G'day Alex and Michael,
> Wouldn't it be fair to say that the United States is on relatively
> thin ice with respect to maintaining both financial stability and > aggregate
>demand.
What stability, Michael? We're seeing sustained and careering growth in
credit, but that might just be precisely one half of the instability scenario.
Sure, a decade or two of consistent growth looks stable, but so does the San
Andreas Fault.
Methinks today's stats might be significant. They'll show Big Al how much
room for manouvre he'll have, and the futures this morning indicate many
institutions don't think that's gonna be very much.
> Alex comment:
>
> Another way of looking at it is to think that financial systems are
> inherently unstable (Minsky).
PrudentBear's Doug Noland quotes the likes of G Haberler and RG Hawtrey to
make the same point. On their account, the huge credit boom is precisely the
sort of wild swing of which we're shortly going to see the opposite. Quoth
Hawtrey: "The upswing of the trade cycle is brought about by an expansion of
credit and lasts so long as the credit expansion goes on or, at least, is not
followed by a credit contraction. A credit expansion is brought about by the
banks through the easing of conditions under which loans are granted to the
customer. Prosperity comes to an end when credit expansion is
discontinued. Since the process of expansion, after it has been allowed to
gain a certain speed, can be stopped only by a jolt, there is always the
danger that expansion will be not merely stopped but reversed, and will be
followed by a process of contraction which is itself cumulative".
Well, all I can say is, if they're the ingredients for instability, the dish
is ready for the table.
> And that (perhaps) a way to attenuate
> cyclical crushes of the size and periodicity we are witnessing at > present times
>would be to allow for a (relative) degree of financial > repression (or at least
>international co-ordination) and regulation. > (Aggregate demand is necessary anyway,
>all the time, for an economy, > global or local, to grow).
Yeah, but an institutionalist might point out there's nothing in the mix
(other than the possibility of a depression-inducing credit crunch and
associated public relations disaster, of course) which looks up to threatening
the autonomy of a rampant finance sector. Every time there's a
people-destroying 'hiccough', it's always because the system ain't deregulated
enough ...
> What Bretton Woods institutions and
> the like aim at is 'correcting' mismanagement, corruption, etc.; not > necessarily
>'keeping a tight rein' on (the possibilities for > accumulation of) the
>financial system (nowadays called 'global > financial architecture). As a
>result of these tendencies, governments > are left with less instruments to manage,
>control, monitor, whatever, > policies. And consequently, the "closure" of the model
>seems to be > 'to smash labor' (as Michael put it). Both in times of 'prosperity',
>> in order to prevent a crisis, and in times of 'instability',
> in order to come out of a crisis.
Agreed again; but there's been a massive public awakening in train for a
couple of years now, and capital ain't about to get its own way with stuff
people can grasp. Like jobs, wages, and conditions. Politics is back - and
it's not happy ...
Cheers,
Rob.
