'The 19th-century economist and social philosopher Henry George developed the theory of the business or trade cycle based on malspeculation in land value, although he did not use that term. Such malspeculation would not occur in a pure free market, thus the “business” cycle should more accurately be called "the interventionist cycle" or "the economic distortion cycle." There are two major interventions that cause malspeculation. First is an injection of money into the banking system, an increase in loanable funds not caused by higher savings but by money expansion. The resultant cheap credit fuels both malinvestment and malspeculation in real estate. When the money injections stop, interest rates rise back up, and such projects and purchases slow down and stop. When land values stop rising, speculators sell, and the fall in land values brings down the financial sector that provided the mortgages. Malspeculation carries land values beyond that warranted by the rents. Henry George called this a lockout of labor and capital. With the use of real estate now unprofitable and unaffordable, land values crash. -- The boom-bust real estate and economic distortion cycles have repeated for that past 200 years, yet the 2008 crash surprised not just malspeculators but also economists, financial analysts, and governmental officials. The reason the cycle recurs is that, as the philosopher Hegel observed, people do not learn from history. Or they learn the wrong lessons. They shun Georgist theory, and thus become mal-economists, mal-financiers, and mal-authorities. Add “malspeculation” to your dictionary. Malspeculation is a vital concept that curiously has not had a name, because the role of land in the boom-bust cycle has not been appreciated. The Crash of 2008 was caused by malspeculation, and so the word will find the light of day.'

'Socio-economics recognizes that the market process includes both competition and cooperation. It encompasses institutions as well as individual behavior, and recognizes sympathy with others as an important human motivator along with self-interest. Socio-economics views rationality more broadly than the narrow rational-expectations approach of neoclassical economics. Socio-economics encompasses both economic reality (positive economics) and social justice (normative economics). The moral dimension of socio-economics is in tune with the geoclassical economics of Henry George, who melded economics and ethics. To George, there is a harmony between morality and economic efficiency, since the policy that maximizes productivity is also morally just. That geoist policy is the full ownership of wages by the worker and the equal distribution of land rent either as dividends or for public revenue. A key interest of socio-economists such as Robert Ashford has been the failure of economics to perform to their maximum productive capacity, with unutilized labor and underutilized land and capital goods. Georgist economics explains why this occurs. Land speculation, pricing land at expected higher future values, prices land too high for current investment, causing investment to slump. Secondly, taxes on labor and enterprise create an excess burden of misallocated resources. Third, central-bank-distorted interest rates create artificial stimuli that create the waste of unprofitable real-estate development. All these distortions prevent the full use of labor and other resources.'

'It is fundamentally a problem of the politicians. They have their 'political philosophies, their 'causes', and their 'departmental interests', an eye on specific sectors of the electorate, and on top of this is simple inertia. That government must do x has become a state of mind, along with the belief that x is an absolute necessity for the government. ...they never do enough to address the problems of their reliance on borrowed money. As I have many times argued in this blog, it is a vicious cycle in which the more a country borrows, the more more the economy is structured to consume the resources of the borrowing, and the more dependent the economy is on ongoing borrowing. Increasing the borrowing sees further restructuring of the economy to service the debt, and reduction in borrowing sees the elements of the economy that are unable to survive without the borrowing exposed to the light of day. Then there is the positive feedback. The more borrowing in the economy, the more activity in the economy, the higher the GDP growth, and the greater the GDP growth, the greater the borrowing as the growth is taken to indicative of an ability to repay the borrowing. The greater the borrowing, the more the economy restructures to service the consumption that originates in the borrowing. And so it goes on.....and this is how we come to the current crisis.'

'On your territory, only you are permitted to produce money. But that is not sufficient. Because as long as money is a regular good that must be expensively produced, there is nothing in it for you except expenses. More importantly, then, you must use your monopoly position in order to lower the production cost and the quality of money as close as possible to zero. Instead of costly quality money such as gold or silver, you must see to it that worthless pieces of paper that can be produced at practically zero cost will become money. Because you can create paper money out of thin air, you can also create credit out of thin air. In fact, because you can create credit out of nothing (without any savings on your part), you can offer loans at cheaper rates than anyone else, even at an interest rate as low as zero (or even at a negative rate). With this ability, not only is your former dependency on banks and the banking industry eliminated; you can, moreover, make banks dependent on you, and you can forge a permanent alliance and complicity between banks and state. You don't even have to become involved in the business of investing the credit yourself. That task, and the risk involved in it, you can safely leave to commercial banks. What you, your central bank, need to do is only this: You create credit out of thin air and then loan this money, at below-market interest rates, to commercial banks. Instead of you paying interest to banks, banks now pay interest to you. And the banks in turn loan out your newly created easy credit to their business friends at somewhat higher but still submarket interest rates (to earn from the interest differential). In addition, to make the banks especially keen on working with you, you may permit the banks to create a certain amount of their own new credit (of checkbook money) in addition and on top of the credit that you have created (fractional-reserve banking).'

'Printing money from nothing is not just corrosive, it has significantly changed the face of modern society, and even the history of the world. It is difficult to imagine our lives without so much monetary stimulation. Probably there would be far fewer wars. And healthier food. And far less drug abuse. Far fewer people in jail and much less poverty. Far fewer dictators and much less torture. Fewer taxes and significantly less inflation. Regulatory authorities and their dictates would not be in vogue. Lawyers would not be in such significant demand. There would be fewer horrible depressions. And the fear-based promotions that the elites rely upon to push Western middle classes toward fuller global governance would not likely be available. Most importantly, the world would not be controlled, at least partially, by a tiny cabal of sociopathic central banking families.'

'If there are no more dustbins of history, this is because History itself has become a dustbin.' -- Jean Baudrillard

'Henceforth, it is the map that precedes the territory – precession of simulacra ...' -- Jean Baudrillard

'Land is a creation of nature, not human action, and its value comes from natural features and the population, commerce, and public works of the community. Land rent is a pure surplus that mother nature offers to us as a gift by which to finance the public goods provided by government. But you have rejected mama’s natural offer. Instead, you, by voting for the status quo governmental chiefs, you attack the earnings of labor, and with that loot, you provide public goods that pump up land rent and land value. Yes, you, the voter! What happens then is that rent absorbs much of the gain from economic expansion and progress. Speculators jump in to leverage profit from the land-value rise. Landowners buy land with borrowed funds, so they engage their partners, the banks and other financiers. Speculation raises land values to peaks unaffordable for actual use, and then land values plunge, and the leveraged mortgages and derivatives crash. That is the source of panics and depressions.'

'There is a structure of capital goods from rapid turnover such as inventory to slowly maturing such as shopping centers. When interest rates are low, there is more investment in the slowly maturing capital goods. An expansion of money temporarily reduces interest rates, leading to more construction and other long-lasting investments, but rising prices later make these turn out to be bad investments. Land speculation sets in to take advantage of rising land prices. High prices and rising interest rates reduce profits, so investment slows down, leading to a recession. To reduce poverty, promote growth and efficiency, and eliminate depressions, eliminate taxation and generate public revenue from land rent and pollution charges. Switch from central banking and government fiat money to gold or private currency, with free-market banking. Free banking and the public collection of rent are the macroeconomic policies that promote smooth growth, full employment, and economic justice.'

'As an economy recovers from a depression, more and more enterprises and households buy and rent real estate. Construction accelerates as rents and land values rise. Speculators then come in to buy real estate, hoping to sell at higher prices later. Much of the gain is not a pure market outcome, but the result of subsidies by government in the form of more streets, schools, and other goods that service commerce and residents, paid for by taxes on labor. The problem is both too much and too little construction. There is too much speculative construction of hotels, office buildings, shopping centers, apartments, and houses, much of this in the wrong places, creating sprawl, as speculators hold off lots from construction pending higher prices and more intensive uses of land. Much of this speculative buying and building is fueled by easy credit as the central bank expands the money supply to stimulate the economy. This expansion of money lowers interest rates...'

'By treating the current, fallacious system as a kind of "gold standard" that cannot be taken down without an attack, one enshrines what is injurious. The conversation moves beyond remedies from reconfiguration to strategic necessities intended to defend what is evidently and obviously the Western economic system. Only it is not. The central bank economic system that has been put in place by the Anglo-American elite is far from a free-market system. It begins by printing money-from-nothing and as this fiat-currency circulates, it begins to inflate various markets, certainly the stock market. It also fools entrepreneurs into thinking times are better than they really are – and thus firms begin to over expand while other companies create trivial or non-essential products that would not have been successful in a less simulative environment. Eventually, the economy, stuffed with paper money, reaches a breaking point... People begin to wake from their Dreamtime at this point...'

'Dominant Social Theme: Invest wisely and well. – Let's try to put this long-running power elite promotion into perspective. We don't agree with the LA Time's perspective (see article excerpt above). It's not nest-egg versus Social Security (which the US cannot afford, especially because there are no SS funds, only fancy IOUs). There is a third way, which is to get rid of central banking entirely and let tortured Western economies gradually deflate. As economies undistort without the endless goad of monetary stimulation, people would gradually begin to be self-sufficient again. Nuclear families would collapse and extended families would reappear; this is the logical solution to old age, not frantic investing leading to the selection of an old-age home where one is likely to be abused before dying. ...the dollar-reserve system died in 2008, along with the popular belief that one could count on "investing" for retirement. It was never a reality; it was fiction.'

'It's one thing to say the poor/uneducated can't find work, it's another thing to say the explicitly desired outcome of this country's social and educational system can't find work. The supply is there; but there's no demand. And there's no demand because there's not enough people who create stuff creating stuff which would justify the other jobs. They never were creating new drugs, they were only creating new markets. ...markets were created to sustain both Lexapro and Zoloft; not one market with two products, but a doubling of the market. In a perfect world, Lexapro wouldn't have been invented, they would have worked on something else. But since they knew they could create a market for "another Zoloft," they took the easy route. And they hired a salesforce, accordingly. While that was good for Lexapro, it's terrible for the country. Temporarily – and ten years is temporary – hiring all these people to essentially duplicate efforts catabolizes resources from other industries.'

'The banking industry simply remains cocooned inside the world's biggest bubble. Central banking itself is a bubble though people don't think of it that way, but those who print the money decide which industries expand—and no self-respecting central banker is going to let the central-bank distribution system (commercial banks) deflate. And so the banking business just gets bigger and bigger. There is no reason for such a big banking industry. In fact, banks, at root, are nothing but money-warehouses; during the industrial revolution, funding for businesses often came locally, from extended families and partnerships. But that is not how our modern economy works. Central banks have created a massive, Western banking infrastructure and they use it to fund massive multinational companies – and this results in a kind of Anglosphere brand imperialism. The world may not need Coca-Cola, but the powerful dollar reserve system has made Coke's ubiquitiousness possible.'

'The banking industry simply remains cocooned inside the world's biggest bubble. Central banking itself is a bubble though people don't think of it that way, but those who print the money decide which industries expand—and no self-respecting central banker is going to let the central-bank distribution system (commercial banks) deflate. And so the banking business just gets bigger and bigger. There is no reason for such a big banking industry. In fact, banks, at root, are nothing but money-warehouses; during the industrial revolution, funding for businesses often came locally, from extended families and partnerships. But that is not how our modern economy works. Central banks have created a massive, Western banking infrastructure and they use it to fund massive multinational companies – and this results in a kind of Anglosphere brand imperialism. The world may not need Coca-Cola, but the powerful dollar reserve system has made Coke's ubiquitiousness possible.'

'These amazing satellite images show sprawling cities built in remote parts of China that have been left completely abandoned, sometimes years after their construction. Elaborate public buildings and open spaces are completely unused, with the exception of a few government vehicles near communist authority offices.Some estimates put the number of empty homes at as many as 64 million, with up to 20 new cities being built every year in the country's vast swathes of free land. The photographs have emerged as a Chinese government think tank warns that the country's real estate bubble is getting worse, with property prices in major cities overvalued by as much as 70 per cent.'

'Nations engage in manic economic and political projects to get a "dopamine rush" that counters the depression and guilt about their success. Political paranoia and slow ego disintegration are seen in conspiratorial group-fantasies, fears of femininity [countered by persecution of homosexuals], imaginary humiliations by other nations [countered by a search for external enemies as grandiosity fails and Poison Alerts and sacrificial group-fantasies proliferate] [and Purity Crusades multiply as anti-modern and anti-child (Bad Boy) movements]. These are countered in the economic sphere by manic overinvestment, risky ventures, excess money supply growth, soaring debt and stock market speculations, and in the political sphere by jingoistic nationalism, expansionist ventures, military buildups and belligerent, insulting foreign affair behavior. As in drug addiction, each dopamine rush leaves a dopamine hangover that requires an even larger manic activity to overcome the resulting depression.'

'That depressions are self-inflicted wounds and not just the results of "mysteriously wrongheaded monetary policies" is still not admitted by most economists. The task of controlling growth panic by depressions is given to central banks, which first flood the nation with low interest liquidity to encourage overinvestment, excess borrowing, inflation and stock market bubbles, and then, when the expansion becomes too sinful for the national psyche, reverse the monetary expansion by increasing interest rates and reducing liquidity ("Taking away the punch bowl when the party gets going.") Depressions come because really people become depressed, reducing their spending and investment, and feel hopeless. ...nations enter into depressions because they feel persecuted for their prosperity and individuation by what Jungians have termed the "Dragon Mother" – the needy, "devouring mother of infancy who cannot let her children go because she needs them for her own psychic survival."

'Doug Casey: Well interest rates are suppressed all over the world by these governments who think that they need low interest rates to stimulate their economies. People want to save, but they're afraid to save in the form of paper currency. So they get into stocks and real estate. The stock market fluctuates erratically in an environment like that, and stocks are really just paper, at least fro one point of view. So many people are more comfortable with real estate, in that it has use value. As a result there's been massive construction in China, financed heavily with bank loans, and that's going to be a disaster. The consequences for these banks and the Chinese national currency can't be good. The two trillion dollars in foreign exchange reserves that they have could dry up and blow away if the government tries to bailout the real estate market. Assuming they're not inflated out of existence by the US first...'

'There's too much uncertainty about the economy and what companies and ideas are viable. Too many bad ideas and sectors have been propped up. Too many zombie companies are still being supported by governments and forgiving central bank policy. So easing won't provide growth. But what another round of quantitative easing WILL do is continue the formation of various kinds of speculative bubbles. Businesses may not borrow; entrepreneurs may not flourish, but money will find its way into some forms of speculation, be it oil, gold, food, etc. Thus Trader Dan is correct. Quantitative easing will cause price inflation but do little or nothing to stimulate animal spirits and create jobs. Eventually, the Federal Reserve will need to confront the largest problem of all: its growing lack of credibility and a system based on fraudulent pretences that is being exposed to a larger and larger audience every day.'

'Paul Krugman is upset. :'-( ...like many Keynesians, Krugman is worried that lower prices will feed a credit crunch. He is worried that if money becomes worth MORE it will only aggravate people's over-leveraged positions. He is an inflationist, as are most people in a central banking economy, because people's buying decisions are usually based on an expectation of gradual inflation. ...what Krugman et. al are dealing with though they will not admit it is a generalized crack-up boom. The West's economies need a massive unwinding. The problem at this point is banking itself. Banking (and the financial industry generally) is the biggest bubble of all. Because the elite depends on the financial industry for monetary control, banks and other such institutions have been artificially cultivated and consolidated for 100 years. The amount of distortion, excess and waste in the Western financial system is beyond measure. It is like a metastized cancer that is poisoning the entire body politic.'

'For the individuals who took work that was rooted in over consumption by the government, they had no way of knowing that their position could not be sustained over the long term. It really is not their fault that they lose their jobs, but the fault of a government that created an unsupportable structure. Likewise, the businesses that will go bust structured themselves to support the over-consumption, and it is not the fault of the proprietors that they have gone bust. They were incentivised by the government to direct their resources to unsustainable government consumption. The problem of austerity is that, whatever happens, the shift from government consumption of resource means that those employed in activities to support that consumption are going to be hurt, whether now or later. ...to place blame on the 'cutters' is to place the blame on the wrong people. It was those that distorted the economy onto an unsustainable path that shoulder the responsibility.'

'The root causes and only solution for what we all face.' -- "You have to stop listening to people who tell you that the problem is the free-market – the free-market is simply private property and the non-initiation of force. This is kindergarten philosophy: Your stuff is your stuff and don't hit people." -- "Will you see reason before it's too late?"

'...incessant credit stimulation has so distorted Western economies that even after two years, these economies have not yet returned to a point where banks and other investors can tell the difference between a legitimate opportunity and one that has been kept alive by various forms of governmental chicanery. This is why "stimulus" and "bailouts" are ultimately so counter-productive. They actually retard economic recovery. For monetarists – and other types of non-free-market economic-oriented journalists inhabiting the mainstream media the inability of banks to lend and the subsequent shrinkage of the money supply is cause for alarm. It is actually the most natural thing in the world. What many economists and financial journalists are calling for in the midst of a downturn is for the printing presses to reignite and for yet more faux-money to enter the economy in order to reinflate.'

'There is still a period of adjustment to the real structure of the world economy to take place. This can only be achieved through seeing the destruction of the swathes of the economy that were supported through the distribution and consumption of resources that were generated from overseas. -- ...debtor nations have become credit addicts, and become ever more dependent upon the credit to sustain the structure of their economy, which is itself structured around debt. The more credit they get, the more their economic structure will be shaped to utilise the credit. The population of each country is unaware of the source of their apparent wealth, which is too abstract to understand, and they then resist any reform which might mean that they have to accept their real level of wealth. The politicians cave in, and hope that something will indeed turn up... In the end, the creditor nations must blink. They will only support the profligate so far.'

'...how do you fix America's and the West's financial system? Get rid of central banks and allow the economy to purge itself of inefficient investment and commercial financial entities. This would take a year or so and then the pain—rather than lingering as it does now—would dissipate and the economic distortions (which rob the West of millions of jobs and their productive wealth) would be alleviated. Regulation is a dominant social theme—a promotion, in that regulation can never be anything but a distortive price fix. If one is looking to reduce business initiatives and centralize industrial power in the fewest hands, one could not do better than design the West's current financial structure. The financial disaster has taken place, whipping out much of the West's business vitality. Now the regulatory shoe seems set to drop, tightening credit and reducing the ability of lending institutions to take even reasonable risks.'

'The power elite that organized the current Western monetary system was successful back in the 1930s in creating a narrative that blamed the financial industry (Wall Street, etc.) for the crash and subsequent Depression. As books like the Creature From Jekyll Island have shown us, it was the formation of a modern central bank, in tandem with modern regulatory democracy that caused the monetary failures that led to the Great Depression. It was inevitable that the elite would again try to shape the narrative of the modern money crisis, and in the largest sense, we think the Goldman lawsuit is part of the process. We are not necessarily implying, by the way, that the powers-that-be sat down in a conference room and decided to blame Goldman for everything. But just as the Western mercantilist money system itself eventually yields up chaos, so the system, with its farcical and dysfunctional regulatory apparatus, eventually yields up culprits. And it has been designed that way.'

'Ah, the new terms—illegal land use and land hording! This is analogous in our opinion to the term "predatory lending" aimed especially at mortgage brokers in America who used high-pressure sales tactics to supposedly force individuals to buy expensive houses. The fault of course is with the monetary system itself, not the poor salespeople caught up in its inexorable tidal pull. But since the fiat-money/central banking mechanism that causes the problems in the first place cannot be mentioned, or identified as the culprit (for political reasons) the blame will [be passed on]. -- When one gets to a point where the only way to control price inflation is by banning purchases then it is probably already too late. One can, perhaps, puncture the boom psychology, but the result is then inevitably a bust. The power elite in the West, for a variety of reasons, has wanted to pretend that China is a "free-market" success story. But this dominant social theme is beginning to unravel.'

'...where the biases of individuals enter into market transactions, potentially changing the perception of fundamentals of the economy. -- A current example of reflexivity in modern financial markets is that of the debt and equity of housing markets. Lenders began to make more money available to more people in the 1990s to buy houses. More people bought houses with this larger amount of money, thus increasing the prices of these houses. Lenders looked at their balance sheets which not only showed that they had made more loans, but that their equity backing the loans—the value of the houses, had gone up (because more money was chasing the same amount of housing, relatively). Thus they lent out more money because their balance sheets looked good... This was further amplified by public policy. Many governments see home ownership as a positive outcome and so [grant first home owners with financial subsidies such as the exemption of a primary residence from capital gains taxation.]'

'Eventually a whole lot of people stopped and said, "What the fuck are we doing?" and the bubble burst.' -- Any day now.

Faber on the government-created 'casino gulag' (Max Keiser): "I don't know anyone who isn't greedy. If governments have policies that encourage the increase in debt and create through inflation an environment where people are forced to abandon cash and go into assets or be left behind, then you eventually end up with the problem we have today."

'Public interest is inevitably stimulated by the great amounts of money that can be made during an inflationary fiat-money boom, and this is one of the reasons that stock markets have flourished. But just because people invest in equity markets and reap gains during certain parts of the business cycle does not mean that stock markets are in any sense a mechanism that can predictably provide for one's retirement. ...buy and hold strategies are merely massaged, numerical promotions intended to fool people into thinking markets are something they are not. In the 21st century, we believe that business cycle investing - to the degree that it ever worked for the private investor - is going to be increasingly problematic. This is because the entire mercantilistic central banking economy is beginning to break down. The Internet itself is putting tremendous pressure on central banking as a dominant social theme and as a result, the predictable ebb and surge of equity markets may be disrupted.'

'Look folks, this is really quite simple. Economic Stability and Recovery = Credit Expansion. We cannot recover until we purge the excess debt from the system, and the longer we take to do that, the longer the pain will last and the worse it will be. President Obama and Tim Geithner know this - that's why they are constantly harping on banks to "lend more." Well, they may want banks to lend more but the people are fed up with being debt slaves and are borrowing less. -- Consumer recovery? There is none! It is axiomatic that you can pump yourself full of speedballs (e.g. government spending) and stay up for days at a time. It is also true that if you do too many speedballs you will have a heart attack and die, and there is no way to know precisely which is the "one too many" until you shoot it - at which point it's too late to change your mind!'

“Bubbles are best identified by credit excesses, not valuation excesses. And there’s no bigger credit excess than in China.” -- Most economists and governments expect Chinese growth momentum to continue this year, buoyed by what remains of a $586 billion government stimulus program that began last year, meant to lift exports and consumption among Chinese consumers. -- ...betting against China will not be easy. Because foreigners are restricted from investing in stocks listed inside China, Mr. Chanos has said he is searching for other ways to make his [short sale] bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and iron ore. -- ...many analysts now say that money, along with huge foreign inflows of “speculative capital,” has been funneled into the stock and real estate markets.' -- Government spending = malinvestment = asset bubble(s) = inevitable correction = obvious short sale. This isn't rocket science.

'There are two reasons why so-called strategic defaults have been considered antisocial and perhaps amoral. One is that foreclosures depress the neighborhood and drive down prices. //But in a market society, since when are people responsible for the economic effects of their actions?// [Um, what market society?? You've got a debt society where the debt dealer always wins.] -- The other reason is that default (supposedly) debases the character of the borrower. Once, perhaps, when bankers held onto mortgages for 30 years, they occupied a moral high ground. These days, lenders typically unload mortgages within days (or minutes). And not just in mortgage finance, but in virtually every realm of our transaction-obsessed society, the message is that enduring relationships count for less than the value put on assets for sale.'

'As with any abstraction, a lot gets lost in the process, and sometimes what gets left out proves to be important enough to render the abstraction hopelessly misleading. That risk is hardwired into any process of mathematical modeling, of course, but there are at least two factors that can make it much worse. The first, of course, is that the numbers can be deliberately juggled to support some agenda that has nothing to do with accurate portrayal of the underlying reality. The second, subtler and even more misleading, is that the presuppositions underlying the model can shape the choice of what’s measured in ways that suppress what’s actually going on in the underlying reality. Combine these two and what you get might best be described as speculative fiction mislabeled as useful data – and the combination of these two is exactly what has happened to the statistics on which too many contemporary economic and political decisions are based.' -- (Proposes GPP, GSP, GTP to replace GDP/GNP)

Why did bankers buy triple-A mortgage-backed securities? '...the answer may well lie in the regulations promulgated by government officials. The Recourse Rule artificially boosted the profitability of a certain type of investment that the Fed, the FDIC, and the other regulators thought was safe. -- In relatively unregulated markets, [a] diversity of viewpoints is precisely what makes capitalism work. In a complex world where nobody really knows what will work until it is tried, competition is the only way that people’s endless capacity for error can be checked, and loss is the regrettable but inescapable result. In the banking industry, however, bankers’ heterogeneous strategies were homogenized (although not entirely) by the Recourse Rule, which loaded the dice in favor of the regulators’ ideas of where risk did and did not lie. Unfortunately, being legal mandates, these rules—unlike the different strategies pursued by competing capitalists—aren't subjected to a competitive process.'

'It still blows me away that David’s talk at Startup School 2008 was met with such enthusiasm (I know David was surprised too). The talk was simple. Come up with a product, charge money for it, make more money than it costs to run it, and you turn a profit! This is the formula that’s been in place since business began. Yet in front of a group of new tech entrepreneurs it seemed like a revelation, a brand new story never told before. David said people were coming up to him in droves after the speech thanking him for opening their eyes. Who closed them?' -- CAN HAZ MUNETIZASHUN L8R PLOX?

A rant worth 100 economics text books.

'Negative feedback loops of a very similar kind control the production of primary goods by the Earth’s natural systems. Every primary good from the water levels in a river and the fertility of a given patch of soil, to more specialized examples such as the pollination services provided by bees to agricultural crops, is regulated by delicately balanced processes of negative feedback working through some subset of the planetary biosphere. The parallel is close enough that ecologists have drawn on metaphors from economics to make sense of their field, and it’s quite possible that an ecological economics using natural systems as metaphors for the secondary economy could return the favor and create an economics that makes sense in the real world. It’s when we get to the tertiary economy of financial goods that things change, because the feedback loops governing tertiary goods are not negative but positive. -- ...it’s not unreasonable to call the tertiary economy a kind of anti-ecology.'

'As I have stated elsewhere, the "Land of Oz" banking system that Krugman so touts actually fell apart in the late 1970s because of inflation and its inability to deal with the new technologies that were waiting to have investments made. Thus, it fell to people like Michael Milken and others who operated outside the financial cartel to set the stage for the high-tech revolution. To Krugman the Keynesian, however, all of this is gibberish. Economies grow, in his view, because people increase spending, and if people hold back and investors don’t invest, then government steps in and fills the void. It is all so easy – and all so wrong. There is another way, called profit and loss. In the real world, profits and losses serve as the bellwethers of regulation. -- So, while Krugman seems to understand, if only for a fleeting moment, that assets might be heterogeneous and that government guarantees create huge moral hazards, nonetheless in the end his Keynesianism bleeds through.'

Hypothetical illustration: 'Production has been stimulated to some extent by lowering the reserve requirement [by 50%]; but production cannot be increased nearly as fast as credit can be. So as a result of increasing the credit supply, most prices have practically doubled. Twice the credit does not "do twice the work" as before, because each monetary unit now does, so to speak, only half the work it did before.' -- On credit inflation: '...a fractional-reserve gold system must periodically bring about business and political pressure for a further reduction of the fractional reserve required [where] a central bank, a government and a public opinion eager to keep expanding credit to start a "full employment" boom or to keep it going brings about what is known as the business cycle, that periodic oscillation of boom and bust that socialists and communists attribute, not to the monetary and credit system and central banking, but to some inherent tendency in the capitalist system itself.'

'China's banks are veering out of control. The half-reformed economy of the People's Republic cannot absorb the $1,000bn (£600bn) blitz of new lending issued since December. Money is leaking instead into Shanghai's stock casino, or being used to keep bankrupt builders on life support. It is doing very little to help lift the world economy out of slump. -- Two facts stand out about China's green shoots. While the Shanghai composite index is up 70pc since November, Chinese imports are down 25pc from a year ago. China is still draining real stimulus from the global economy. If the world's biggest surplus state ($400bn) is too structurally deformed to help offset the demand shock as Western debtors retrench, we are trapped in a long deflation slump.'

'The Internet crashed the economy. But that's also why the current crisis should be seen as a cause for celebration as well: the Internet actually did what it was supposed to by decentralizing our ability to create and exchange value. This was the real dream, after all. Not simply to pass messages back and forth, but to dis-intermediate our exchanges. To cut out the middleman, and let people engage and transact directly. If I can create an application... without borrowing a ton of cash from the bank, then I am also undermining America's biggest industry — finance. While we rightly mourn the collapse of a state's economy, as well as the many that are to follow, we must — at the very least — acknowledge the real culprit. For digital technology not only killed the speculative economy, but stands ready to build us a real one.' -- Would you like some free free with your free, sir?

"No mortgages available, at least none that will be securitized, you've gotta keep them on your balance sheet if you want make 'em; if you're a bank. Why would you wanna do that, right??" -- Hehe

'Cassano set out on a series of meetings with Morgan Stanley, Goldman Sachs and the rest—all of whom argued how unlikely it was for housing prices to fall all at once. "They all said the same thing," says one of the traders present. (The lone exception, he said, was Goldman Sachs. Two months after their meeting with the investment bank, one of the AIG FP traders bumped into the Goldman guy who had defended the bonds, who said, Between you and me, you're right. These things are going to blow up.) -- The problem with Joe Cassano wasn't that he knew he was wrong. It was that it was too important to him that he be right. More than anything, Joe Cassano wanted to be one of Wall Street's big shots. He wound up being its perfect customer.'

"No one should be allowed to set interest rates. Interest rates are simply prices for borrowing. As with all prices, they should be determined by supply and demand in a free market. When they are fixed by a wise man, or by a wise committee, they no longer carry information about the preferences of consumers and the scarcity of resources. ...interest rates set by diktat are sure to be a kind of misinformation, leading those who act on them into error. The role of central banks means that, at its core, we did not have a free market financial system. We had a command economy. Command economies do not fail because the central planning agencies lack the powers required to bring about the best outcomes. They fail because, without market prices, nobody has the information required to adapt the allocation of scarce resources to the demand for them. They fail because central planners have an impossible job. The Bank of England should not get tougher or try harder. It should give up."

"... all the blame is on the free market. All the blame is on capitalism. It's because there wasn't enough regulation. There was too much greed. Right? We've always had greedy people. Everybody's been greedy, not just Wall Street. But all of a sudden everybody was greedy all at the same time? Can't they understand there's a trigger for this, there's a reason that everybody acted this way?

"#HFM: In the situation we have today, where people have made bad investment decisions, where people built houses they never should have built, there’s a misallocation of resources. The loss has already happened. The loss isn’t what happens on a balance sheet: the loss is what happens when someone cuts down a tree, makes cement, builds a 6,000-square-foot house in a place it should never be built. So the loss has already happened. The question is: How do you allocate that loss? And if you don’t allocate the loss, if you pretend it isn’t there, then this has really baleful consequences for the economy. So what we’re going through now is this process of loss allocation. It can be done swiftly, fairly, and intelligently, or it can be done slowly and messily, and inefficiently, and also it can be not done at all."

"The long economic expansion of the industrial age has fostered the massive growth of what old-fashioned Marxists used to call a rentier class – a class whose money makes money for them. Even among people who work for a living, the idea of joining the rentier class on retirement, and living comfortably off investments, has become very popular in recent years. The problem, of course, is that the age of industrial expansion is over; it was made possible in the first place only by exponentially increasing the use of fossil fuels and other natural resources; like all exponential growth curves, it faced an inevitable collision with the limits of its environment – and that collision is happening around us right now. We are thus entering a period of prolonged economic contraction – not a recession, or even a depression, but a change in the fundamental dynamic of the economy."

'Why invest in anything if there's a double standard, and certain sectors are favoured? Why would a venture fund invest in cars, if Obama's double standard favours banks? Why is there such an obvious and massive double standard? It's Dubyanomics, all over again.'

"This is the sound of the other shoe dropping; it’s what happens when the chickens come home to roost; it’s justice, equilibrium reasserting itself, and ultimately a good thing. The thing that is dying—the corporatized model of commerce—has not, nor has it ever been, supportive of the real economy. It wasn’t meant to be. We do not live in an economy, we live in a Ponzi scheme. Using future tax dollars to give banks more money to lend out at interest is robbing from the poor to pay the rich to rob from the poor. The current financial crisis is the best opportunity we have had in a very long time for a bloodless revolution against the faceless fascism under which we have been living, unaware, for much too long. Let us seize the day." -- Brilliant explanatory rant. Recommended.

"The news media are in the process of creating a great new historical myth: that our present financial crisis is the result of economic freedom and laissez-faire capitalism. ...Their fear and hatred of economic freedom and laissez-faire capitalism [nb: read definition inside], and their need to be able to denounce it as the cause of all economic evil, is so great that they pretend to themselves and to their audiences that it exists in today's world, in which it clearly does not exist even remotely. By making the claim that laissez faire exists and is what is responsible for the problem, they are able to turn the full force of their hatred for actual economic freedom and laissez-faire capitalism against each and every sliver of economic freedom that somehow manages to exist and which they decide to target. Their brainwashed audience — as much the product of the contemporary educational system as they themselves — then quickly follows suit and obliges their efforts to arouse hatred."

'Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by the special pleading of selfish interests. In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day. This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be [...] on all groups. From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. ***The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.***'

'Nihon Cassandra writes, “maybe credit crunch is wrong description. Maybe it’s actually a useful productive idea crunch. Maybe, we are—for the moment—overbuilt, over-satiated, over-consumed, and just full-up. And that is before we ask anyone for credit.” Capitalism has no incentive to develop socially useful ends. The category of the socially useful, though not given by human nature and immutable, is not automatically elastic either; it needs to be fostered. Marx contends that capitalism, basically, fails to foster the socially useful—that is, the pursuit of surplus value prevents resources from being devoted to developing and reproducing human capabilities so that more things can be considered socially useful. (This may be part of the answer to why don’t Chinese workers consume more—at the site of the most intense capitalist exploitation of labor, the capacity to consume is stunted both by inadequate wages and inadequate cultural capital.)' -- Not 'capitalism', capitalisms.

"... the emerging economies lent their new found wealth from their increasingly large workforce into the West, and in doing so allowed the emergence of the so called 'service economy', or 'post-industrial economy'. The lending was built on an unfounded belief that, because the West had been economically dominant for so long, it would always be in a position to pay back the lending. The problem with the lending was that there were no productive wealth creating opportunities to soak up the money, (e.g. investment in manufacturing was being directed towards the emerging economies themselves) such that the money pouring into countries like the UK and US was directed into asset price inflation (real estate), consumption and consumer credit, and excessive government borrowing. ... the world economy has been shaped around a perception of growth in wealth in countries like the UK and US, whilst the real growth in wealth has been taking place elsewhere." -- Hollow-gram (Recommended)

Notes added -- 'There are four basic causes of deflation—two operating on the demand side and two on the supply side of the “money relation.” The economic processes associated with these factors may be categorized as #Growth Deflation [Demand-side. Benign. Falling prices due to technological improvement and using capital more productively], #Cash-building Deflation [Demand-side. Benign. Savings and underconsumption], #Bank Credit Deflation [Supply-side. Benign. Lack of confidence in fractional reserve banks, purgative bank runs, eventual collapse, reduced lending in the short run.], #Confiscatory Deflation [Supply-side. Malign. Government "austerity measures" resulting in severe restrictions on bank withdrawls and the expatriation of money.]'

'I wish to make a very general point regarding the process by which the stimulus is being considered and approved. I believe that recent experience supports the claim that the economist and political philosopher Friedrich Hayek made in The Road to Serfdom in 1944. Democracy and central planning are incompatible or, at least, in deep tension. I believe the real reason for the rush is the belief that if the bill is not rushed through, its support will crumble as the people find out what is in the bill and evaluate it according to their different values and opinions. This is indeed the case. But what this experience exposes is that when the state moves beyond its generally agreed-upon basic functions, the legislature will be seen more and more as an "ineffective talking shop" and democratic values of deliberation, discussion, and consulting constituents will be seriously compromised.' -- Socialist Heist.

"... the Bank of England is going to print money to directly finance the operations of the UK government. This is the action of a government that is now literally bankrupt. The bank is not going to buy the bonds to 'resuscitate the stricken economy' but will buy them because nobody else wants to buy UK government bonds. There are not enough people willing to lend to the UK government. It is bust. It is bankrupt. The UK government can not fund itself without borrowing - it can not service its existing debt without borrowing, and it can not pay for its activities without borrowing. When the lending stops, it goes bust. Or it prints money. If the government had shown the courage of leadership, had accepted the underlying reality of the depth of economic problems, it could have set about the essential reform of the UK economy. Instead of this, they chose to delude themselves, and delude the public into thinking that everything could go on as before."

"... they seem to be imagining that people are 'hoarding' cash in the expectation that prices will drop further in the future. In making such a statement, I have a feeling that they are imagining the mythical 'homo economicus'. This is the idea that people will make rational economic decisions. Anyone who knows of people loaded up with consumer credit will know that this is indeed a mythical creature. According to the ITEM club, what consumers apparently are doing is sitting on piles of cash so that they can buy things cheaper in the future. It appears that the man in the street is listening to the economists, and actively withholding their spending until prices fall. However, this is to ignore another impact of the current economic position. Every day that goes by, there are more and more headlines of job losses and falling house prices. Might it not be more likely that consumers are not spending for the following reasons: ..." -- MUST READ debunking of keynesian deflationistas.

"Keynesian theory of government borrowing and spending is simply absurd. Essentially, under the theory, building something with absolutely no value is a good thing, as it increases economic activity. It is related to the theory that smashing a shop window is a good thing, as this also creates activity. Another article points out how prevalent window smashing view is, and how utterly silly it is. Such thinking would see an economy in which we would build a new skyscraper, knock it down the day after it was built, in order to build it again. The fact that nobody might want to live in, or hire office space in the skyscraper is irrelevant, as it will create economic activity. Economic activity is 'good' for the economy. Nobody wants the skyscraper. Why on earth build it? It is literally flushing all of that labour and material down the drain. It moves resources into quite literally pointless activity." -- Another thorough debunking.

"The venture economy puts the creation in creative destruction. The value equation of capitalism is simple: creative destruction. So venture plays a vital macroeconomic role: to create the industries, markets, and categories of tomorrow, unlocking new productivity from stale resources and assets. The lack of new industries, markets, and categories is the great accelerator of the macropocalypse. If we had tomorrow's industries primed and ready to pump new value into the economy's failing arteries, today's growing macropocalypse would have just been recession as usual. But we don't, because today's venture investors didn't seed tomorrow's industries and markets yesterday - and that loss of potential is the single biggest accelerator that's turning financial meltdown into economic breakdown. ...lazy, moribund, oligopolistic industry bereft of the incentive for innovation... the dulling of incentives causes a persistent structural misallocation of venture capital itself."

'Once we grasp the stunning complexity of the true "economic problem"—how all of this interlocking human activity is coordinated so that production flows smoothly and predictably—we see the absurdity of Keynesian pump-priming remedies. During a recession, it's not as if all output in all sectors falls by the exact same percentage. On the contrary, some sectors shrink more than others. This is because some sectors suffered huge losses, and they need to release some (or all) of their workers and other resources to more profitable sectors. This reshuffling takes time, especially because critical intermediate goods need to be produced so that operations further down the "pipeline" can resume.'

"As it is [China] now own the massive reserves of currency, but the question arises as to how those reserves might be deployed without destroying the value of those reserves. In order to utilise those reserves, they need to start buying things from the US, with most of their reserves held in $US. However, their mercantilist policy has left the US in a position where they have less and less to sell to the East. What does China want from the US, that is does not now manufacture at home? Yes, there will be some things, but they will be relatively expensive because they have trapped themselves in their own currency game. The only way that China will be able to use those reserves will be to sell large amounts of the reserves and, in doing so, destroy the value of those reserves. Their massive reserves are, in other words, valueless paper." -- Mutually assured destruction.

"The situation overall will be a massive contraction in the UK economy, a contraction that will see the UK step back in time in terms of economic development. The contraction will need to be deep and severe enough to reverse the illusory gains of the previous ten years (or even longer), and will require that the UK restructures its economy from top to bottom. It will, in effect, be the most significant crisis to hit the UK since the World War II. The only way out of the crisis will be to alter the fundamentals of the UK economy back to producing more goods and services for export led growth, and away from debt based growth in services. It will be a long, and very painful adjustment that will see the UK lose its place as one of the worlds’ leading economies, and recovery from the crisis will take many years." -- The ugly truth. (A great summary of recent fail.)