet there is something wrong if a government willingly chooses a path that would lower net standards of living, a violation of trust maybe a better term
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Only if the government's role is viewed as maximising societal living standards without regard for anything else. No government views that as its sole aim, there are constraints such as not victimizing innocent people (for example, forcing the top 1% of attractive young women into prostitution and letting the public have sex with them for free, would improve living standards for millions). And quite a few political philosophies don't view that as a legitimate aim of government at all. You shouldn't assume that everyone is a blind worshipper of utilitarianism.

Besides, the laissez faire position is that this is only in the short-term, and that longer-term things will be far better off. A bit like a painful bit of medicine that ultimately cures the disease, so to speak. We certainly *know* for an empirical fact that we now have higher debt loads, and currency debasement. It is pure speculation whether these will lead to an ultimately better set of "living standards", or whether we're just copying the mistakes of Japan. The laissez faire approach at least *guarantees* that we wouldn't have huge public debt loads to bail out banks and pursue potentially disastrous policies. We might have had a worse recession, or even a total banking collapse, but the generation that caused it would be the one that suffer the consequences, rather than the younger ones and children unlucky enough to be following. And there is a credible case that either free banking, full-reserve banking, or some "ideal" level of minimum reserve ratios would avoid the entire problem in the first place. None of which is proposed by Bernanke and co, or even any Keynesian at all as far as I know.

Also, regarding this whole "central banks prevent recessions" idea you seem keen on, don't forget that the Great Depression, the 1998 Asia crisis, the 1990s lost decade in Japan as well as the crash of 2008 - some of the worst economic busts of all time - all happened under central banking systems. Your analysis seems to overlook this fact.
 
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