Thursday, October 23, 2008

Bailouts won't help; cheap credit won't help

A market watcher who gets it right: Dr. Doom: Bailout Won't Help Markets Much - CNBC

    The $700 billion US financial rescue plan might give the market a temporary boost, but  eventually stocks will fall again, Marc Faber, the analyst know as "Dr. Doom," told CNBC.
    Faber, editor & publisher of “The Gloom, Boom & Doom Report”, said he doesn’t believe that the recent efforts to ease the global credit crisis will help.

He's right.  Market need to correct, not to be meddled with.

    “It will work temporarily in the sense that some confidence is coming back into the market,” Faber said about the bailout plan. “First we’ll get the bounce from an oversold level and I suppose afterwards it will drift because the global economy is decelerating at an unprecedented pace, and the governments in the Western world, they try to reignite credit growth, and I think it will fail.”

It will, for sure. Real credit growth comes from the pool of real savings, not from the central bank's credit spigot.  Turning on the central banks' credit spigot doesn't increase that shrinking pool, it further denudes it -- a fact of which Alan Bollard has just shown himself to be utterly ignorant.

    [Faber] didn’t have anything positive to say about the coordinated moves by foreign countries to inject liquidity in their banks.
   
“In general, I believe market led solutions are better than government interventions and there is no evidence that government interventions bring an improvement,” he said.

None anywhere.  Not one example.  None at all.

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9 Comments:

Anonymous Pique Oil said...

James Kunstler's latest rant, has a fantastic description of the bailout.He describes it as the first part of a Tsunami, where all the monkey people relax and watch the amazing detritus that is exposed when the water recedes. And of course the actual wave is yet to come. www.kunstler.com half way down in the clusterfucknation column.

10/23/2008 09:35:00 am  
Anonymous Falafulu Fisi said...

PC said...
He's right. Market need to correct.

PC, can you explain to LGM, the meaning of what market correction is, since he has questioned the meaning of market equilibrium before on a different thread? I can't explain it better, since I am a mathematician and not an economist which is basically true.

10/23/2008 05:39:00 pm  
Anonymous LGM said...

FF

Do you own dirty work!

How about YOU explain "market equilibrium". If you get that right THEN we can deal with other jargon.

LGM

10/24/2008 06:36:00 am  
Anonymous Falafulu Fisi said...

LGM said...
How about YOU explain "market equilibrium".

I know what it is, and I don't want to waste my time trying to explain a topic that you should have researched & read about, since you're good at advising people here to do a bit of research/reading in whatever topic that you try to educate them on.

Here is a hint for you to start with?

FACTs:
----
- Market prices can't go up & up forever.

- Market prices can't go down & down forever and eventually reaching negative domain.

- Market prices will go up, then become stabilize, aka equilibrium.

- Market prices will go down, then finally stabilize, aka equilibrium.

Remember, that stabilization period could be short term or long term. This wouldn't change the very fact that market is dynamic and always moving towards a stable point (aka, equilibrium). If the movement overshoots the equilibrium point (stable time region), then the correction (market movement) shifts the moving in the opposite way. This process repeats indefinitely, until the second coming of Jesus Christ.

Now, is that easy enough to understand? I hope so.

I have stated a few times before to you on another thread, that equilibrium is a fundamental property of any evolving dynamical system, be it physical (climate, ensemble of particles as in fluid container, etc...), biological (population growth, population migration, etc,...), economics and so forth. Equilibrium takes place in an evolving dynamical system, regardless if the agents in that system are constrained (socialist view) or free (libertarian view). Equilibrium will always exist and this is fact.

If equilibrium doesn't take place in an evolving dynamical system, such as human economy for example, then there wouldn't be any correction (moving towards equilibrium or stable region).

10/24/2008 11:30:00 am  
Anonymous LGM said...

FF

You offer four options for price movement but ignore the real fact of reality- the elephant in the room. In reality prices go up and they go down AND they keep going up and going down. They change. They don't stop changing. The market is ALWAYS changing.

The equilibrium you write of is a phantom- a myth. Similarly, there is no "Mr Equilibrium" in th market. Such an entity does not exist in reality. Never has and never will. It aint real. It's an academic fiction.

The trouble with casual use of these jargon terms is that they tend to disguise and obscure the nature of the actual entities and behaviours that we are interested in understanding (or should be). Such terms allow the smuggling of erroneous concepts and premise; thus best avoided. Better to start from first principles and avoid the jargon until you understand real economics (remember we are not discussing mathematics here). Yes, FF, you need to start doing the research. Read Von Mises and Reisman in order to gain an understanding of the topic BEFORE you pass comment on it.

Cheers

LGM

10/26/2008 09:06:00 am  
Anonymous Falafulu Fisi said...

LGM said...
In reality prices go up and they go down AND they keep going up and going down. They change. They don't stop changing. The market is ALWAYS changing.

Stop wordsmithing. You've just restated what I've said. You've just described what equilibrium is .

LGM said...
The equilibrium you write of is a phantom- a myth.

And your evidence is?
...
...
...
NONE.

Can you point out to any study that corroborates your claim?

LGM said...
Better to start from first principles and avoid the jargon until you understand real economics (remember we are not discussing mathematics here).

Now, go on and state your first principles and all your axioms/hypotheses/postulations? Lets see what you have to come up with. Remember, hand-waving doesn't count (ie, quoting evidence from Reisman, Mises, etc...). You have to state your principles backed up by other independent references.

If you fail to do that, then I am wasting my time to reply to your unfounded/unsubstantiated principles, ie, not worth a reply.

10/26/2008 10:02:00 am  
Anonymous LGM said...

FF

You wrote: "You've just restated what I've said. You've just described what equilibrium is."

That is not correct. My position was that your stable "equilibrium" does not, in fact, exist in reality and that the the term refers to an academic fiction.

You offerred four options for price behaviour.

1/. Prices increase and continue to increase.

2/. Prices decrease and continue to decrease

3/. Prices increase and then stabilise at an "equilibrium".

4/. Prices decrease and then stabilise at an "equilibrium".

According to you options 1 & 2 are not possible but 3 & 4 are real.

Consider those last two again. What you are saying is that prices seek an "equilibrium". After attaining this mythical value there is a finite stabilisation period while prices settle at the "equilibrium."

I pointed out to you that there is another option. That is, that prices continue to alter and always continue to so do. They don't stop altering. That is:

5/. Prices go up and then they go down and then they go up and then they go down etc. That is, they never attain "equilibrium"- not in reality. They change and keep changing. Hence there is no real "equilibrium."

That's quite a different situation from that which you asserted. I certainly did not restate your position.

---
Regarding "market equilibrium", my position is the negative. I am saying that in reality such a thing does not exist.

You are asking me for proof of a negative. Note that the burden of proof falls upon he who asserts the positive. In this instance, that fellow is you. It is up to you to provide the evidence for the existence of "market equilibrium".

---

My premise is that economics is the study of human action. Economics is best understood by considering the nature and attributes of those entities which form that which we call "the market" or the "economy". From that basis it is possible to gain an understanding of the transactions and interactions of those individuals. Building further, it is possible to determine what the results of those activities will be.

There is a reason I cited Reisman and Von Mises as independent references on previous occasions. Those authors offer the clearest expositions of real economics that are available (although for a swift discussion of some basic ideas you'd find Hazlitt's "Economics in one lesson" extremely readable and most helpful). You need to study them.

FF, you are a funny guy! You demand independent citation and reference while simultaneously exclude those very references from discussion. I've recommended you read those authors as that is the best way for you to gain a knowlege of real economics- something that you are presently lacking.

--

Understand this; economics is a social science, not a sub-branch of mathematics. Mathematics is peripheral, not fundamental here.

An analogy: A sane, rational, logical person would not attempt to gain understanding of English literature by reviewing mathematical formulae or models. If fact, he'd not bother with maths at all. He'd read the great books, many of the lesser ones, analyse them, think about the important ideas and values they expressed, research the history, learn about the authors and their lives and times etc. etc. etc. English Literature does not presuppose mathematics. Hence he'd not find knowledge of English Literature by playing with numbers.

Similarly, one does not gain a firm undersanding of the fundamentals of economics by arsing around with mathematical models and abstractions. That's the major point I have been attempting to get across to you.

Think on it.

Regards

LGM

10/27/2008 09:53:00 am  
Anonymous Falafulu Fisi said...

LGM said...
That's quite a different situation from that which you asserted. I certainly did not restate your position.

No, you have exactly restated my position without knowing that you did. This reminded me of an old man in the village, who told his grand kids that his favorite boxer was Ali, the greatest fighter on earth. This old man's neighbor (another oldie) told the grand kids that the greatest fighter on earth was Cassius Clay and not Ali. The 2 oldies ended up having a debate to find out who was right. They even took their debate to the local church on Sunday. The local church minister had to tell them both that in fact the fighter Mohamed Ali and the fighter Cassius Clay are in fact one person. Mohamed Ali was born Cassius Marcellus Clay. The church minister knew more than the other 2 oldies, but both the 2 oldies thought that one of them was right and the other was wrong, without knowing that they were both right, without them knowing.

This is exactly what you're doing here. It is your lack of knowledge of the subject, reverting to hand waving, that you actually restating my position here, and claiming that you didn't. Classic!!!

I suggest you read the following book, which might enlightened you on the subject currently on discussion, because your problem is that you don't understand what equilibrium is.

Foundations of Economic Analysis, Enlarged Edition

If you don't get access to the book, then how about try searching on the topic of "Market Equilibrium", "Economic Equilibrium", "General Dynamic Equilibrium" at this popular online repository:

Social Science Research Network (SSRN)

LGM said...
You are asking me for proof of a negative. It is up to you to provide the evidence for the existence of "market equilibrium".

No, I didn't ask you for a proof of a negative. I asked you to list your so called first principles that you said you would. I haven't seen a list of first principles in your last post. None at all. That means you're evading.

I don't have to prove anything to you. You have to prove that what I am talking about here is bollocks. Your explanation here is laughable.

The book I quoted above will show you what economic equilibrium is. Also there are lots of freely downloadable papers on the subject that you can find at SSRN (see link above), that prove to you that such a thing (equilibrium) exist. I am not the one need proving, it is you who thinks that equilibrium is a myth to prove that it is really a myth. You need to do the proving, and not me.

Equilibrium is an established concept in economics and if you think that you can rewrite the theory of economics, then I am sure that tons of publishers out there would want to publish your debunking of the existence of equilibrium in the market place. May Prentice Hall will publish your book.

LGM said...
My premise is that economics is the study of human action.

Redundant. This has been known for the last 200 years or so.

LGM said...
Economics is best understood by considering the nature and attributes of those entities which form that which we call "the market" or the "economy".

Redundant. That is a fact that is already known.

LGM said...
There is a reason I cited Reisman and Von Mises as independent references on previous occasions. Those authors offer the clearest expositions of real economics that are available (although for a swift discussion of some basic ideas you'd find Hazlitt's "Economics in one lesson" extremely readable and most helpful).

You have failed to cite any publication from Mises/Reisman that debunked the concept of equilibrium. Where is the debunking man? I know the answer. Mises/Reisman never debunked equilibrium. You simply cited their names so that it makes your argument sound credible. How about leave those names aside and come up with your own argument, because I sensed that you muddied their names by somehow trying to mention them in your argument and hope that it will indirectly imply that economic equilibrium is a myth. Nice try, but actually, you must cite of where Mises/Reisman had said that equilibrium is a myth. Don't try to re-interpret Mises/Reisman to fit your pre-conceived idea.

LGM said...
FF, you are a funny guy! You demand independent citation and reference while simultaneously exclude those very references from discussion.

Yes, because your whole world rests primarily on Mises/Reisman/Rand/ and Physicist David Harriman and everyone else outside those heroes of yours are either bullshit or intellectual inferior. Your 4 heroes are always right to you and everyone else is wrong and it is dominant in your debate here at Not PC blog. Just do a Google search on Not PC and you see what I mean.

You challenged SamV on a discussion here (Not PC) and SamV answered your challenge and simply you didn't reply back to Sam. The reason, was that Sam's reply was outside the doctrines of your 4 heroes. Another example was that of B. Hallward who was replying to your post on this thread. Hallward was correct and you were wrong in there. You simply didn't reply, because you knew you that he was right. There are many occasions here at Not PC that I can quote where you have been cornered by other commentators but that would be another post.

LGM said...
Understand this; economics is a social science...

Redundant. That is already known.

LGM said...
...not a sub-branch of mathematics.

So, as Physics. Physics is not a sub-branch of mathematics; however mathematics is useful in physics. Economics is no exceptions. Mathematics is useful in economics but as you said, it is not a sub-brand of mathematics. Equilibrium exists in the market place with or without mathematics to describe it and this is what you fail to see. Mathematics is being used as a tool to further the understanding of those working mechanics of the market/economy.

LGM said...
Mathematics is peripheral, not fundamental here.

I didn't say that mathematics is fundamental. You said it and not me. As I said above, that the mechanics of equilibrium existed even before calculus was invented, even in the biblical stories you can find equilibrium at work. This is the reason I stated in my previous post, that it is a fundamental property of any dynamical system.

LGM said...
I've recommended you read those authors as that is the best way for you to gain a knowlege of real economics- something that you are presently lacking.

No, we argued on equilibrium, which is fundamental and not peripheral. Mathematics is peripheral as you said, but equilibrium is fundamental. This is your misunderstanding, you equate equilibrium to mathematics. Nope, wrong. They are 2 different things.

So, I don't need to read your recommendation to understand equilibrium. It is you who should read about the book I have cited above and also dig around the SSRN website because there are tons of research papers on equilibrium in there that you might enjoy.

10/27/2008 06:51:00 pm  
Anonymous lGM said...

FF

How about reading, thinking about and then addressing what I wrote, not what you'd have liked me to have written?

Oh, and while you're at it, how about re-reading what you actually asked me to do? Why not consider what you actually did write, not what you dream you may have written?

A couple of examples of naughtiness:-

1/. Here is a quote from your last post:

"No, I didn't ask you for a proof of a negative. I asked you to list your so called first principles that you said you would..."

No, that is not correct. I've reviewed the string and I'm sure I never made that promise.

In fact, you are the one who asked this:

"Now, go on and state your first principles and all your axioms/hypotheses/postulations? Lets see what you have to come up with."

Soooooo, either you made a mistake (quoting your own imaginings and attributing them to me) or what you wrote was a common fib.

2/. Another quote from your post:

"You have failed to cite any publication from Mises/Reisman that debunked the concept of equilibrium."

Yet you previously wrote:

"Now, go on and state your first principles and all your axioms/hypotheses/postulations? Lets see what you have to come up with. Remember, hand-waving doesn't count (ie, quoting evidence from Reisman, Mises, etc...). You have to state your principles backed up by other independent references."

First you ask for something, then you pretend to have asked for something else entirely.

First you exclude Reisman, Mises, etc, then you demand reference to them.

Are there two FFs who don't talk to each other?



Anyway, it looks like we are not going to resolve anything. That's too bad.

BTW, just through interest, why is it you are so opposed to reading Reisman or even Von Mises? I'd have thought their work was right up your alley?


LGM

10/28/2008 05:47:00 pm  

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