Huge doubts cast over Coalition's 'cheaper' NBN alternative

[nonrecourse]

I know you know what 'too big too fail' is. Who do you think creates this situation, the market our the Govt?

The answer is the Govt, by it's implicit guarantee to bail out financial behemoths. If the Govt refused to do such things, 'too big to fail' would not exist.

Sure it would.

Those U.S. banks weren't actually "too big to fail" they were "too big for any sane person with influence to allow to fail". Letting those banks go under was always an option, but the cost to the rest of the country would be that the United States would plummet into a depression worse than the one in the 1930s and take a large part of the rest of the world down with it. That's why the (U.S.) Federal Deposit Insurance Corporation was created after the 1929 crash - sure you could allow banks to just fail but standing by and letting it happen means things get really messed up and way out of proportion to the actual failures themselves.

Ultimately, the huge cost to the U.S. of bailing out those banks was still less than the cost of letting them fail.

The crux of this argument is still the difference between a centrally managed economy vs. the natural selection processes of the market (and its participants).

Sure, but remember it's not a binary option. Government can still guide the direction of an economy without actively intervening in particular aspects of it and businesses can still fail perfectly well by themselves.

Without something to provide a counter-balance to the market, it's very nature means that it behaves like a manic depressive going through phases of exhilarating highs and soul crushing lows. It isn't really hard to see why individuals with bipolar often get counselling and medication to prevent the swings from being so wild.

Not so sure. Have a look at where Iceland is today. They thumbed their noses at the banksters and refused to socialize the private debt. The E.U. said they wouldn't trade or have anything to do with them if they didn't bail out the banksters....

What happened ? You don't hear much about it but I can guarantee unlike the Irish, Spaniards, Greeks and the rest the poor in Iceland are not paying for the thieves to sit in their Ivy towers lecturing the masses

Kind Regards
non recourse

 

[Nugget]

I know you know what 'too big too fail' is. Who do you think creates this situation, the market our the Govt?

The answer is the Govt, by it's implicit guarantee to bail out financial behemoths. If the Govt refused to do such things, 'too big to fail' would not exist.

Sure it would.

Those U.S. banks weren't actually "too big to fail" they were "too big for any sane person with influence to allow to fail". Letting those banks go under was always an option, but the cost to the rest of the country would be that the United States would plummet into a depression worse than the one in the 1930s and take a large part of the rest of the world down with it. That's why the (U.S.) Federal Deposit Insurance Corporation was created after the 1929 crash - sure you could allow banks to just fail but standing by and letting it happen means things get really messed up and way out of proportion to the actual failures themselves.

Ultimately, the huge cost to the U.S. of bailing out those banks was still less than the cost of letting them fail.

The crux of this argument is still the difference between a centrally managed economy vs. the natural selection processes of the market (and its participants).

Sure, but remember it's not a binary option. Government can still guide the direction of an economy without actively intervening in particular aspects of it and businesses can still fail perfectly well by themselves.

Without something to provide a counter-balance to the market, it's very nature means that it behaves like a manic depressive going through phases of exhilarating highs and soul crushing lows. It isn't really hard to see why individuals with bipolar often get counselling and medication to prevent the swings from being so wild.

Not so sure. Have a look at where Iceland is today. They thumbed their noses at the banksters and refused to socialize the private debt. The E.U. said they wouldn't trade or have anything to do with them if they didn't bail out the banksters....

What happened ? You don't hear much about it but I can guarantee unlike the Irish, Spaniards, Greeks and the rest the poor in Iceland are not paying for the thieves to sit in their Ivy towers lecturing the masses

Kind Regards
non recourse

[youtube]http://www.youtube.com/watch?v=uyxzg58JkYI[/youtube]

 

[Big A.D.]

Not so sure. Have a look at where Iceland is today. They thumbed their noses at the banksters and refused to socialize the private debt. The E.U. said they wouldn't trade or have anything to do with them if they didn't bail out the banksters....

What happened ? You don't hear much about it but I can guarantee unlike the Irish, Spaniards, Greeks and the rest the poor in Iceland are not paying for the thieves to sit in their Ivy towers lecturing the masses

The Icelandic situation is very interesting because all the way through the crisis, the government make looking after the Icelandic people rather than the market it's top priority.

They nationalised the local banks, put a firewall around them and let the foreign subsidiaries go bust. People outside of Iceland collectively lost something like US$80 billion in the process, but the Icelandic government told them to get stuffed anyway because with a population smaller than Canberra's they couldn't afford to bail out foreigners even if they wanted to.

Also remember that there were huge protests in Iceland at the time about how the government had failed in it's job to regulate the markets effectively and allowed the bankers to...do what bankers do when you don't regulate them.

I don't think anyone would say the same process could be replicated in the U.S.

 

[CriticalSilver]

Iceland is a case of being so small the people can directly regulate the regulators. Not so elsewhere.

 

[AngloSaxon]

^ Are you referring to the repeal of Glass-Steagall?

http://en.wikipedia.org/wiki/Glass–...80.9Crepeal.E2.80.9D_and_the_financial_crisis

Hmm that has a role but I was referring to the Community Reinvestment Act, and the roles of government banks Fannie Mae and Freddie Mac. Unfortunately the best and worst source of info on that is on Youtube. I looked at what was there on Wikipedia and that has been sanitised to only include about 2 paragraphs of useful information.

 

[Dogmatix]

I know you know what 'too big too fail' is. Who do you think creates this situation, the market our the Govt?

The answer is the Govt, by it's implicit guarantee to bail out financial behemoths. If the Govt refused to do such things, 'too big to fail' would not exist.

Sure it would.

Those U.S. banks weren't actually "too big to fail" they were "too big for any sane person with influence to allow to fail". Letting those banks go under was always an option, but the cost to the rest of the country would be that the United States would plummet into a depression worse than the one in the 1930s and take a large part of the rest of the world down with it. That's why the (U.S.) Federal Deposit Insurance Corporation was created after the 1929 crash - sure you could allow banks to just fail but standing by and letting it happen means things get really messed up and way out of proportion to the actual failures themselves.

Ultimately, the huge cost to the U.S. of bailing out those banks was still less than the cost of letting them fail.

The crux of this argument is still the difference between a centrally managed economy vs. the natural selection processes of the market (and its participants).

Sure, but remember it's not a binary option. Government can still guide the direction of an economy without actively intervening in particular aspects of it and businesses can still fail perfectly well by themselves.

Without something to provide a counter-balance to the market, it's very nature means that it behaves like a manic depressive going through phases of exhilarating highs and soul crushing lows. It isn't really hard to see why individuals with bipolar often get counselling and medication to prevent the swings from being so wild.

Thanks for your response(s) but at this point in time I don't have anything more to contribute (we'd go around in circles forever).

 

[Shaddam IV]

A good idea badly planned and implemented is not much better than a bad idea. Story of this government's history.

 

[DanDee]

Zombies in the Preparedness and Sustainable Living thread. ZOMBIES!!!

 

[bordsilver]

I've been happily sitting on the sidelines of this stimulus debate (partly because of work commitments but principally because Dogmatix has been doing a good job).

There are a few points that I think are important to remember about the "irrational exuberance" of the private sector, who's really to blame and the role of the government in creating and "fixing".

First, the basic essence of capitalism is that a stable, reliable system of appropriately enforced private property rights and freedom to develop and invest in and benefit from your ideas creates incentives for people to innovate and become more efficient. Many of the lower cost innovations are invested in by the direct savings of the people or company that have the ideas. Increasingly, innovations require significant levels of investment (i.e. capital) as many efficiencies are gained from the use of machines to replace labour. These large investments require a large bunch of savers (capitalists) to pass their money to entrepreneurs with the expectation (hope) that the resulting innovations will be able to produce more output for less inputs thereby allowing the economy to expand (i.e. produce more stuff for consumption from less scarce inputs).

Importantly, the savers/capitalists are foregoing current consumption for a future anticipated profit and their willingness to do this is critically dependent on the time cost of money (plus other a few other factors, of course). Obviously everyone's time cost of money (and risk tolerance) is different hence there are naturally a suite of required rates of return with active bidding between the demand and supply of the savings creating temporarily stable time costs for similar assets/investments.

All this leads to the basic point that interest rates and money supply are the beating heart of the capitalist system. (Enough egg sucking lessons, but it's important we have the same starting point.)

Second, the system we have now (thanks to government regulations and laws) puts an enormous amount of power into a group of 12 people sitting in a single room in a single building in a single city once every six weeks or so namely, the Federal Open Market Committee (FOMC) in an economy that represents around 20-25% of the world's economic output. [Added to the FOMC are a handful of other groups of 12 sitting in rooms around the world.] These guys arbitrarily set a key interest rate target (usually in magical 0.25 per cent increments) that fundamentally influences all other interest rates around the world.

This is the exact opposite of a free market and is 100% central planning.

Third, as we all know the legal tender laws prohibit competition in the supply of currency different to those forced on the citizens within each economic jurisdiction (just ask Bernard von NotHaus). Hence, the centrally supplied currency is the staple that the capitalist system is forced to live on (i.e. no free market here either).

Fourth, as discussed in various other threads, the commercial banking laws which have completely different legal definitions of what constitutes fraud and counterfeiting compared to any individual or other industry, artificially creates a system of cronies who are fundamentally dependent on the regulations for their existence and their allowable activities in further distorting and debasing the true money supply. These cronies are the standard channel by which the central banks affect their control but the way they do it is by debt. Using the term "debt" reflects the fact that virtually all new money is currently created by people or businesses or governments further indebting themselves to banks. More insidiously, the FRB-system means that the money supply is endogenous in that it is flexible and expands in parallel with the demand for debt and stalls or contracts when demand for debt declines.

In summary, while there "looks" to be a free, highly competitive financial market, in reality it is a complete fiction and it is principally centrally planned with a range of government-created complicit cronies (who benefit financially) essential to its continued acceptance by obfuscation. The supply of currency is not free and is centrally controlled. The interest rates which heavily influence investment decisions are fundamentally centrally controlled. Both are heavily influenced by a bunch of crony capitalists that act to further influence nearly every aspect of money supply and price in every persons life.

As mentioned at the start, these factors are at the very heart of free market capitalism and any consequences need to be placed at the feet of central planning statists and not blamed on an "exuberant/irrational" free market.
<Will try to add more later>

 

[bordsilver]

Realised a good way to support Dogmatix's arguments is to simply point to an episode in history where the opposite of the policies that Big A.D.'s advocating was done and succeeded as per standard Austrian economic theory. This example is the 1920-21 depression (note, a depression not a recession).

[youtube]http://www.youtube.com/watch?v=czcUmnsprQI[/youtube]

In summary, in the US, the first year of the depression in 1920 was worse than the first year of the Great Depression. What did President Harding's government do? [At 7:45 in the video]:

- They cut the Government budget (from $6.3 billion in 1920 to $5.0b in 1921 down to $3.2 in 1922). This included cutting income taxes (top rate fell from 75% to 25%, for example). Repayment of national debt with the total reducing by around 1/3 in 1920's.
- The Fed was largely passive during the period. For example, they did not begin engaging in open market operations until 1922. Consequently there was NO monetary policy interference.
- The result is by the summer of 1921 we already see the beginnings of a turn around and a robust recovery beginning.

Consequently "Despite the absence of a stimulative policy environment the economy rebounded quickly and entered a period of quite vigorous growth."

In contrast, Japan did the exact opposite in 1920 and they experienced a chronic industrial stagnation and a prolonged depression lasting seven years. By the end in 1927 Japan had a banking crisis of such severity that many bank systems went down along with many industries. [See approx. 27:00]

A decent analogy for the "benefits" of a recession versus the continued malinvestment encouraged from counter cyclical spending (and monetary policy) is provided using a "Master Builder" analogy starting at approx. 32:45.


[Edit: Hawkeye: I thought of you when I heard the ending @43:45min.]

 

[hawkeye]

[Edit: Hawkeye: I thought of you when I heard the ending @43:45min.]

I'm a big fan of Tom Woods. Great writer and one of the best speakers out there. Most ideas I put forth in this forum aren't my own and are basically what I've filtered out from other people and merged into my own view. So in reality, I remind you of them since they had the idea first, rather than the other way round. But hey, we're all standing on the shoulders of giants, so to speak.

 

[bordsilver]

I'm a big fan of Tom Woods. Great writer and one of the best speakers out there.

+1. I was very disappointed when I ran out of his old videos to watch and audio to listen to about 4 or 5 months ago. He was my favourite lunchtime entertainment/education (educainment?).

 

[bordsilver]

Not that it's needed but here is a discussion of a couple of academic studies of the impact of the $900 cash handouts in Australia. Evidence shows policy of giving people cash in the hand (and a debt in their bank account) has no stimulatory benefit :lol:

David Sinclair article

Judith Sloan article

The main result of the ANU paper is summarised by the authors in the following way: "The household consumption response to the bonus payment is insignificant. It is also quantitatively small.

We have to get people spending and if we give them $900 they'll rush out during a seven week period and blow $50.

 

[Dogmatix]

^ nice

 

[Shaddam IV]

Many smart people paid down credit cards and other debt with it so it was pointless as far as economic stimulus goes.

 

[Dwayne]

Many smart people paid down credit cards and other debt with it so it was pointless as far as economic stimulus goes.

Even paying down debt is going to eventually cause some stimulus - people with no debt are more likely to go out and spend again down the track.

Short term though you're right, however short-term thinking is what has gotten everybody into this mess in the first place.

 

[Shaddam IV]

It was also a clever way to get a lot of people to lodge outstanding tax returns before the deadline.