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icopter drop that missed its target all this is far from the helicopter drop proposed by ben bernanke in 2002 as a quick fix for deflation he told the japanese the u s government has a technology called a printing press or today its electronic equivalent that allows it to produce as many u s dollars as it wishes at essentially no cost later in the speech he discussed a money financed tax cut which he said was essentially equivalent to milton friedman s famous helicopter drop of money deflation could be cured said professor friedman simply by dropping money from helicopters but there has been no cloudburst of money raining down on the people the money has gotten only into the reserve accounts of banks john lounsbury writing in econintersect observes that friedman s idea of a helicopter drop involved debt free money printed by the government and landing in people s bank accounts he foresaw the money entering the economy through bank deposits not through bank reserves the ideas that underlie my thinking are 1 there s too little circulating money relative to gdp and 2 there s too much total debt relative to circulating money the solution to the problem as i see it is to increase the quantity of debt free money in people s bank accounts so i have to say ellen brown has this exactly right quoting or possibly paraphrasing lounsbury further brown writes the helicopters dropped all the money into a hole in the ground excess reserve accounts and very little made its way into the economy yeah that s pretty much exactly the right criticism of monetary policy since the crisis brown goes on to talk of the legal options and how things need to change so that what needs to be done is legal i don t know about any of that i presume she s right that s fine but it s not my focus i focus on what s wrong with the economy and what in the economy must change to fix the problem and i have to say that in this article ellen brown has it exactly right posted by the arthurian at 4 00 am 2 comments sunday december 29 2013 delayed response in comments on mine of 16 november i wrote using credit boosts the economy but it also creates debt and debt tends to undermine the boost using credit to counteract the drag from debt can work but it means an ever bigger new use of credit is required to obtain a boost for the past five years the central objective of the federal reserve has been to get people borrowing again because using credit boosts the economy they seem not to realize that the longer they postpone the payback the bigger the payback must be jim responded what the fed has done is maintain the growth of bank deposits in spite of the fact that there has been no growth in bank loans apparently bank loans are not the only way to create deposits it also appears to me that the fed s influence on interest is not the only influence it has on bank lending the fed has considerable regulatory powers to ensure banks make safe and sound loans i m not seeing any evidence of loose policy in this area all that makes me wonder how you came up with the notion that the fed s entire focus has been to get people borrowing again well the above comes to mind because i m reading ellen brown s amend the fed we need a central bank that serves main street brown writes at an imf conference on november 8 2013 former treasury secretary larry summers suggested that since near zero interest rates were not adequately promoting people to borrow and spend it might now be necessary to set interest at below zero this idea was lauded and expanded upon by other ivory tower inside the box thinkers including paul krugman i don t care about negative interest rates and ivory towers i don t care about paul krugman and larry summers and ellen brown i just want to answer the question how did you come up with the notion that the fed s entire focus has been to get people borrowing again my answer is that people important people say things like near zero interest rates are not adequately promoting people to borrow and spend see posted by the arthurian at 4 00 am 5 comments saturday december 28 2013 potential growth is real we just don t know the number at the case for concerted action ramanan quotes from wage led growth by marc lavoie and engelbert stockhammer a standard objection to the consideration of the underconsumption thesis or the consideration of problems related to the lack of effective demand is that long run growth the trend rate of growth also called the potential growth or the natural rate of growth is ultimately determined by supply side factors yet since the advent of the global financial crisis government agencies and central banks in many industrialized countries have lowered their forecasts of long run real growth thus demonstrating clearly that weak aggregate demand does have an impact on potential growth but a forecast of long run real growth is not the same as potential growth the lowering of forecasts does not demonstrate that weak aggregate demand has an impact on potential growth it only demonstrates that forecasters are willing to contradict their own theories in order to push their predictions down where the actual numbers turn out to be posted by the arthurian at 4 00 am 1 comments friday december 27 2013 i don t so much like the wealth income disparity is the cause of our troubles argument i don t so much like the wealth income disparity is the cause of our troubles argument bring it up and somebody is bound to accuse you of stirring up class warfare you re not of course or i don t know maybe you are i do know that i can make the disparity argument without a trace of class concern so you can too i m sure but it doesn t matter if our motives are pure it only matters if our motives have been impugned bring up the disparity argument and your motives are sure to be impugned so i don t like the argument i avoid the argument for me though it doesn t matter so much how other people respond what matters is how the argument holds up in my own mind here again though i avoid the argument for i am not certain i can separate the economics of the disparity argument from the social aspects of that argument and economics my economics has no social aspects at the businomics blog bill conerly asks should economists talk about redistribution an economist has as much right to express statements about value as anyone else does however the economist is not doing so from a position of professional expertise rebecca blank being an expert on poverty does not mean that she is an expert on the morality of using force to solve social problems in fact i doubt that we should grant anyone expert status on such philosophical positions i like that a lot but this next quote i can disagree with economic policy cannot derive strictly from economics economics is a set of if then statements if this occurs then that happens it s a collection of statements about the way the world works or at least a world of people there is nothing within the body of economic thought that by itself dictates what policy is best i don t know if it s within the body of economic thought but clearly the policy that s best is the one that sustains life as we know it or life as we knew it before things started going bad let too few people accumulate too much wealth and they come to have a new vision of the world a vision in which nation states are no longer necessary posted by the arthurian at 4 00 am 0 comments labels cycle of civilization thursday december 26 2013 a simple subtraction subtract consumer debt from gdp graph 1 gdp less consumer debt i know it s a flow minus a stock a flow minus a stock but i m not drawing any conclusions here except it s a surprising picture same graph but log of values graph 2 natural log of gdp less consumer debt how straight those trends are posted by the arthurian at 4 00 am 0 comments wednesday december 25 2013 speaking of models via bill c at twenty cent paradigms the reserve bank of new zealand has a neat animation of bill phillips famous hydraulic computer which illustrates the stocks and flows of national income with tubes tanks and gurgling noises go there scroll down and click turn it on give it a moment an image of the moniac will appear click turn it on you can hover over parts of the machine and descriptions will pop up find options buttons in the upper right corner merry christmas posted by the arthurian at 4 00 am 5 comments tuesday december 24 2013 dirk ehnts and the holodeck dirk ehnts in models as abstractions of the real world are useful a student explaining why abstract models are useful makes a very nice analogy if you want to go from one campus of the berlin school of economics to the other by car or public transport then you need not a description of the world as it is but a description of the world in an abstract form that allows you to get there a map you need a map ehnts gets to the point the same goes for macroeconomics it is not necessary to understand and know how every entity behaves you can use abstractions and you will be fine income gdp equals consumption investment government spending and net exports and maybe this is all you need to figure out how to go from weak economy to strong economy maybe that s all you need ehnts says i can t believe he says it we had that formula didn t we before the crisis and the great recession i m sure we had it then but it didn t prevent the crisis and it didn t prevent the great recession apparently it wasn t all we needed in star trek next generation when they had a problem they couldn t figure out they d take it to the holodeck and run a simulation as a fan i was supposed to believe the computer could figure out things the people couldn t i never bought that the computer only does what you tell it if you write an economic model for the holodeck based on y c i g nx then the holodeck economy will be based on consumption and investment and government spending and net exports but if the real economy is based on a different formula your model won t model the real economy you might as well use a road map without intersections no no that map might still get you where you want to be maybe if economists focused less on the models and more on the economy they would figure out how the economy really works maybe then they wouldn t leave private debt and credit use out of their calculations posted by the arthurian at 4 00 am 1 comments monday december 23 2013 following up on saturday i showed consumer debt on a log scale it showed pretty much a straight line increase then i said the log scale graph provided no context for consumer debt and that in context the graph would show much less of a straight line increase so i showed a graph of consumer debt relative to gdp consumer debt in context and sure enough the graph showed much less of a straight line increase something s been bothering me for two days now i remember stuart staniford saying it s hard to read changes in small growth rates on a log graph and i m concerned that my first graph hides changes because it s a log graph i m concerned that my second graph shows much more deviation from the straight line increase because it s not a log graph so i went back to fred and looked at consumer debt on a log scale again and this time i put consumer debt relative to gdp on the same graph and i made sure to show the log values of the second line this time graph 1 consumer debt on a log scale blue and log of the consumer debt to gdp ratio red consumer debt on a log scale shows a straight line increase consumer debt in the context of gdp does not show a straight line increase and this is true even when log values are shown so yes consumer debt relative to gdp fails to show the straight line increase because of the context variable because of gdp it s the context that distorts the picture at fred when you have the ratio of two series you cannot show the values on a log scale to get the same effect you have to take the log of the values i m not sure why that is really but i did look into it the two methods are equivalent posted by the arthurian at 4 00 am 1 comments sunday december 22 2013 impressions consumer debt relative to total credit market debt graph 1 consumer debt relative to total credit market debt gross federal debt relative to total credit market debt graph 2 gross federal debt relative to total credit market debt financial debt relative to total credit market debt graph 3 financial debt relative to total credit market debt posted by the arthurian at 4 00 am 0 comments saturday december 21 2013 between the surges yesterday i said it s obvious from the up trend on the graph that debt was a developing problem already in the 1950s graph 1 consumer debt on a log scale what i meant was if debt became a problem because debt got so big then the problem arose not after debt got big but when the increase first started it s obvious i think see that flat spot in the recent years in the upper right corner of graph 1 that s when the growth of debt finally slowed that s when people decided they had enough it caused quite a disturbance in the economy that slowing of debt growth here s how it looks to me the debt growth slowdown created big problems because debt plays such a big role in the economy i don t know the numbers but suppose 80 of our spending involves debt now imagine that the debt growth slowdown happened much earlier instead in the 1960s maybe when perhaps only 20 of our spending involved debt the effect of the debt growth slowdown would have been much less it s obvious i think graph 1 shows consumer debt the log of consumer debt it shows no ratio it provides no context for the debt in context there would be more variation in the uptrend it wouldn t just go up and up in context it looks like this graph 2 consumer debt in context relative to the size of the economy it s not just up and up on graph 2 it s up and down and wiggle around that s true but you know graph 1 shows a pretty consistent up trend and graph 1 doesn t show anything but consumer debt it shows consumer debt and you can see a consistent up trend in that debt graph 2 doesn t show the same uptrend but graph 2 doesn t only show consumer debt it also shows the size of the economy as given by gdp and you know if consumer debt shows a consistent uptrend and consumer debt in context does not then maybe the disturbance of the trend comes from the context data not from the consumer debt data the changes in gdp throw off the ratio and make it look like consumer debt doesn t have a consistent up trend but it s gdp that s throwing it off it s the context that distorts the picture it s obvious i think scott sumner looked at a graph like my 2 here a while back here s what he said about the graph what do you see i suppose it s in the eye of the beholder but i see three big debt surges 1952 64 1984 91 and 2000 08 okay but remember he s looking at a disturbance imposed on the up trend by a context variable if you look at the same data ...
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