“The Stock Market Economy” and 10 reasons to be pessimistic
That’s what Forbes’ columnist Robert Lenzner calls it, and he gives 10 reasons why its near to long term future looks bleak.
1. Economic growth in the US unlikely to pass 2% for the next 3 to 5 years — and maybe even up to 10 years. There can be no stimulus program in light of the expected Republican victory in November. “This is going to be a period of pain,” said Joseph Stiglitz, Columbia University professor. ….
2. QE2 or Quantitative Easing, the expectation of pouring another trillion dollars into the banking system is seen likely to only trigger inflation, but create no new jobs. ….
3. Expect a new bubble in sovereign debt. ….
4. Large corporations are only part of private sector benefiting from cutting overhead (reducing employee count) and bringing more revenues to bottom line.
5. The Fed will be sitting on its $2 trillion in cash for a long time without any practical use for it. There is very little demand for bank loans from the private sector. Adding reserves to the banks wont accomplish any more economic activity.
6. The economics profession let the world down because it had the tools that were politically acceptable.
7. No solution in sight for the housing market. ….
8. The shadow banking system [is] trying to escape from the regulators. ….
9. China and India are graduating 7 times more engineers a year than the U.S.
10. We are papering over the structural problems in finance with bubbles.
Read full article at http://www.huffingtonpost.com/robert-lenzner/the-ten-most-serious-prob_b_774482.html
(2) QE2 won’t change anything and it won’t trigger inflation. QE2 is essentially an asset swap. The FED buys financial assets (treasuries, …) in the secondary market and credits banks reserve accounts. For the private sector QE2 only changes the portfolio composition plus a maturity transformation.
(3) What exactly constitutes a bubble in sovereign debt? There’s no such thing for a truly sovereign government being the monopoly issuer of its free-floating non-convertible fiat currency. The “bubble” argument repeated ad nauseam by know-nothing journalists is only boring and misleading.
(6) Agreed. Unfortunately Mister Lenzner is rehearsing in (2) and (3) exactly the erroneous arguments deployed by economists who let the world down.
Odd isn’t it? I would have thought that his point #5 about the Fed simply sitting on $2 trillion would contradict his point #2.
There doesn’t seem to be any scope for inflation in an economy so swamped with slack capacity. So for QE2 to generate inflation it would have first have to kick the economy into gear. It would have to succeed. In which case all that cash would have been put to productive use and thus not be sitting in the Fed’s vaults. You can’t have it both ways.
@Peter
Yes. This article is very odd. #2 and #5 are a contradiction. But I don’t want to be too harsh with journalists given that some FED officials have also no clue how central banking works. I’m wondering whether these officials bother to read papers produced by their own research departments? In “Why Are Banks Holding So Many Excess Reserves?” from the New York FED a Todd Keister clearly states: “The quantity of reserves is determined almost entirely by the central bank’s actions, and in no way reflect the lending behavior of banks.” Maybe a Mister Hoenig should pause telling journalists some scary fairy tale and start reading?
Let’s have fun with this:
Policy makers reading the papers produced by their own staffs?
I think it comes down to this: when you believe in magical market forces and the mysterious efficiency of prices no amount of paper writing can shake your faith. Officialdom the world over is imbued with such faith. They only read papers that reinforce their faith and ignore, reject, or ridicule papers of a different faith.
I am just about half way through Tom Karier’s book about the winners of the “Nobel” prize in economics. It is eye opening to say the least to read how many of them wrote, not to seek truths about the economy, but to defend free markets from government intrusion. They were about as far from science as creationists are.
To ask them to read would be to subject them to the possibility of coming across something that “offended” their faith. That would be to disrespect that faith. It might even cause them to fall into confusion and self-doubt.
We can’t afford that. Can you imagine how confusing economics would be were it to have sought to explain real economies rather than imagined ones? It might even have become as complex as the economy itself. Then all that math might not work. And how would we know how clever they all are if they couldn’t do the math?
So, please, no more of this read the papers silliness. There’s no knowing what you might come across. Heavens you might even have to change your mind!
Stephan: I know you you mean well, but this notion of them reading is going too far!! And, in any case, scary fairy tales are a lot more fun that Dean Baker’s essays.
@Peter
Yeah let’s have some fun. You are certainly right that asking them to read more than one book per year is way too much. And since anybody has read the new must-read “This time is different” we must wait for further enlightment until next year.
But you Americans are not alone with some lunatic economists. Just last week I read in the major German tabloid BILD the headline citing our godfather of neoclassical economics Hans-Werner Sinn, that the next 10- 15 years will be Golden Years for Germany in economic terms. I almost spilled my morning coffee.