If, after four years of printing money, the system isn’t working, what next?
Could oil prices go to $4 a barrel? It seems way off-beam, but last weekend at Kilkenomics, Nassim Taleb, he of The Black Swan fame, suggested in a fascinating discussion about the economics of the Middle East that oil prices are heading downwards. This is no wildcard estimate. This comes from a man who has made a fortune understanding risk and why the rest of us don’t understand it.
Whether he is right or not, this suggestion – and his further prophecy that Saudi Arabia will go bust because, far from being strong, it is the most fragile state in the region – got me thinking about conventional wisdom and mainstream assumptions about what is possible and what is impossible.
If Saudi Arabia could go bust, what else might happen – or, more significantly, what attendant events that we are not even thinking about could come to pass in the next few years?
This idea of thinking the unthinkable is one of the joys of Kilkenomics, where all sorts of thinkers from all over the world, who are not restricted in what they allow themselves to entertain, meet up.
In the Set Theatre at Langton’s in Kilkenny, Martin Wolf of the Financial Times speculated on Brexit and what might happen to Northern Ireland if Britain leaves the EU, and Scotland then leaves Britain. He thought a truncated union of England, Wales and Northern Ireland had a faintly ludicrous air to it, particularly as English nationalists in power in England mightn’t be that enamoured with the annual bill for a bit of Ireland. It’s an interesting angle. Have you thought about this?
Wolf believed that the British population would pull back from the brink in the referendum – but, that said, he conceded that the chances of Brexit are now very real. He explained that his background, as a son of Jewish refugees from Europe – whose entire families on both sides perished in the Holocaust – informed his economic views and the value he put on economic stability. He argued that whatever the unintended consequences, the most crucial element after a crisis is to make sure that the crisis doesn’t turn into a full-scale depression or doesn’t allow extremist politicians to emerge. As a European Jew, you can understand profoundly Wolf’s sensibility.
We talked about the response to the crisis by central banks and whether quantitative easing (QE) is working. He made the point that if a second Great Depression was avoided in 2008-2010, then central banks are to be lauded for what they have achieved. However, as to what’s next, he, like so many others, wasn’t sure. One thing is clear: that, while a Great Depression might have been averted in 2008-2010, the global economy doesn’t feel right.
In Europe, Britain and Japan, deflation is on the horizon. Prices – measured by traditional inflation measurements – are falling. Central banks everywhere, with the exception of the US, are still trying to stimulate the economies – to no real end. Interest rates are at zero everywhere, and in Europe, deposit rates have even turned negative – but demand is still nowhere.
Much of the rich world is characterised by a post-boom, post-debt neurosis, where the people don’t want to borrow and the banks don’t want to lend to the right people at the right rate. Now, with this in mind, let’s go back to Nassim Taleb and his view of the possible collapse of the oil price, because although his view of oil seems a bit extreme – maybe it is not. Think about the global economy right now and its inability to grow even with zero per cent interest rates; strange things happen.
Ten years ago, had you predicted interest rates would be at zero for a prolonged period, people would have thought you mad – but that is exactly what has happened. The thing about the world when it is at a tipping point is that what appeared radical before the crisis becomes mainstream, and what was mainstream becomes redundant.
The fact that central bankers have thrown the kitchen sink at the economy and the recovery is still so weak is explained by four extraordinary turns of events. The first is the depth and extent of the downturn that followed the global financial crisis; the second is the legacy of the debt crisis, whereby too much debt makes you terrified to spend, even if your income is going up a bit. Three: this fear knocks the stuffing out of business and consumer confidence; and four, and most worrying, is the evidence that the crisis and its aftermath has revealed deeper and more enduring structural problems – such as the fact that the West is getting old, manufacturing has moved to the East and productivity is falling, as investment falls too.
The net result of these four corrosive forces has been a fragile recovery and persistently high unemployment in Europe. This high level of unemployment has meant weak demand and uncomfortably low levels of inflation, which makes paying back debts more difficult. All this leaves us with the strange situation that, after years of austerity, debts in many countries are actually higher, not lower, than they were before austerity. Remember, austerity was introduced to decrease, not increase, indebtedness.
If, after four years of printing money, the system isn’t working, what next?
This is where another two Kilkenomics guests, Richard Murphy (adviser to Jeremy Corbyn) and Stephanie Kelton (American economic guru for democratic candidate Bernie Sanders), offered some new insights. They both thought that it was only a matter of time before central banks, rather than give money to the banks, might actually deposit money in people’s bank accounts. This would make people spend and, hey presto, demand would recover and off we go.
Traditionalists at this stage will guffaw and declare this could never happen. Surely such profligacy would lead to inflation, or worse?
While there is little doubt that this policy sounds radical now, allow yourself to think the unthinkable for a moment. In economic terms, the ground has shifted. It may shift again.
And after all, it was Nassim Taleb who warned of Black Swans – improbable events that have enormous consequences. Don’t rule them out.
Once Trump is elected and the military build up begins there will be an industry to pull America up again. Lets hope that every bomb lands on fanatical scum accross the globe, particularly Allah loving virgin raping filthy headscarved bastards. Praise the lord and pass the Ammuntion.
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“They both thought that it was only a matter of time before central banks, rather than give money to the banks, might actually deposit money in people’s bank accounts.”
At which point they become the actual government (choosing who does and doesn’t get money).
Are you happy with unelected entities being the government?
[…] crisis – The Telegraph Why Italy may need to leave the euro zone soon – The Irish Times Time to think the unthinkable – David McWilliams Gold, Oil, & ‘Grandmaster’ Putin’s Trap – […]
Hi David. “Remember, austerity was introduced to decrease, not increase, indebtedness” Are you serious? Was the money gained through cuts in spending and increases in taxes used to PAY DOWN DEBT? No. It wasn’t. They increased debt by printing extra money. The extra money gained is being used to service all the debt old and new asset stripping the world’s citizens doing so. “whereby too much debt makes you terrified to spend, even if your income is going up a bit” Not just scare you but restrict your purchasing power through increasing your taxes. The answer I feel to the… Read more »
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You have not really zeroed in on the problem. TThe Fact that all the QE is debt based money. The fact that the money system is a Ponzi scheme The fact that the Ponzi Scheme is reaching its exponential expansion limits The fact this will crash the economy of the world. The fact that all the things of wonder a Kilkenomics have already been presented and discussed by some of us on this blog. What next. Gold , Silver and copper coins, real money return. Gaddafi was murdered because he proclaimed a gold dinar as a Pan African coin. Saddam… Read more »
If, after four years of printing money, the system isn’t working, what next? Not 4 years David. 100 years of Fed Notes. 44 years since Nixon went off the vestiges of the gold standard. What next. David? How about you become the leader of the pack and examine the money system in public. Present the Ponzi scheme to the general Public. You could come up with a solution. Sovereign money. No more fiat Ponzi Money. Money printed from treasury at no debt and no interest. That is next. Eliminate the national debt and reduce taxes , David. You would be… Read more »
“China and Russia’s global leadership in gold mining enables them to create their own currency and trading systems, built on a solid foundation of gold, which will be used by the BRICS countries as a universal unit of account and as a fixed measure of cost.”
http://www.zerohedge.com/news/2015-11-15/guest-post-gold-oil-grandmaster-putins-trap
It is more likely that Saudi Arabia will fall to the Islamic State before it goes bust. They don’t seem to be able to see the danger that is right in front of them. Saudi Arabian citizens are paying for arms for the Islamic State and paying salaries of IS fighters. Yet the Islamic State fighters are telling journalists that as soon as they get a chance they will march on Riyadh. Meanwhile the Saudi state is wasting untold money bombing Yemen. It seems to be following the same pattern as Pakistan and the Taliban. First create the monster then… Read more »
Something else that’s unthinkable.
How about the CBs and world Governments declare 0% inflation as their target. Even at that they have plenty of wriggle room.
They can even phase in the target if they want to.
Question for Tony.
Supposing you did get your Gold standard set up.
Gold will also have an industrial function too, not just monetary.
Are you going to ban spread betting on Gold.
What other rules would you think might need to be put in place.
TO PROTECT US FROM THE RICH WHO ALWAYS SEEM TO GET THE RULES THEY WANT.
Well Saudi Arabia has been very successful up to this in becoming very rich from selling oil. Only maybe Norway has been similarly successful. When you look around the world at oil states from Nigeria to Venezuela their dependence on oil has been a curse. Also Saudi actually controls the oil price and has done for 40 years, the reason the oil price fell so dramatically was Saudis decision to keep production high even though demand was falling. That has stopped investment in New oil wells which will result in shortages down the line. This is because demand for oil… Read more »
“we don’t have an energy problem, we have a population problem.”
No. We have a too much debt problem and a too much printed money response to it problem.
The price of oil is also affected by the black market. Little talked about is how ISIS funds itself. Besides being funded in previous iterations as Al Qaeda etc by the US, Saudis, etc there is the question of the oil fields controlled by ISIS . Some how these oilfield are not reported as being bombed or destroyed. ISIS is reported as selling the oil on the black market. Who buys is cloudy but it has to be making its way into the world supply. I have seen suggestions that it goes via Turkey. If so Turkey plays both ends… Read more »
Explain to me David, or anybody else for that matter, why QE can only be used to purchase zero or negative yield sovereign bonds that nobody else wants. We bailed out banks an got absolutely nothing in return unless you want to count a so-called systemic banking system which has not reformed at all, its getting back to business as usual, our government, with the interests of its people at its heart should have insisted the distressed family home loans in Ireland were turned over to a state agency in return for saving the banks, after all that is exactly… Read more »
This is a resource war folks and it’s going to get nasty. It’s complicated to some degree by the looney tune world of Islamic extremism which isn’t the main problem although this is obviously a hot issue right now. The world has mostly been a nasty place but two generations of Europeans and North Americans and Australasians have been able to keep it away from their shores and live in relative comfort. The nice liberal people will tell you it’s not a zero sum game and we can all live in peace and comfort and prosperity and share everything out.… Read more »
I was sitting here thinking the unthinkable . It is so simple that the aforementioned “”thick as two planks” brigade will scoff, laugh and deride. We need a real gold standard of money. Actually we need gold as money not just a standard. Coins of gold silver and copper. Not a bimetallic or trimetallic system or even a unimetallic system. Just a coin system. coins not of designated value. Coins simply of guaranteed weight and quality. Such coins will find there own value. A value not imposed as by a State or institution but valued simply by the people who… Read more »
http://www.businessinsider.com/russia-is-doubling-down-on-gold-2015-10
http://www.24hgold.com/english/news-gold-silver-paris-and-what-should-be-done.aspx?article=7734330780H11690&redirect=false&contributor=Ron+Paul&mk=1
Ron Paul tells us to trade and chat with our neighbours. Defend ourselves from the robbers and vandals. Mind our own business and lead by good example.
http://www.silverdoctors.com/gata-chairman-gold-cartel-is-on-all-out-attack-for-annihilation/
If you want to be an economic serf with the banksters constantly clipping coin and stealing the fruits of your production you will stand idly by and do nothing about tit.Inflation is a stealth tax to reduce you to poverty.
Good article. I wish I had been able to attend, but I had to work.
Taleb is a profound thinker. He spotted finacial model problems when the mainstream was repeated mantras about markets being perfectly priced. He spots things that others ignore, and is proven correct. Taleb is to be taken seriously.
Deco. Pity Taleb wasnt Irish. He might not HIDE and get off his arse to tell us what a Rental Affordability Crisis is. Old fashioned % of your net income? Mortgage Arrears Affordability? Old fashioned % of your net income? When in your lifetime you live through a Financial Overvalued Debt Crisis that causes financial misery and depression for families you need a Taleb to bravely stand up and make recommendations that promote corrective actions that serve the greater public good. New money Irish economic commentators tell us that % of your net income is just old hat barstool economics.… Read more »
http://www.gata.org/node/15940 10 years ago Peter George told you that gold would fall today George’s insight, especially relevant as markets resume amid another crisis of terrorism, is a reminder that no analysis of the gold market is worth anything if it fails to address these questions: — Are central banks in the gold market surreptitiously or not? — If central banks are in the gold market surreptitiously, is it just for fun — for example, to see which central bank’s trading desk can make the most money by cheating the most investors — or is it for policy purposes? — If… Read more »
The Barstool Theory is the opposite to the black swan theory.
This is where you HONESTLY Admit that the EVENT OUTCOME NEVER REALLY WAS A SURPRISE.
SURPRISE MY ARSE.
FAILED PROFESSIONAL BANKERS were “SURPRISED” with a 2007 DEBT TO INFINITY model.
Inventive economics can be used as a SURPRISE for customers of Professional Bankers lining their pockets.
The outcomes from Self serving economic policies with regards to simple ” MONEY OUT” of your pocket affordability (mortgage/rent) are NEVER a surprise.
Too much “money out ” will never be a SURPRISE when the shit hits the fan.
LET US BE CLEAR
-> LAWS DO NOT CREATE VALUES
=> VALUES CREATE LAWS
WHAT ARE “FRENCH” VALUES?
WHERE DID THEY ORIGINATE?
http://www.dailycatholic.org/issue/10Oct/102007do.htm
AT WHAT POINT DOES “THEIR” BECOME “OUR”?
http://inflation.us/france-military-is-weak-compared-to-russia/
David NZ The only proviso is not to be stupid is a nice sentiment or platitude but it’s not reality. Given the history of this Island we should be able to make reasonable risk assessments about our vulnerabilities and fragilities. Civilisations and cultures can change very fast. Adam Smith pointed to the dangers of over dependence on the potato crop. Land sown with potato crops could feed three times the number of farm labourers compared to land sown with corn. Therefore surplus land could be used for export crops. A really efficient use of land until potato blight strikes and… Read more »
You’re an intelligent man Adam. Legal bills can be very expensive. I don’t like paying them and I don’t like other people incurring them because of any imprecision or recklessness. I’m at a loss to understand who you may be referring to. And I hope you’re keeping well in that climate.
DB 4545 The unthinkable bit a lot of people on this island in the ass eight years ago. It well and truly was our major Black Swan moment. In hindsight the whole 2000 to 2009 soap opera was truly Biblical. The sheer number of multi generation local family businesses throught the country that were brought to their knees. For SMEs and family businesses that were introduced to leverage by their “friendly on a mission banker”,the loss of their livelyhoods had a major effect. The sheer size of the losses were a surprise. Business people are used to profit and loss… Read more »
http://investmentresearchdynamics.com/the-u-s-economy-is-collapsing-americans-are-out-of-money/
Perhaps you can think the unthinkable and finally agree that the US economy is collapsing just as we have been telling you for the last 4 years.
Sort of off topic, but rather a nice video of a young(er) David McWilliams. If anyone doubts his previous warnings:
http://markhumphrys.com/irish.economy.html
Oil doesn’t have a long term future as an energy source. We have probably reached peak oil DEMAND and that is realy what is pushing the price of oil down because producers want to get the oil out of the ground NOW while it’s still in demand and still needed by the global economy. Sweating the assets. GAS has replaced OIL as the primary (new) energy source of choice but ultimately GAS’ days are numbered also. The new kids on the block will be SOLAR and FUSION. Massive amounts of money are being invested in SOLAR and the related ENERGY… Read more »
CBs have reduced interest rates to 0% and printed money with the sole purpose (keeping it simple) of boosting demand. So why hasn’t this policy worked. Austerity has changed the way people think about spending money. They now spend money on things that they NEED. NEED is only a subset of DEMAND. DEMAND is the buying of things you NEED plus the buying of things you don’t NEED. Austerity is a mind set and it leads to more people trying to become self sufficient or partially self sufficient. It’s a bunker mentality, batten down the hatches. Tony Brogan, if I’m… Read more »
I am not driven by austerity and do not have a bunker mentality. nor do I go out and borrow just to have a good time and buy on a whim. Your reference to CB’s ignores several aspects. First thing is they are the creation of the money men. In the modern age started in 1692 or so with the Bank of England. Private subscription of wealthy people to loan the new King William of Orange the money to continue the war in the Netherlands. The bank was dressed in Nationalist colours to make it look like a national institution.… Read more »
DB4545 The reason that Irelands Bloated Plastic Lefties are more detestable than the right is that they pontificate about serving the Irish working man but have a record of helping themselves and select citizens on the backs of the most vunerable non secure workers in the country. “All Lump sum payments and pension payments above the contributory pension must be paid for by superannuation CONTRIBUTIONS similar to private pensions.” The Big Magic Pot leftie economics is paid for by taxes and levies on the non secure workers and the next generation. How are LOW CONTRIBUTIONS for a LARGE PENSION PAYOUT… Read more »
http://henrymakow.com/2013/07/do-the-rothschilds-own-all.html Public vs. Private is just another dialectic. It matters not whether money is managed privately or publicly. What matters is whether we have stable and cheap (interest-free) money. If a private interest-free mutual credit facility can provide it, grand. If Government can do it, fine. A mixture of both is probably the way forward. Central banks are a mixture of both: they have public and private aspects. But the bottom line is that central banks do the bidding of the Money Power. It originated in Babylon and spread through the world via Jewish Supremacism. It hides within Jewry and… Read more »
http://www.publiccentralbank.com/
“When the power to create our money and credit is in private hands, and based on an exclusive franchise for debt-money creation and sale of bonds at interest – as opposed to direct Treasury financing – then the entire economic and social system is set up for private profit, and debt ruin, at public expense. As history has proven, this structure is virtually guaranteed to result in endless predation, corruption, and eventual collapse at immense public expense.”
You are a mine of information Tony.
The new chairperson of competition is also head of consumer protection.
In other countries what is the role of the head of consumer protection and the financial services ombudsman?
If a bank is broke is there seperation when making consumer rights decisions?
We are a door matt generation that have no media to hold people to account and there are some decisions that you could not explain to the next generation.
However the next generation will pay for our cowardly media that never really question anything.