I am in Kilkenny this evening, planning some events for this year’s Kilkenomics festival. Kilkenomics is a strange hybrid of economics and comedy. It is not your usual economics conference because the stand-up comedians tease out the logic – warts and all – of what the economists are saying. In addition, the comedians shear away the jargon behind which many economists hide. As a result, there is more clarity delivered in Kilkenny than in many other economic set pieces.
Tomorrow, I head to the Gulf for a much more traditional economics and finance conference at the National Bank of Abu Dhabi. It’s not every day that I find myself speaking on stage just after Larry Summers and just before Ben Bernanke – but that’s where I’ll find myself on Tuesday.
It will be Bernanke’s first speech since leaving the Fed last month and as such, it should be particularly interesting. I just have to come up with something plausible to say – no pressure there so!
And while I’m there, I’ll ask them to come to Kilkenny too. You can only ask; and as the Americans say, ”if you don’t ask, you don’t get.” I’d pay to see one of our top comics grill the former Federal Reserve chairman in Langton’s or the back of Cleeres’s bar, wouldn’t you?
One interesting aspect of both these titans of the US policy world is the different angles I expect them to come at.
In recent months, Larry Summers has been banging the drum for the fact that the West is in secular stagnation. We are passing the baton over to emerging countries and a combination of technology, demography, globalisation and price competitiveness from the East and ultimately Africa, is going to eclipse us in the same way the Americans eclipsed the British Empire the in early 20th century.
To put that in an us and them framework; ”us being the West, ”them being the Rest, what he is saying is there will be more success for ”them – they will have better technology, they will work harder for longer for less cash and we will let them.All told they will get richer faster and we will get poorer quicker. And not only that, but many of us will get a lot poorer a lot quicker than others.
This path of argument is likely to bring him onto the buzzword for the policy elite these days: inequality.
I say ”these days, because for years when inequality was rising, it was seen as an unpleasant but unavoidable by-product of the new economy. Today, even those on the right acknowledge that when the top 85 richest people in the world own more than the bottom 3,500,000,000 people, something is seriously wrong.
Summers may also go on to say something very radical, which is that in the absence of a massive jolt to productivity here or a surprise baby boom in the West, the West needs financial bubbles to push the growth rate artificially upwards for periods in order to get unemployment down to tolerable levels. For example, in Ireland the only period in my life when unemployment fell to record low levels, when anyone could get a job of some sort, was when we experienced the mother and father of all property/credit/banking bubbles.
This is the implication of what he is saying, but I am sure that would be a step too far for the man who was both Clinton’s and Obama’s chief economic thinker.
The other man, Ben Bernanke, is likely to cover his tenure as the head of the Federal Reserve. His record, although it may be too early to set in stone, is, I believe, an extremely positive one. Bernanke tore up the rulebook in the US and unveiled the most unorthodox policies to combat the 2008 recession, preventing it from becoming a Depression.
By identifying that when the bubble burst so too did the personal balance sheets of tens of millions of Americans and by doing something about it, Bernanke deserves huge praise.
Most likely he will talk about what is the best policy when there is a liquidity trap. A liquidity trap is when there is so much debt around that the people have too much ”personal debt and they don’t want to borrow and the banks have so much ”bad debt that they don’t want to lend. In such circumstances, cutting interest rates alone is ineffective. Someone has to come in and spend and invest.
If it is not companies or people, it has to be the government. Otherwise as we see in Ireland, unemployment rises to double-digit levels and emigration becomes rampant. Also, lots of companies that close down don’t re-open and initial unemployment can become long-term unemployment very quickly.
Bernanke’s genius was that he could see that with no demand there would be no inflation and he could print as much money as he felt was necessary, buy as much government debt as he needed to and there would be no increase in interest rates. This is exactly what happened in the US and as US unemployment heads, albeit fitfully, to 6 per cent, it is hard to argue with diagnosis and medicine.
This brings me to the wagon we are hitched to, Europe.
In the eurozone the liquidity trap that Bernanke identified is far, far more dangerous. Bank lending has been falling for years now. Inflation is non-existent and worse still, most of the €1 trillion that Mario Draghi lent to the banks at the height of the crisis, to lend out to the economy, has been repaid to the ECB.
If ever there was an example of a liquidity trap, it is the European banks paying money back to the ECB when companies and people are starved of credit – as is the case here, Italy, France, Spain and Greece.
Yet rather than have a Summers or Bernanke – public intellectuals who are prepared to take risks – we have faceless bureaucrats who read from pre-written scripts and misdiagnose Europe’s problems, allowing the rate of unemployment in the EU to rise relentlessly.
Whatever you think of the Americans, they will not tolerate unemployment at European levels and are prepared to throw everything they have at the problem. True, there may be unintended consequences, but better to have tried and failed than never to have tried at all.
Is it any wonder that mainstream party candidates are likely to get hammered in the European Parliament elections in the coming months?
I will keep you up to date on what these giants of American economics and finance say via twitter @davidmcw, but in the meanwhile, I’d better head off and write that speech.
David McWilliams explains every day what’s going on the global economy at globalmacro360.com
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Yanis Varoufakis would be a good guest David, have you ever considered him?
Looking forward to the next Kilkenomics, one of the highlights of the year.
The vastly increased gap between rich and poor caused by Bernanke’s QE money pumping the stock markets is a high price to pay for a few per cent improvement in unemployment. Was there a way that could have been avoided, and might Europe yet avoid it when it eventually wakes up to the danger of deflation?
Not sure I can agree with your ‘Bernanke is genius’ comments. The 6% rate you tout as a symbol of his success gleefully ignores the labour participation rate. Also, where has the QE money gone? While the monetary base in the US has exploded under Bernanke the velocity of money has sunk to new lows. All of these CB schemes amount nothing more than bailouts for the rich further compounding the inequality gaps across the globe. What about good-ole fashion defaults instead? The financial industry simply grew too big and while its becoming a tired old cliche now to even… Read more »
“Also, lots of companies that close down don’t re-open and initial unemployment can become long-term unemployment very quickly.”
I am missing something here, your last artical stated people are better off on the dole and this is causing people to not look for a job, now its because of the above statement, so which is it?, or do you flip flop your logic to suit your agenda all the time?
Well done David! And thanks for the article.
David, surely it’s too early to tell if Bernanke is a genius. Your argument does sound good, but is it not time to link economics and nature……. because humans are part of nature. Nature demands balance and what has been done to date is not balanced, it is just more of the same. Isn’t it a little simplistic to really just look at this from a ‘fix this crisis point of view’ instead of acknowledging the stupidity which happened up that point and to think about how developed world economies progress from here, because more of the same doesn’t sound… Read more »
When Greenspan was testifying before congress in 1997 he said that one of the bases for the “economic success” (of neoliberalim) was imposing greater worker insecurity. If workers are more secure that is healthy for society he intoned. How creating a system where 80% of the populous is scraping by without any hope of a secure future is healthy I don’t know but then again I’m only a simple member of the 80% precariat. Maybe you as an economist who is going to meet his successor will be able to find out how turning the west into and economic version… Read more »
Certainly not the crowd of ‘gobshites’ who are running the EU now. It’s their rules!!! It’s true for what Nigel Farage said the other day about him being hopeful that Ireland might elect some Eurosceptic MEP’s and the comments made by one of our MEP’s about the fact of there being a possibility that a few ‘looneys’ being elected to the European Parliament shows that some of our own MEP’s are quite literally scared shitless that this might happen!! It would be no harm whatsoever if it did happen, because the shower who are there at the moment are a… Read more »
The word ‘Obfuscation ‘ denotes much of what is written in this article .It moves between heads of Fed , of States , bank and personal debts , USA and EU , main street politics and dissenters .
In all of this I am thinking what is fools gold and the real stuff and why does it slip between my fingers like a siv .After all both are yellow .
That brings me to Abu Dhabi then I ask myself does the ruler drink tea or whiskey . Both colours are the same .
Bernanke & Paulson were genius-level at propaganda: ““Bernanke deliberately misled Congress to help pass the Troubled Asset Relief Program (TARP). He told them that the commercial paper market was shutting down, raising the prospect that most of corporate America would be unable to get the short-term credit needed to meet its payroll and pay other bills. Bernanke neglected to mention that he could singlehandedly keep the commercial paper market operating by setting up a special Fed lending facility for this purpose. He announced the establishment of a lending facility to buy commercial paper the weekend after Congress approved TARP.” (“Ben… Read more »
Hi David,
If my posts are going to be declined please let me know by email for what reasons.
Not much agreement on the blog for the position taken by Mr McWilliams which I am glad to see. McWilliams is a part of the problem whereas the majority of the educated thinking folk see the truth.
Laurence Summers co-authored a paper in 1998 that suggested a correlation to the price of gold and to Interest rates. He theorized that if the price of gold were kept down that it would be possible to maintain low interest rates. Thus continued a determined effort to manipulate both the price of gold and interest rates. Part of the process was to release as much gold as necessary to the market to lower prices (Alan Greenspan–We stand ready to lease gold into the market in any quantity to maintain the price level). This leased gold was then sold by government… Read more »
“If one looks at what EU bureaucrats have done to Southern Europe, specifically Greece, Spain, Italy, Cyprus and Portugal, it seems incredible that Western Ukraine citizens would want to punish themselves by joining such a dysfunctional club. Additionally, Ukraine is in bad shape financially and was depending on a huge loan from Russia to continue to function. The IMF, meanwhile, has already indicated that strict austerity is going to rule the day for an EU-centric Ukraine. – See more at: http://www.thedailybell.com/news-analysis/35075/Washington-Post-Military-Maneuvering-is-Putins-Fault/#sthash.wmIAwBpd.dpuf”
–The Daily Bell
http://www.thedailybell.com/news-analysis/35075/Washington-Post-Military-Maneuvering-is-Putins-Fault/
Here is a good topic for today’s speech http://www.gold-eagle.com/article/economic-growth-isnt-what-it-used-be Economic growth ain’t what it used to be! That is, it is not as it is reported by such as yourself. Those who refuse to “go there” , who report current stats as a truth when you know all are manipulated to a fiction as decerned by the bloggers herein. “The day is coming when Mr Bear is going to do what he was born to do – take out the trash from the financial system. You can say goodbye to “economic growth” and hello to soaring interest rates when he… Read more »
“If one looks at what EU bureaucrats have done to Southern Europe, specifically Greece, Spain, Italy, Cyprus and Portugal, it seems incredible that Western Ukraine citizens would want to punish themselves by joining such a dysfunctional club. Additionally, Ukraine is in bad shape financially and was depending on a huge loan from Russia to continue to function. The IMF, meanwhile, has already indicated that strict austerity is going to rule the day for an EU-centric Ukraine. – See more at: http://www.thedailybell.com/news-analysis/35075/Washington-Post-Military-Maneuvering-is-Putins-Fault/#sthash.wmIAwBpd.dpuf”
–The Daily Bell
There was a great quote (Bishop Tutu) from this evening’s BBC Panorama “Hungry Britain”. “When you have fished enough dead bodies from the river THERE COMES A POINT when you go upstream to find out why they are falling in.” Cause and effect. This an apt analogy for the destruction and impoverishment wrought by our woeful economic and monetary model, the downstream experience you could say, the effect being too many people with too little money, but when oh when oh when will the public discourse move upstream, to the cause, which is the methodology of the money’s issuance in… Read more »
Eric Sprott on the domino effect, of the European banking system.
http://usawatchdog.com/
Maybe Putin in Ukraine will tear up the EU play book
“I was also fascinated by Egon von Greyerz’s comments over the weekend that we are headed for a hyperinflationary depression. Most people can’t grasp this. They think that inflation is connected to strength in the demand in the economy. But, as I have said, it is strictly a currency event. A weakening economy is going to lead to a depression, which will lead to even more currency creation, and that will lead to the hyperinflation that Egon talks about.”–John Embry John Embry talks about the black swan event that can blow the lid off world finances never mind the EU… Read more »
…. a Summers or Bernanke – public intellectuals who are prepared to take risks – …. Sometimes these articles allow to understand much more about the writer than the subject that he wrote about. Summers, who forced out of Harvard as a president after he suggested that women lack aptitude for math and science, now becomes a public intellectual in the writers hands here. Bernanke, his TARP scam where he and FDIC together with Paulson stated that the nine leading banks were healthy institutions and were taking the cash only to enhance the overall performance of the U.S. economy, now… Read more »
Actually what the Americans say is, “the squeaky wheel gets the grease”. No one will tear up the EU rule book because “Paddy” hasn’t said he is displeased with it. Example is the Pylons scam, we will march in Dublin next month in huge numbers, I am very pleased about this. Of course your electricity rates will go up, not because of the cost of going underground, but another, bend over so the Govt. can f@#k you in the ass without any lube moment, with regards to ultra high utility prices. If Paddy would only protest against the current economics… Read more »
UKRAINE Today EU FINANCIAL MINISTERS SHALL IMPOSE A BAN ON FINANCIAL TRADING WITH RUSSIA. eh no you wont we need their money OH OKAY ! TODAY EU MINISTERS SHALL IMPOSE A TARIFF ON ALL RUSSIAN EXPORTS ehhh can’t do that either.. WHY NOT ? eh we,the EU do 100 billion euros worth of trade with Russia every year…… RIGHT !! eh and Putins actions cost him 100 billion yesterday so he doesn’t seem to mind the cost eh and we import almost 40% of our energy needs from Russia………. TODAY WE EU MINISTERS SHALL DEMAND RUSSIAN REMOVAL FROM FUTURE G8… Read more »
Is anyone else sick of the tired old cliched us vs them responses to this whole thing in the media. Lets not forget that the us that the media refer to were the us who reneged on the promised made to Gobachev when we said that Nato/EU would not attempt to co-opt the former soviet republics. Now that we have engineered regime change in Ukraine (which method of implementation would never be accepted by us in the “free” world) we expect that Russia will just roll over. And what the hell does Obama mean by being on “the wrong side… Read more »
Bernanke’s genius…………………..could print as much money as he felt was necessary, buy as much government debt as he needed to and there would be no increase in interest rates. This is exactly what happened in the US and as US unemployment heads, albeit fitfully, to 6 per cent, it is hard to argue with diagnosis and medicine. THe Fed buying up government bonds is simply printing more money (as increased debt)to monetize the deficit and add it to the national debt. (1 trillion in 2000 to 18 trillion in 2014). By increasing the demand for government debt interest rates were… Read more »
Hi Tony Talking of manipulated data there was an economist earlier on the radio discrediting today’s press release “Central Bank shows 3.3% decrease in mortgage arrears” baloney re https://www.rte.ie/news/business/2014/0304/600041-central-bank-arrears/ What the CB failed to mention was that 3.3% decrease was due the banks offloading non-performing mortgages to third parties from their books, yes, the true headline should read “Central Bank shows 3.3% of mortgage arrears were removed the banks’ books”. To imagine that there are now 33,589 mortgages in arrears of 2-years-plus and how many properties were repossessed in the previous quarter? 168. A whopping One hundred and sixty eight.… Read more »
Above addressed to Adelaide, :)
Talking about corruption and manipulation. JP Morgan fine 20 billion but no one goes to jail, Just like the 20-30’s mob fines are just a cost of doing business
http://wordpress.us7.list-manage1.com/track/click?u=8829ce026276832f7fc66a1a9&id=cbceffa20c&e=8d9bb34a85
http://www.globalresearch.ca/jpmorgan-chase-engaged-in-mortgage-fraud-the-securitization-fraud-that-collapsed-the-housing-market/5371764
JP Morgan and the housing collapse
Who will suffer the most–bill Holter
http://blog.milesfranklin.com/who-will-suffer-the-most
Right……now. look here everything is fine. …we are gonna have almost 3% growth this year. Ireland has exited the bailout programme We have excellent banking , a well educated population willing to work zero hour contracts to help their employers A fine health service..Excellent support for the sick , elderely & infirm. A social insurance system which is their for people who lose their jobs & contributed to from their taxes. The E.U loves us..Germany learns from us..Amerixa can only look on at us as a fine example of Nation building in admiration. The sacrifice that Banks , their Leaders… Read more »
Here is what that “genius” Bernanke had to say in Abu Dhabi. Doesn’t sound too clever to me and definitely not worth his $250,000 fee. Wonder what David got to lick up to him?
http://www.zerohedge.com/news/2014-03-04/bernanke-finally-reveals-one-word-why-financial-system-crashed