Arrived: Halifax figures for July!

Generali

Sir_Humphrey wrote: »

I think the severe contraction of credit was the main cause of the deflation, in the same way that excess credit fuelled the bubble. Mix in the animal spirits of speculators (c) JM Keynes.

But then as a Keynesian sort, I would think that.

TBH I think that both the Keynsians and the Monetarists are right at different times. Look at Zimbabwe and tell me that increasing money supply doesn't cause inflation.

Keynes was a bright lad and the rarest of breeds, an economist that got rich investing using his own theories. In fact with Keynes he made a fortune, lost it and then made it again leading him to say something along the lines of, "Markets can remain irrational longer than you can remain solvent".

dopester

Sir_Humphrey wrote: »

I think the severe contraction of credit was the main cause of the deflation, in the same way that excess credit fuelled the bubble. Mix in the animal spirits of speculators (c) JM Keynes.

But then as a Keynesian sort, I would think that.

No helicopters dropping money are going to help this situation.

Just as some stimulants in small doses make those who use them feel giddy, while larger does are deadly, so there is a point where too much inflation is worse than none at all. If printing more money always made things better, governments at war would not counterfeit one another's currency as an act of economic sabotage.

Hyperinflation is much more common in backward countries that do not borrow in their own currencies. A hyperinflation that would wipe out the bond market is less costly in a country that has no bond market. Backward countries with few financial assets compared to tangible assets permit hyperinflation because they have far less to lose.

This, of course, does not mean there cannot be hyperinflation in rich countries. But it does meant that the economic and political gains of such a policy are likely to be more than cancelled by its high costs.

The notion that easy money is a magic tonic that can counter the forces of contraction is likely to seem more alluring as an argument than proves to be as a fact. In 1929, neither the Federal Reserve nor the Bank of England could overcome the worldwide forces making for contraction by manipulating numbers on their balance sheets.

Contrary to the song and fable Herbert Hoover did not sit on his hands as the economy imploded. He sought vainly to reverse the collapse, using every method available. Hoover organised the equivalent of an eighty-billion-dollar stimulus package in 1994 money.

The Fed immediately dropped the discount rate in 1929 from 6 percent to 5 percent. Within two weeks the rate had been pushed down to 4.5 percent. By March 13 of 1930, it stood at 3.5 percent. In the weeks after the crash, "the system expanded credit enormously." Nonetheless, after the crisis subsided, falling interest rates were not accompanied by a growth of money aggregates.

Following the stock market crash in 1929, currency grew by 16 percent annually until early 1933. This was a contributing factor to the shrinkage of the overall money supply. Deflation happened in spite of the fact the Fed, by the account of its chief economist, "embarked on a policy of easy money which it pursued through the depression."

The Fed kept the monetary base expanding at a 4 percent annual rate from 1929 through 1933, yet the overall money supply collapsed, partly because of the strong public demand for no-leverage money.

The Great Reckoning (1994)

The falling rates of profit have a purging effect; less efficient businesses, which might have been able to survive in the expansion phase, have to close. Only the more progressive firms survive the depression, and in this way this phase of the cycle generates technical and other progress.

-Harold James

The economy works in cycles and waves. Even the human lifespan might be associated with a "long wave". Sometimes we need the downturns to renew.

We've got a generation who were of a mindset that the good times would last forever and their wealth valued in property was permanent and would continue to grow. The excesses gets cleaned out in the downturn, no matter how painful it is, and new fresh opportunities can open in the upturn.

dopester

Sir_Humphrey wrote: »

I think the severe contraction of credit was the main cause of the deflation, in the same way that excess credit fuelled the bubble.

And of course the demand for no-leverage money means banks have to shrink their lending, causing the credit contraction to squeeze tighter.

Generali

dopester wrote: »

And of course the demand for no-leverage money means banks have to shrink their lending, causing the credit contraction to squeeze tighter.

The problem with a credit contraction is it feeds on itself. Lower lending and worsening loan performance leads to reduced bank profits and still lower lending and on it goes.

It's hard to see a simple way out of it.

steadysaver

steadysaver wrote: »

I will go for -1.8% MoM

and a day ending in Y for the release date

Well I was close enough, I got the day right at least. And to think I was going to hazard a guess as to the month, but I would have been WAAAYYY out!!!! :rolleyes:

dopester

Sir_Humphrey wrote: »

I think the severe contraction of credit was the main cause of the deflation, in the same way that excess credit fuelled the bubble. Mix in the animal spirits of speculators (c) JM Keynes.

But then as a Keynesian sort, I would think that.

Lord Keynes also said "even the madmen in authority were the slaves of some defunct economist".

Societies and people generally have a linear view of the world, expecting current conditions to continue for the indefinite future, when we live in a world of non-linearity and of nonlinear transformations.. and forge their expectations and take actions thereof.

The mountains of New Guinea are home to some of the strangest airships in the world. They are the work of natives who wear ornaments, and who stand with one foot in the primitive past. They look out into the world of modern technology, scanning the skies for cargo planes, whose arrival they have expected for up to half a century.

By night, they build bonfires to illuminate runways carved from the jungle. Each strip resembles a World War II airbase, complete with tumble-down hangars, a radio shack, a beacon tower, and even homemade planes, all modelled out of stick, leaves, and bamboo. Anthropologist Marvin Harris explains:

They are expecting the arrival of an important flight: cargo planes filled with canned food, clothing, portable radios, wrist watches, and motorcycles. The planes will be piloted by ancestors who have come back to life. Why the delay? A man goes inside the radio shack and gives instructions into the tin-can microphone. The message goes out over an antenna constructed of string and vines: "Do you read me? Roger and out."

In other words, the natives expect their dead ancestors to fly home and spread around the bounty from a supernatural shopping spree. This is the type of story line you would expect if Stephen King had collaborated with Margaret Mead.

But no one of their imagination was required to concoct the cargo cults. Like primitive peoples everywhere, the cargo cultists held a firm belief "that those who possessed wealth were under the obligation to give it away," wrote Marvin Harris.

The foundation of this primitive egalitarianism is the fact that in primitive conditions everyone has more or else equal physical power. It therefore becomes almost impossible for anyone to obtain more of life's good things than he and his immediate family can effectively protect.

Whenever anyone in a primitive society obtains something desirable, he is obliged to either hide it or give it away. When primitive peoples covet some products they desire, their "common sense" tells them they ought to get these products as a gift. The cargo cults arose spontaneously to express this common conception. This is evident from the many versions of the cargo prophecy.

Anthropologists tell us that the peoples of New Guinea and Melanesia have invented many stories about the mysteries of "cargo" - the products introduced by whites or the Japanese from abroad. Just about the only element these fantasies share, other than their utter misunderstanding of the way industrial society works, is the expectation that someone, man or god, will convey to the natives the products they covet free of charge. Otherwise, you can shop among the cargo prophecies for your choice of comic details.

In the New Hebrides, the local people somehow concluded that a World War II soldier, a certain sergeant of the medical corps, John Frum, was King of America. He would someday dispatch Liberator bombers "with a cargo of milk and ice cream," wrote Marvin Harris.

On the Bismarck Archipelago, an enterprising native in 1968 led his followers to "buy Lyndon Johnson". They intended to "make him king of New Hanover" if he would reveal the secrets of cargo.

At about the same time, a prophet named Yaliwan Mathias convinced his followers that the cargo cornucopia was hidden beneath a large U.S. Air Force survey marker atop Mount Turu. In 1971, he led a group to the site where they eagerly dug up the concrete slab, a back-breaking job. When they could find no cargo, they assumed it was because "the authorities had taken it away."

Among the West Irians, who apparently accepted the argument that industrial products come from factories, prophets forecast that "whole factories and steel mills" would be delivered by cargo ship.

The cargo cultists have generally coveted the most modern products, and even imagined that they would be delivered in the most modern means of conveyance. Yet they resisted modernising their conception of the way the world works, In effect, they wanted a new radio they could wire into a vine.

To the minds of the natives, the products introduced as cargo from abroad were understood in very traditional terms. Like primitive societies generally, the New Guinea cultures were short of scientific explanations and long on magic. A simple way of saying it is that natives operated with a magical rather than mechanical intuition. The wondrous products were seen not as the output of the industrial process, but as the fruit of a secret that, once revealed, would spare them great toil.

It was only with great difficulty that the cargo cultists could be convinced otherwise. The Australian government, which administered New Guinea as a colony until 1975, found to its surprise that even a show-and-tell tour of the Australian factories, mills, and warehouses did not necessarily dispel the fantasy. In one famous case of a cargo prophet named Yali, efforts to confide a modern understanding of production and trade backfired spectacularly. Factories belching smoke were one thing, but they did not answer the natives' long-standing question - why "the white men are hiding the cargo secret."

Attempts by natives of New Guinea and Melanesia to come to grips with changed circumstances were for generations a complete muddle - although they behaved in ways they thought made perfect sense. They diverted much energy carving useless airstrips in the jungle, digging up concrete slabs, and saving to buy Lyndon Johnson.

So long as the natives stuck with the patterns of modern understanding informed by their old cultures, it was almost guaranteed that modern technology would be beyond their comprehension.

In effect, the paradigm or worldview that accompanies a culture is like a software program. It enables people to process information by suggesting an underlying pattern of reality in which information fits together. The inability of the natives to make modern details fit comprehensibly into a Stone Age mindset leads us to some important points - with application far beyond the rain forests of New Guinea or the New Hebrides.

1. What matters most in "making sense" of life is the underlying pattern of reality that people believe exists. Details standing by themselves are usually unintelligible, not just to persons of a Stone Age background, but to anyone.

2. What seems to "make sense" may actually be a delusion arising from a "blind spot" or defect in the local paradigm of understanding.

3. Any mindset will take adequate account of the facts that are relevant in the economic and political setting in which it emerged. Hunters will be alert to details indicating the presence of game. Farmers will distinguish the quality of seed. Industrial mechanics will understand wrenches. But all paradigms are incomplete.

4. Facts that are economic irrelevant and do not fit comfortably into an existing worldwide view or paradigm will generally be misinterpreted or ignored. The ability to remain oblivious to non-essential facts may have helped focus human attention on what was necessary to survive under primeval conditions. They could have been quite important to a species struggling to live by its wits in many different ecological niches.

5. The more primitive the economic conditions under which a culture emerges, the less likely it is to realistically comprehend a broad range of facts.

6. An existing paradigm is seldom dispelled by evidence alone. As Keith Thomas has written, "Such systems of belief possess a resilience which makes them virtually immune to external argument." A people whose culture grossly misinterprets certain facts will not necessarily reason their way to a more encompassing worldview until force to do so by the brunt of economic necessity or military defeat. Reason does not alter values.

7. The tendency to preserve counter-productive and unrealistic worldviews is enhanced when the fantasies they incorporate encourage the redistribution of wealth.

8. During times of trauma, when worldviews are most subject to adjustment, there is a tendency for people to incline to irrational interpretations of events. This leads to two subsidiary observations:

9. In primitive conditions under which human societies emerged, functions now fulfilled by governments and capital markets were handled through religions and taboos. Under such conditions, apparently irrational reactions to stress may have had a survival value by encouraging adherence to new sects or prophecies that helped people overcome common difficulties and took discontinuities into account.

10. Characteristics of the mind that may have helped humans survive - such as the capacity to remain oblivious to previously irrelevant facts and the tendency toward irrationality under stress - may now be liabilities. In a modern setting, economies and political institutions depend upon rational interpretation of rapidly changing facts to function effectively. The comic cargo cult of a primitive society may become a Nazi party when modern society is traumatised.

11. Although it may not be obvious, the example of the cargo cults is another illustration of the pervasive nonlinearity of life.

The Great Reckoning (1994)