Archive for April, 2011

I’ve always found Robert Skildelsky to be a very clear exponent of Keynesian ideas. Here’s a video of him discussing some of the most important aspects of the current crisis. Keep an eye out for Part II as well — if I remember I’ll update this post when it comes out.

And speaking of Keynesians, while unrelated I might as well point out that New Deal 2.0 organised an interesting conference on the future of the Federal Reserve — which included well-known speaker Joseph Stiglitz. The future of the Federal Reserve is important for those of us even outside America. The Fed control the money and if any serious Keynesian program were to be run in the US the Fed would surely be front and center. So, why does this matter for us non-Yanks? Well, Federal Reserve policy is echoed by central banks across the world — you can bet that if the Fed changed its policy, or even its discourse, other central bankers would open their ears.

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Adam Curtis has released a trailer for his new film ‘All Watched Over By Machines of Loving Grace’ — which can be seen here.

The film is set to be released next month on BBC2.

Curtis, of course, is — together with Errol Morris — one of the two best documentary filmmakers, if not filmmakers generally, of our generation. So, while you wait on his new film offering with the most baited of breath I suggest you familarise yourself with his archives — linkage can be found here.

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Let me start by answering the question posed. Yes — there is almost certainly a serious bubble inflating in the gold markets.

Now let’s step back a moment and take note of the irony of this. Why did this bubble inflate — or, more precisely, what actions set the stage for the inflation of a bubble? Well, it would seem that ‘gold bugs’ are two a penny these days. People don’t understand how modern monetary systems work — and, since ignorance invariably breeds fear, a lot of people are spooked in these days of QE and large government deficits.

This flight into the gold markets was originally undertaken by the fearful, the cautious and the confused. And this is where the irony comes in. This flight by those hard-headed folk who think they ‘know better’, has now led  investors seeking profits to bump up the prices of gold (and silver). The gains are record-breaking — gold hit $1,500 the other day — and the rhetoric is absolutely typical of a bubble. Consider the following, from a Guardian article the other day:

Jollie believes the silver price is unsustainable in the longer term, but says it’s possible the price could first exceed $50 if the speculation continues.

You can almost see the investors rubbing their palms. Hence, the irony. People in search of a safe haven have, by their actions, led to the inflation of a bubble. And if we take the last major historical example of a bubble inflating in the gold markets — that of 1980 — we can see just how quickly gold prices can come crashing down to earth:

See the spike that took place at the time of the Afghanistan war (the Soviet one…)? Now do you see how quickly the bubble crashed out? That’s right it topped off at over $800 — and quickly saw its value plummet to just $500. Ouch! I’ll bet some of the more zealous investors got their fingers burned in that particular venture.

So, will this bubble continue? It may. The fears that led to this bubble are all based on the unfounded — yet very real — anxiety that most have about almost all of today’s world currencies. People seem to think that all high government debts and QE policies are going to lead to the apocalypse — they won’t, but that doesn’t matter, the perception is there. In the near future these debt-burdens will not decrease — indeed, there’s every chance that even if these countries impose austerity programs on their populations, the deficits will either grow or remain the same due to ‘automatic stabalisers‘ kicking in. This will ensure that the gold bugs will continue to think that gold is the only ‘real’ store of value.

However, if there are investors piling into the market, this may take the shape of a classic bubble. So — as happens in a Ponzi scheme — when there are no more people available to get in on the action the price will stop rising. A slight decline will then take place. And, finally, a rush to sell and a major crash in prices.

The irony of this is far from slight. In their delirium and lack of understanding, those in search of a mythical ‘permanent store of value’ are, in fact, giving rise to ever more ‘value disequilibrium’. A holy man once said: “Forgive them, for they know not what they do.” Amen to that.

UPDATE: Here’s an excellent historical survey of the gold price hike and subsequent crash in 1980. The author’s survey strongly supports the thesis that gold prices — like those of any commodity — can be extremely volatile.

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Food prices are exploding due, in large measure, to speculation

Here’s a fantastically in depth interview with UN Chief Economist Jomo Kwame Sundaram. He talks about a variety of topics — including speculation and its effects on the price off food; a topic that is chronically under-reported in the mainstream press.

He also talks about the need for greater cooperation in areas of global economic policy. It should be pointed out that Mark Weisbrot ran an article on a similar topic in The Guardian the other day, where he discussed how the IMF’s rhetoric is gradually changing — or, should I say, coming into line with reality — but that institutional constraints are ensuring that the same old self-destructive policies are still being pushed.

Oh, and completely unrelated — this wonderful painting won the Bald Archy prize. Just a reminder that there is justice in the world.

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"Thanks a lot government... You've ruined my life! I'm running away from home!"

Well, there we are. Over 1m under-24s are soon to be officially unemployed in Britain.

Youth unemployment is expected to reach a record high of close to 1 million – one in five 16 to 24-year-olds – when the latest jobless figures are released at 9.30am on Wednesday.

The Anglo-Saxon economies seem intent on keeping unemployment high to, erm, facilitate economic recovery. Sound silly? Well, it is. The people running these economies are being extraordinarily irrational. They’re expecting an economic recovery to simply appear out of thin air. It won’t. Instead, we’ll have persistent stagnation in most of these economies — and depressions in some, like Ireland — until different policies are pursued.

Meanwhile, most lobbying groups will continue to support these governments in their actions. Small business owners and irritating pundits who think they know something about economics will continue to praise government spending cuts as ‘necessary’.

And what about the opposition? Well, Britain has certainly been showing signs that the opposition might be on the counterattack. With Lib-Dem leader Nick Clegg being debased by his erstwhile supporters daily due to his opportunistic support of the cuts and huge rallies taking place in London, Britain might be able to pull itself out of the swamp — provided they hire some decent economic advisers… which aren’t the easiest creatures to come by these days.

In Ireland and the US the opposition is already in power — and they stink. The Democrats in the US and the Fine Gael/Labour coalition in Ireland feed their voters more of the same scaredy-cat centre-left bullshit while the economic situation deteriorates and outside forces — the Republicans in the US and the Euroboys in Ireland — push for heavier and heavier penalties and increased economic destruction.

Meanwhile, the emigration prospects for Irish kiddies’ dwindles by the day. In Iceland, on the other hand — where the population actually appear to give a damn and the democratic system still seems functional — has begun the process of casting off their debt.

So, maybe we should just move to Iceland. Well, unfortunately Iceland have some of the strictest immigration laws in the Western world. Oh well.

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I thought this was one of the best videos I’ve seen on the situation facing the world economy today. The interviewee, Bill Janeway, is spot on the money: a strange irrational fringe group has gained sway over the current debates in London and Washington. “Practicality be damned,” say these whimsical ideologues. “Nothing will stop us trying to impose our dreams upon the world.”

As for countries like Ireland — well, they’re taking the advice of IMF-style institutions which have been run by weird fringe elements for years. Daily I read the latest news from wherever and just wonder… are we really allowing this to happen? Is the media so shallow that it can’t question these policies rationally? Apparently so.

(I disagree with what he says about a few things though — particularly the stuff about the debt ceiling. I reckon that if the US government refused to raise the debt ceiling, the Fed would just create money to fund payments… but he’s right in saying that it would spook the hell out of the markets, which would undoubtedly cause damage in and of itself…)

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Typical financier

Excellent interview with Amar Bhide on how (bad) financiers and (bad) regulators use mystical abstractions to assess risk – and, of course, make loads of megabucks. Bhide talks about how we need to return to a model based on case-by-case judgments rather than relying on tea-leaf reading and wizardry.

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South Korean professor Ha-Joon Chang recently released a book entitled ‘23 Things They Don’t Tell You About Capitalism‘ and while I haven’t read it, I’ve heard good things about Chang’s work generally and this work in particular.

Chang comes from the supposedly outdated ‘institutional’ school of economics. The institutional school – which has its origins in the work of Thorstein Veblen – views the economy as a social whole, complete with power-relations and institutions. Although this blog usually doesn’t explicitly take this viewpoint, the institutional school has, through Veblen and JK Galbraith, had an enormous influence on the way I view economies.

So, it’s only too refreshing to see a popularised book written within this framework – which is certainly the most readable of all the economic schools – gaining good media attention.

The Real News Network are currently running through some of the key points raised in the book. A new section is being published every day on their website. I’ll try to keep this blog updated accordingly.


Part II

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Still smarter than Fine Gael and Labour...

Haven’t been blogging for a while. Sorry about that. Exams are coming up; essays are due – I’ll get back to all this afterwards.

Anyway, I’ve said a few times now that should the government try to reduce the budget deficit they WILL fail. Why – well, I wrote about it here.

So, the proof is just in. I was right. Everyone in Fine Gael-Labour and Europe were wrong.

THE GAP between tax revenues and Government spending soared in the first three months of the year, according to figures released by the Department of Finance yesterday. The quarterly deficit was the second largest on record, at €7.1 billion.

Will this new evidence encourage them to rethink their tactics? Of course not! Neoclassical economics isn’t an evidence based science… duh!

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